The April 10, 2013 deadline for reporting emissions under California's regulations for the Mandatory Reporting of greenhouse gases (the "MRR") is rapidly approaching. This is the second year that transportation fuel suppliers operating in California have been subject to the regulations. The similarities between the MRR reporting requirements and suppliers' obligations under the state's Low Carbon Fuel Standard ("LCFS") have led to some confusion within the industry about which entities must report, what data must be reported, and how the programs differ. Importantly, a company's compliance with the LCFS does not satisfy its compliance obligations under the MRR, and vice versa, even though both programs involve greenhouse gas ("GHG") emissions. All position holders, enterers, and refiners of transportation fuels in California should review their operations within the state and determine whether they are required to report under the MRR.
1. GHG Reporting Under the MRR
The California Global Warming Solutions Act of 2006, better known as AB 32,1 authorized the California Air Resources Board ("CARB") to adopt regulations for the reporting and verification of GHG emissions from fuel supplies statewide. The first MRR regulations were approved by CARB in 2007,2 and the program has been in flux ever since. Originally, the MRR classified reporting entities into seven industry sectors but did not require fuel suppliers to report their GHG emissions. That has since changed. Currently, the classification system includes three broad categories of reporting entities: facilities, suppliers (including suppliers of transportation fuels), and electric power entities.3
Since January 1, 2012, fuel suppliers whose total GHG emissions4 exceed 10,000 metric tons CO2 equivalent ("CO2e") have been required to report GHG emissions to CARB under the MRR program. Three types of entities in particular must report transportation fuel volumes: (1) position holders that deliver across fuel terminal racks; (2) enterers (i.e., entities that import fuel into California outside of the bulk transfer/terminal system); and (3) refiners. A fuel "jobber," or independent marketer, must report as a position holder only when it holds an inventory position at a terminal.
The most recent changes to the MRR went into effect on January 1, 2013, and some of those changes will impact the reporting of 2012 data in 2013. Specific to fuel suppliers, CARB clarified language in § 95121 and incorporated a table directly from the U.S. Environmental Protection Agency regulations to improve readability. Additional details about the changes that will go into effect in 2013 and 2014 can be found in a guidance document published by CARB in February 2013.
2. What Fuels and Emissions Must Be Reported?
On March 8, 2013, CARB published a guidance document summarizing the reporting requirements for fuel suppliers. In it, CARB stated that only the following fuels that are (1) delivered across a terminal rack in California or (2) imported into California outside the bulk terminal/transfer system are required to be reported under § 95121 of the MRR:
- RBOB (CARBOB): Regular, Midgrade, and Premium for both Summer and Winter
- CBOB: Regular, Midgrade, and Premium for both Summer and Winter
- Distillate Fuel Oils: Distillate #1 and #2
- Liquefied Petroleum Gas (LPG): Ethane, Ethylene, Propane, Propylene, Butane, Butylene, Isobutane, Isobutylene, Pentanes Plus
- Biomass Derived Fuel: Ethanol (100%), Biodiesel (100%, methyl ester), Rendered Animal Fat
Along with fuel volumes, obligated parties must report the "covered emissions" that result from the complete combustion of the volume of each fuel delivered. The covered emissions for a transportation fuel supplier (in units of CO2e) will equal the CO2 equivalent sum of CO2, CH4, and N2O emissions from all fossil transportation fuels delivered by the supplier, plus the sum of CH4 and N2O emissions from the total of all biomass-derived transportation fuels delivered. Total CO2 equivalent emissions are then calculated by summing the GHG emissions for each transportation fuel reported, using the fuel-specific emission factors set forth in the MRR and U.S. Environmental Protection Agency regulations.
3. Obligation to Obtain Verification Services Under the MRR
In addition to reporting obligations, the MRR requires position holders, enterers, and refiners whose total emissions exceeded 25,000 metric tons of CO2e in 2012 to obtain third-party verification for their reports and to ensure that the third party submits a verification statement to CARB by September 1, 2013.5
AB 32 represents a comprehensive state program to reduce GHG emissions in California to 1990 levels by 2020. In March 2012, Governor Jerry Brown signed Executive Order B-16-2012 to reduce GHG emissions to 80% below 1990 levels by 2050. Between AB 32 and the Executive Order, California has undertaken the most aggressive approach to GHG reductions in the U.S. Businesses operating in California, particularly those involved in the fuel and energy sectors, are well-advised to closely monitor their compliance obligations, which will continue to expand.