The U.S. Environmental Protection Agency (EPA) unveiled a proposed rule yesterday that would create the nation’s first comprehensive system for reporting carbon dioxide and other greenhouse gases (GHG) by major emitters from all sectors of the economy (“Proposed Rule”). The Proposed Rule is far reaching and would account for roughly 85 to 90 percent of U.S. emissions. While the Proposed Rule generally targets facility owners, it also would apply to certain suppliers of fossil fuels and industrial gases. Importantly, the Proposed Rule imposes annual monitoring and reporting requirements for covered entities, but does not establish a single emissions threshold; rather, reporting obligations are specified for several groupings of source categories. If implemented, the data reported could help guide the thresholds that would apply to a future federal cap-and trade program, a policy strongly supported by the Obama Administration. In its first year, the EPA believes that the reporting requirements would cost the private sector about $160 million.  

The fiscal year 2008 Consolidated Appropriations Act authorized funding for the EPA to develop and publish a final rule “to require mandatory reporting of GHG emissions above appropriate thresholds in all sectors of the economy of the United States.” The reporting rule was developed during the Bush Administration, but it was never released because the Office of Management and Budget (presumably at the direction of the White House) disagreed with the EPA’s decision to develop the rule pursuant its authority under the Clean Air Act (CAA). By contrast, the Obama Administration believes that the CAA does vest such authority in the EPA, thus eliminating a significant barrier to the implementation of a GHG reporting system.  

Comments on any aspect of the Proposed Rule can be submitted to the Agency within the next 60 days.  

Covered Emissions

The Proposed Rule would establish reporting requirements for emissions of the following GHGs: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFCs), perfluorochemicals (PFCs) and other fluorinated gases. Reporting obligations are sector-specific. For example, electricity generating facilities covered by the Proposed Rule would report annual mass emissions of carbon dioxide, nitrous oxide and methane, while petroleum product suppliers (a source category that includes petroleum refiners and importers) would only report on carbon dioxide emissions. Emissions must be converted to carbon dioxide equivalents (CO2e), measured in metric tons, in determining whether reporting thresholds are met.  

Regulated Parties and Emissions Thresholds

The Proposed Rule applies to a wide range of emission sources across all sectors of the economy. Generally, the proposed threshold triggering a reporting obligation is 25,000 metric tons of CO2e per year. Thus, a facility that emits 25,000 mt CO2e per year from stationary combustion equipment (e.g., boilers, process heaters, combustion turbines, stationary engines or other fuel combustion equipment) would be obligated to report. However, the Proposed Rule would also categorically include and/or otherwise impose additional obligations on certain source categories—including, but not limited to, the following:

  • Petroleum refineries and producers of aluminum, cement, and petrochemicals: must report regardless of whether they exceed the 25,000 mt CO2e threshold.  
  • Electricity generating facilities: must report if they are subject to the EPA’s Acid Rain Program or if they otherwise emit 25,000 mt CO2e beginning in 2010.  
  • Landfills: must report if they generate (not necessarily emit) methane in amounts equal to 25,000 mt CO2e beginning in 2010.  
  • Oil and natural gas systems (including LNG import and export operations and storage), ethanol producers, and pulp and paper manufacturers: must report if a facility’s combined emissions from stationary fuel combustion, miscellaneous carbonate use, and other emissions associated with this source category (as specified in the Proposed Rule) exceed 25,000 mt CO2e beginning in 2010.  
  • Fossil fuel suppliers (including coal and coal-based liquids, petroleum products, natural gas, and natural gas liquids refiners, importers and exporters): must report the volume of fuel that each facility introduces into commerce each year and determine the emissions associated with the complete oxidation of the fuel. Fossil fuel suppliers must report regardless whether the oxidation of the fuel would result in emissions exceeding 25,000 mt CO2e.  

Report Content and Frequency

Regulated parties would submit GHG reports annually, starting in 2011 (covering emissions in 2010). These parties would have to disclose total facility emissions in metric tons of CO2e aggregated for all source categories and total emissions in metric tons of CO2e aggregated for all supply categories. In addition to reporting CO2 equivalent emissions, regulated parties would also report emissions from each source category and supply category expressed in metric tons of each GHG. The report would also include onsite electricity generation in kilowatt-hours.  

Penalties  

Any facility that fails to report under the Proposed Rule could potentially be subject to an enforcement action by the EPA under the CAA. The CAA outlines several remedies that include administrative, civil, and criminal penalties. The CAA also allows for civil and administrative penalties up to $37,500 per day. Violations could result from:  

  • Failure to report GHG emissions  
  • Failure to collect data needed to estimate GHG emissions  
  • Failure to monitor and test as required  
  • Failure to estimate GHG emissions according to the specified methodology  
  • Falsification of reports