EPA Tells Companies: Report Your Gas

The Environmental Protection Agency has published final rules that for the first time ever will require companies to monitor and report their greenhouse gas emissions, under a new reporting system set to take effect early next year.

Jackson

“We will now know with greater accuracy how much carbon is polluting our atmosphere and where energy efficiency investments and new technologies may be particularly effective at reducing greenhouse gases,” EPA Administrator Lisa Jackson said in an address at the California Governor’s Global Climate Summit on Sept. 30. The new reporting system also will include a standardized database of greenhouse gas emissions, allowing easier comparison of different facilities.

The final rule—all 595 pages of it—generally follows the same structure as the proposed rule, with a few significant changes. Businesses and utilities that emit more than 25,000 metric tons of greenhouse gas emissions a year (a threshold that excludes most small companies) must begin monitoring and recording emissions at the start of 2010, and begin filing annual reports in the first quarter of 2011.

But in response to roughly 16,800 comment letters it received, the EPA agreed to omit several industries from compliance with the rule because of a lack of data or consensus on how those sectors can monitor their GHG emissions. Those sectors include oil and natural gas, electronics manufacturing, ethanol production, underground coalmines, food processing, industrial landfills, and waste water treatment facilities. The EPA said it will regulate those businesses in the future, but didn’t offer a timeline on when it plans to do that.

That doesn’t mean the rule has no bite. It still applies to municipal landfills, electric power utilities, petroleum refineries, large swaths of the manufacturing sector, and fuel suppliers. Makers of heavy-duty trucks, motorcycles, and non-road engines vehicles will have to start reporting carbon emissions associated with their products as of 2011, and report other greenhouse gases in subsequent years.

In addition, the rule covers every facility in the country that has “stationary combustion facilities” (boilers, mainly). For example, hospitals and large commercial and residential buildings may be required to apply for special permits if they replace or modify their existing boilers.

Sharkey

This means many sources that have previously never had a relationship with the EPA before now will have to, says Patricia Sharkey of the law firm McGuire Woods. “Minimally, any facility owner that operates a boiler is going to need to determine whether it falls within this general category,” she says.

Some Flexibility

The EPA also made numerous concessions from its proposed rule. It has agreed to remove its rigid “once in, always in” approach, which said that once a facility was subject to greenhouse gas reporting, it must continue to submit annual reports even if it falls below the reporting thresholds in future years.

“I think the EPA is moving ahead in part to lay the groundwork, but also to really compel Congress to move ahead.”

—William Sarni,

CEO,

Domani

Instead, the EPA will establish three specific thresholds by which facilities could escape reporting requirements. These include reporting emissions less than 25,000 tons per year for five straight years, or less than 15,000 tons per year for three straight years, or by shutting down all greenhouse gas emitting sources at a facility.

Sharkey says this first reporting period is “very important,” because facilities are going to be locked in for at least several years. That means companies should assure that they include all their sources of greenhouse gasses, but not any that don’t need to be monitored. “A lot of care is going to be needed in how companies set up these auditing programs,” she says.

The EPA also responded to concerns that companies would have insufficient time to install the required monitoring systems by the January 2010 starting date. Under the final rule, facilities can use “best available” monitoring methods through March 31, 2010. After that, facilities must comply with monitoring methods specified in the regulations.

The EPA is expected to release some guidance soon on what these “best available methodologies” should be, but nobody has seen them yet, Sharkey says.

In addition, the EPA relaxed the records-retention period from five to three years and said it would exclude research and development activities from reporting.

The agency also deferred the issue of confidential business information. Several companies expressed concerns that disclosing details such as consumption of raw materials, which could arguably qualify as a trade secret. In its final rule, the EPA acknowledged such concerns but said it would address the issue in future rules.

The final rule will become effective 60 days after it has been published in the Federal Register.

More to Come

While the GHG reporting rule will be the first federal rule imposed on industry to tackle climate change, the EPA appears to be just warming up. In her Sept. 30 speech, Jackson also touted a newly proposed rule that would require industrial facilities that release more than 25,000 tons of greenhouse gases a year to obtain construction and operating permits covering those emissions. Those permits would need to demonstrate the use of best available control technologies and energy efficiency measures to minimize such emissions when the facilities are built or overhauled.

SUMMARY OF EPA RULE

The following excerpt explains “General Requirements of the Final EPA Rule.”

The rule requires reporting of annual emissions of CO2, CH4, N2O, SF6, HFCs, PFCs, and other fluorinated gases (as defined in 40 CFR part 98, subpart A) in metric tons. The final 40 CFR part 98 applies to certain downstream facilities that emit GHGs, and to certain upstream suppliers of fossil fuels and industrial GHGs. For suppliers, the GHG emissions reported are the emissions that would result from combustion or use of the products supplied. The rule also includes provisions to ensure the accuracy of emissions data through monitoring, recordkeeping, and verification requirements. Reporting is at the facility level, except that certain suppliers of fossil fuels and industrial gases would report at the corporate level.

In addition, GHG reporting by manufacturers of heavy-duty and off-road vehicles and engines is required, by incorporating new requirements into the existing reporting requirements for motor vehicles and engine manufacturers in 40 CFR parts 86, 87, 89, 90, 94, 1033, 1039, 1042, 1045, 1048, 1051, 1054, and 1065. A summary of the reporting requirements for manufacturers of motor vehicles and engines is contained in Section IV of this preamble. A discussion of public comments and responses that pertain to motor vehicles is also contained in Section IV of this preamble and in the “Mandatory Greenhouse Gas Reporting Rule: EPA’s Response to Public Comments, Motor Vehicle and Engine Manufacturers.”

The remainder of this section summarizes the general provisions of 40 CFR part 98, identifies changes since the proposed rule, and summarizes key public comments and responses on the general requirements of the rule.

Source

Final Environmental Protection Agency Rule (Sept. 22, 2009).

The rule will apply only to the largest emitters—cement production facilities, power plants, and refineries, for example—that are responsible for nearly 70 percent of U.S. greenhouse gas emissions. The EPA estimates that about 11,000 of the affected sites already participate in the Clean Air Act’s air operating permit program, but about 3,000 facilities will be new to the program.

Experts tell Compliance Week that companies shouldn’t dwell on the details of the rules themselves, so much as the larger picture of reform they imply is coming.

Sarni

“The EPA regulations are important, but I think they’re part of a much bigger landscape and driver around climate change,” says William Sarni, CEO of sustainability consulting company Domani. “I think the EPA is moving ahead in part to lay the groundwork, but also to really compel Congress to move ahead.”

How prepared companies are for these new rules remains to be seen. A recent study by McGuire Woods examined the 2009 Securities and Exchange Commission filings of 400 companies, and found that 17.3 percent made some type of disclosure about greenhouse gas emissions, up from 12.2 percent last year. Website disclosures also increased from 14.8 percent to 22.4 percent.

Sellers

However, the gap between the 17.3 percent reported in 10-K filings and the 22.4 percent in Website disclosures suggests that the people who prepare company Websites might not be talking to those who making the SEC filings, says Jane Sellers, a McGuire Woods lawyer and author of the report.

So far, the SEC has largely been silent on what climate-change information companies ought to disclose—but agency officials are starting to think about it more seriously. In an Oct. 2 speech at Northwestern University, SEC Commissioner Elisse Walter stated: “We are taking a very serious look at our disclosure system in this area. Although I’ve stated publicly that we are not an agency populated with climate experts, we are taking affirmative steps to better educate ourselves. And, I believe that it is time for us to consider issuing interpretive guidance regarding disclosure in this area.”

Walter

Walter continue that even without formal SEC guidance, “If I were drafting disclosure for a registrant today, I would carefully consider whether that company’s particular facts and circumstances raise any disclosure obligations under the current rules, and in particular, under the [Management Discussion and Analysis] requirements.”

Sharkey interprets those words to mean, “There’s going to need to be a lot of attention to coordinating … the representations that are being made, so as not to get oneself entirely cross-eyed with your stockholders and investors.”