EPA Proposes First Mandatory National Greenhouse Gas Emissions Reporting Program

The Environmental Protection Agency (EPA or the “Agency”) has proposed the first mandatory national system for reporting greenhouse gas (“GHG”) emissions. This is a necessary step toward establishing a federal cap and trade program, whereby credits for emitting GHGs will be traded on an open market.

The size of EPA's proposed program—covering potentially 13,000 factories, power plants and other business units—will be broader than the European Union's program, which covers about 12,000 business units. The proposed rule, spanning more than 1,400 pages of regulations and accompanying documents, requires monitoring and reporting of all major GHGs, including carbon dioxide (CO₂), methane (NH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF₆), and other fluorinated gases.

EPA proposes to require qualifying facilities to begin monitoring GHG emissions Jan. 1, 2010, and submit their first annual emissions reports March 31, 2011. Comments on EPA's proposed rule must be submitted within 60 days of publication of the proposed rule in the Federal Register. EPA expects to publish the proposed rule the second week of April.

Consistent with EPA's mandate under the fiscal year 2008 Consolidated Appropriations Act, EPA's proposed rule requires reporting by all sectors of the economy, including both “downstream” and “upstream” sources of GHG emissions.

As more fully described below, downstream facilities directly emitting more than 25,000 metric tons of CO₂ (or CO₂ equivalent) will be required to record and report their emissions, although some categories of facilities would be automatically required to report.

EPA's proposed regulation also reaches back upstream by requiring reporting from suppliers of GHG-producing fuels and chemicals, as well as from vehicle and engine manufacturers. These sources would report based on emission rates, not actual use or emissions. EPA estimates that its proposed reporting rules will enable the agency to account for 85 to 90 percent of total national GHG emissions.

Entities required to report GHG emissions

As noted above, EPA was directed to create a program that requires reporting of GHG emissions from a broad range of sectors, including both downstream and upstream sources.

Downstream emissions sources consist of facilities that directly emit GHGs into the atmosphere. The proposed rule contains a list of 19 categories of facilities that are automatically required to report based on EPA's determination that these types of sources nearly always emit more than 25,000 metric tons of CO₂ equivalent annually. Examples of these categories include large power plants burning fossil fuels, cement producers, electronics manufacturers, and petroleum refineries. Other downstream sources must report if their total direct emissions exceed 25,000 metric tons of CO₂ equivalent per year.

EPA's proposed rule defines upstream emissions as the “emissions potential” of a quantity of industrial gas or fossil fuel supplied into the economy. The rule thus requires reporting from suppliers of fossil fuels and industrial GHGs. Vehicle and engine manufacturers are also considered upstream sources under the proposed rule. These sources are generally required to report based on an emissions rate, not on any individual engine's actual usage or emissions.

EPA acknowledges that these regulations will lead to double counting of some emissions, but argues that the reporting requirements are designed to provide valuable information to EPA and stakeholders in developing future climate change policy.

Upstream source reporting enables the agency to account for emissions produced at the consumer level, by the use of fuels and chemicals, without requiring reporting from individual households. The downstream source regulations are generally targeted at large electricity producers and industrial facilities that already report a variety of emissions information via federal, state, and voluntary air quality programs. In some cases, the downstream source rules are designed to generate information on the use of less understood GHGs, particularly in emerging industries. The use of fluorinated compounds by the electronics industry is one example.

The proposed rule contains three notable exceptions to the reporting requirement. First, the regulations do not require reporting from suppliers of biomass-based fuels or other renewable fuels. Facilities manufacturing or burning renewable fuels such as ethanol, however, would be required to report if their emissions exceed 25,000 metric tons of CO₂ equivalent. Second, the proposed rule exempts most types of agriculturally related emissions, including fertilizer applications and other soil management techniques. Food processors and manure management systems with over 25,000 metric tons of CO₂ equivalent emissions, however, are not exempt from reporting. Finally, the rule excludes emissions from portable electricity generators or generators used in emergencies.

Thresholds for reporting

EPA's proposed rule contains a higher threshold for reporting than most state and regional GHG reporting programs, although it requires reporting by a wider variety of entities. Currently, 17 states have developed or are developing mandatory GHG reporting programs. Reporting requirements have taken effect in 12 states as of 2009; the rest will take effect between 2010 and 2012. One leading regional program is the Western Climate Initiative (WCI), which includes seven Western states (California, Oregon, and Washington among them) and four Canadian provinces. WCI's proposed annual reporting threshold is 10,000 metric tons of CO₂ equivalent, although WCI would also require reporting by upstream fossil-fuel suppliers. Like EPA's proposed rule, WCI would require emissions monitoring beginning in 2010 with the first annual reports due in 2011.

The Agency's proposal also contains a “once in, always in” policy, meaning that a facility emitting over 25,000 metric tons of CO₂ equivalent in a given year, must report every year thereafter, even if that facility emits less than 25,000 metric tons in subsequent years. EPA argues that the “once in, always in” rule is necessary for the Agency to measure trends in emissions over time. The one exception to this rule applies to abandoned coal mines.

Methods for calculating emissions

EPA's proposed rule generally requires reporting of emissions at the facility level. A “facility” includes any single emissions source or group of sources in close physical proximity under common ownership or control. A facility must calculate and report emissions from each of its sources if emissions from all of its sources combined exceed the reporting threshold. Thus, for example, a large food processor would be required to report based on total on-site emissions exceeding 25,000 metric tons of CO₂ equivalent from a combination of fuel combustion (from multiple processes or burners) and methane releases from wastewater treatment and landfills.

The facility rule, however, does not apply to upstream sources of GHG emissions. Suppliers of GHG-producing fuels and chemicals, as well as vehicle and engine manufacturers would be required to report at the corporate level rather than the facility level.

The method of calculating GHG emissions varies by the type of emissions source. The proposed rule mandates that facilities currently required to directly measure their air emissions under other federal programs must also directly measure their GHG emissions. Other facilities must calculate their GHG emissions based on formulas proposed by EPA for individual source categories. All emissions formulas are based on actual emissions, not potential emissions, except in the case of landfills.

EPA offers a simplified approach for small facilities with stationary fuel-combustion units to determine whether they meet the reporting threshold. Any facility with aggregate maximum rated heat-input capacity of stationary combustion units of less than 30 MMBtu/hr and no other on-site emissions sources may presume that its emissions are below the reporting threshold.

The proposed rule requires that all reporting entities certify their reports are accurate. Reporting entities are required to keep records and emissions calculations for five years, and EPA is responsible for reviewing annual emissions reports to verify their accuracy.

Alternate timelines for recordkeeping and reporting

The proposed rule would establish Jan. 1, 2010, as the date to begin recordkeeping, and March 31, 2011, as the due date for the first annual reports (covering 2010). The Agency acknowledges, however, that it may not be able to finalize and implement the proposed rule in time to begin monitoring on Jan. 1 of next year. The proposed rule therefore includes two alternative timelines. The first alternative would allow facilities to report in 2011 based upon the best available data from 2010. Full data collection according to EPA's methodologies would begin in 2011. The second alternative would require data collection to begin in 2011, and the first reports would be due in 2012.