The Environmental Protection Agency (EPA) will soon issue a rule creating a 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; it may also serve as a basis for further EPA regulation of GHGs under the Clean Air Act. EPA will require most regulated entities to begin monitoring GHG emissions Jan. 1, 2010, and submit their first annual emissions reports March 31, 2011.

EPA’s program covers approximately 10,000 factories, power plants and other business units accounting for about 85 percent of national GHG emissions. The final rule, spanning 1,300 pages of regulations and accompanying documents, requires monitoring and reporting of all major GHGs, including carbon dioxide (CO2), methane (NH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6) and other fluorinated gases.

This advisory provides an overview of the entities required to report GHG emissions, thresholds for reporting GHGs, methods for calculating emissions, and steps to take if you think you may be required to report emissions. The final rule has not yet been published in the Federal Register, but is available on EPA’s Web site.

Consistent with EPA’s mandate under the fiscal year 2008 Consolidated Appropriations Act, EPA’s final rule requires reporting by all sectors of the economy, including “downstream,” “upstream,” and “mobile” 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. In addition, some categories of direct emitters would be automatically required to report.

EPA’s final regulation reaches “upstream” by requiring reporting from suppliers of GHG-producing fuels and chemicals, as well as some vehicle and engine manufacturers. Regulated vehicle and engine manufacturers are known as “mobile” sources. Mobile sources include a wide range of vehicle types but not most passenger cars and trucks.

A. 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 downstream, upstream and mobile sources.

Downstream emissions sources consist of facilities that directly emit GHGs into the atmosphere. The final rule contains a list of 15 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 and petroleum refineries. Other nonexempt downstream sources must report if their total direct emissions exceed 25,000 metric tons of CO2 equivalent per year.

EPA’s final 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.

Manufacturers and importers of engines and vehicles outside of the “light-duty” category (most passenger cars and trucks) are considered mobile sources under the final rule. These regulated vehicles include heavy trucks, motorcycles and off-road engines. The manufacturers and importers of these sources are generally required to report based on an emissions rate, not on any individual engine’s actual usage or emissions. Regulated vehicle and engine manufacturers and importers would begin reporting for the 2011 model year.

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

The final rule contains a number of notable exemptions from the reporting requirement, many of which were added in response to public comments on the proposed rule. For example, the regulations do not require reporting from suppliers of biomass-based fuels or other renewable fuels. This exemption includes ethanol manufacturing facilities emitting more than 25,000 metric tons of CO2 equivalent that would have been required to report under the proposed rule.

In addition, the final rule exempts all types of agriculturally related emissions, except manure management systems with more than 25,000 metric tons of CO2 equivalent emissions. Although the proposed rule would have required large food processors to report, that category is exempt under the final rule. Electronics manufacturers are another exempt source under the final rule. EPA originally proposed to require reporting from these facilities to better understand their use of fluorinated compounds. Finally, the final rule excludes emissions from portable electricity generators or generators used in emergencies.

B. Thresholds for reporting EPA’s final rule contains a higher threshold for reporting than some state and regional GHG reporting programs, although it generally 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.

California’s reporting requirements are currently in effect, although regulated entities are only required to report their 2008 emissions this year using their best available data. Oregon will require reporting of 2009 emissions in 2010 based on best available data. Similarly, Washington is expected to finalize a rule this fall that will require reporting of 2009 emissions in 2010. EPA’s final rule does not pre-empt these state reporting programs, so covered sources in those states must report to both EPA and their state agencies.

EPA’s rule also contains a “once in, always in” policy, meaning that a facility emitting more than 25,000 metric tons of CO2 equivalent in a given year generally must report every year thereafter, even if that facility emits less than 25,000 metric tons in subsequent years. A facility may cease reporting, however, if its emissions drop below 25,000 metric tons for five consecutive years or if a facility drops below 15,000 metric tons for three years.

C. Methods for calculating and verifying emissions

EPA’s final 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 its emissions from each of its sources if emissions from all of its sources combined exceed the reporting threshold.

The facility rule, however, does not apply to upstream and mobile sources of GHG emissions. Suppliers of GHG-producing fuels and chemicals, as well as regulated 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 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 established by EPA for individual source categories.

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

The final rule requires that all reporting entities certify that their reports are accurate and to keep records and emissions calculations for three years. EPA is responsible for verifying the accuracy of annual emissions reports through audits and investigations.

D. What you should do if you think you may be required to report

First, you should determine whether your total facility-level emissions meet the 25,000 metric ton threshold or if the nature of your business may qualify you as an upstream or mobile source. Next, you should assess whether you fall under any of the rule’s reporting exemptions. If you are required to report, then you should designate someone within your organization to manage your reporting and record keeping process.