General GHG emissions regulation

Regulation of emissions

Do any obligations for GHG emission limitation, reduction or removal apply to your country and private parties in your country? If so, describe the main obligations.

Various national, regional and state programmes exist in the US to regulate GHG emissions. The main programmes are regulations issued under the US Clean Air Act (CAA), federal motor vehicle fuel economy standards, California’s cap-and-trade programme and the Regional Greenhouse Gas Initiative.

GHG emission permits or approvals

Are there any requirements for obtaining GHG emission permits or approvals? If so, describe the main requirements.

Certain stationary sources are required to obtain CAA Title V operating permits and prevention of significant deterioration (PSD) permits for GHG emissions. Under the CAA’s ‘cooperative federalism’ approach, most states manage GHG permitting in conjunction with any applicable state laws or programmes. Typically, any applicable New Source Performance Standards GHG emissions limits will be incorporated into a facility’s Title V operating permit. When obtaining permits under the PSD programme, sources must evaluate available emissions reductions options to determine the ‘best available control technology’ for that facility, which are made on a case-by-case basis considering energy, environmental and economic impacts, and other costs. Over time, technological advancements increase the degree of attainable emissions reductions.

Oversight of GHG emissions

How are GHG emissions monitored, reported and verified?

EPA’s mandatory GHG Reporting Rule requires reporting of GHG data and other relevant information for facilities in 41 source categories. EPA compiles reported GHG emissions to create its annual GHG inventory for the US. Compliance for covered sources is mandatory and administrative, civil or criminal penalties may apply for violations. Several states also have implemented GHG reporting rules, and the reporting thresholds differ by state. Entities must comply with both federal and state GHG reporting requirements, if applicable.

In 2010, the Securities and Exchange Commission (SEC) issued interpretive guidance regarding required disclosures by companies of their climate change related risks. Although the ‘materiality’ standard still provides the threshold for required disclosures in the US, the SEC issued a general request for comments regarding whether changes are needed to its disclosure rules. The SEC is reviewing comments and although major changes to the reporting requirements are not likely in the near term, many believe those changes will eventually come. In the absence of federal action on climate change risk reporting, states, environmental groups, investors and shareholders are increasingly driving changes to climate risk reporting by companies. Companies are increasingly facing dozens or even hundreds of requests for data and information on how they assess and disclose climate-related risks. Although voluntary, some predict that such standards are likely to become mandatory, albeit this is not likely to occur in the US in the current administration.

GHG emission allowances (or similar emission instruments)

Regime

Is there a GHG emission allowance regime (or similar regime) in your country? How does it operate?

There is no GHG allowance regime at the federal level. The Regional GHG Initiative (RGGI) and California operate cap-and-trade programmes with associated emissions allowance regimes.

RGGI, the first market-based GHG reduction scheme in the US, currently encompasses the eastern states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Virginia. RGGI lowered its GHG emissions cap beginning in 2014 to 91 million short tons, with annual follow-on decreases of 2.5 per cent from 2015 to 2020. In August 2017, RGGI members approved measures to extend RGGI to 2030, with a further 30 per cent reduction in GHG emissions during that time. Membership in RGGI is voluntary and subject to change; New Jersey withdrew from RGGI in 2011 but rejoined in 2019. Virginia joined RGGI in 2020, and Pennsylvania is considering joining the programme.

RGGI is limited to the power sector and uses an allowance system for compliance; electric power generators subject to RGGI are required to hold CO2 allowances equal to the amount of CO2 they emit in a given compliance year. Each RGGI state issues allowances in an amount defined by each state’s applicable law or regulation implementing RGGI. Collectively, these allowances comprise the annual RGGI cap, which are distributed through quarterly auctions. RGGI also utilises a cost containment reserve system to allocate and auction additional allowances when needed to limit price volatility that, combined with periodic over-supply, has kept prices low but also has frustrated efforts to create a market for carbon offsets in RGGI states. A new an Emissions Containment Reserve, which allows states to withhold allowances from auction if reduction costs are lower than projected, will allow more dynamic response to market conditions and may have the effect of stabilising or raising slightly the cost of RGGI allowances.

California’s Global Warming Solutions Act (AB 32), signed into law on 27 September 2006, established a mandate to reduce GHG emissions to 1990 levels by 2020 and granted broad authority to the California Air Resources Board (CARB) to develop and implement a broad strategy to achieve that goal. In September 2016, a new bill (SB 32) extended and expanded the state’s commitment to reducing GHG emissions, establishing a new reduction target of 40 per cent below 1990 levels by 2030. CARB’s strategy to achieve these emission reduction goals is set forth in its Scoping Plan and includes programmes in nearly every sector of the economy. CARB’s 2017 updated Scoping Plan seeks a 2030 target of 260MMtCO2e, and envisions an 80 per cent reduction in GHG emission by 2050. The central feature is a multi-sector cap-and-trade GHG emissions programme, first implemented in 2013. The programme governs 80 per cent of GHG emissions in the state, and is one of the largest carbon markets in the world. In July 2017, CARB established a ‘price ceiling’ and limits the use of out-of-state offsets. Starting in 2021, only 4 per cent of a covered entity’s compliance obligations can be met with offset credits, and that same year, CARB will start implementing a price ceiling of US$65 per allowance. On top of these mandates, the Clean Energy and Pollution Reduction Act of 2015 establishes state-wide goals in California for 2030 of 50 per cent electricity generation from renewable resources and doubling energy efficiency in electricity and natural gas usage.

CARB sets an annual cap on GHGs and issues a limited number of emission allowances, each of which authorises its holder to emit one MtCO2e. The number of available allowances is limited by the cap, and declines by approximately 3 per cent each year. Entities that emit 25,000MtCO2e annually are obliged to surrender a certain number of compliance instruments to CARB, consistent with each entity’s reported emissions. Compliance instruments consist primarily of allowances, which can be purchased from CARB at quarterly auctions. In addition, up to 8 per cent of a covered entity’s obligation can be met with CARB-certified offsets, but starting in 2021 this number will drop down to 4 per cent, then increase to 6 per cent in 2026. Both allowances and offsets also may be bought and sold on the secondary market, subject to certain restrictions. Covered entities are required to disclose substantial information to CARB, including information about corporate ownership and affiliates, directors and officers, high-level employees, and legal and market-strategy advisers.

In 2019, the US Department of Justice (DOJ) filed a lawsuit in federal court in California challenging the constitutionality of linking California’s cap-and-trade programme to a similar programme operated by Quebec. The DOJ alleged that California’s actions to link its cap-and-trade programme to Quebec’s programme violated the US Constitution’s Treaty Clause, Interstate Compact Clause, Foreign Affairs Doctrine and Foreign Commerce Clause. In two separate opinions, dated 12 March 2020 and 17 July 2020, the court ruled in favour of California on all claims, affirming the constitutionality of California’s linkage with Quebec and ending the case at the trial court level. It is yet to be seen whether DOJ will appeal.

Registration

Are there any GHG emission allowance registries in your country? How are they administered?

There is no GHG allowance regime at the federal level. The registry for RGGI allowances is called the ‘CO2 Allowance Tracking System’. Each RGGI allowance has a unique serial number, which then tracks initial ownership, transfer, and retirement of allowances. California and other linked jurisdictions utilise the Compliance Instrument Tracking System Service as an allowance registry, which tracks the issuance, initial ownership, transfer, and retirement of allowances and offsets.

Obtaining, possessing and using GHG emission allowances

What are the requirements for obtaining GHG emission allowances? How are allowances held, cancelled, surrendered and transferred? Can rights in favour of third parties (eg, a pledge) be created on allowances?

There is no GHG allowance regime at the federal level.

Trading of GHG emission allowances (or similar emission instruments)

Emission allowances trading

What GHG emission trading systems or schemes are applied in your country?

There is no national GHG allowance regime or national-level emission trading system. Any qualified party can participate in RGGI allowance auctions; auction rules limit the number of allowances that associated entities may purchase in a single auction to 25 per cent of the total allowances offered for auction. RGGI allowances also are traded on a secondary market, along with associated futures and options contracts. California conducts quarterly auctions of GHG emission allowances. Both entities that are covered by California’s cap-and-trade programme, and others opting into the programme, can participate in the auctions.

Trading agreements

Are any standard agreements on GHG emissions trading used in your country? If so, describe their main features and provisions.

In October 2013, the International Emissions Trading Association released a trade agreement template for California allowances and offsets. Its provisions address offset invalidation, holding limits and buyer liability provisions.

Law stated date

Correct on

Give the date on which the above content is accurate.

20 August 2020.