Publications

---

The EPA has announced its long-awaited proposed rule creating a mandatory greenhouse gas (GHG) registry covering 85 to 90 percent of US GHG emissions.

The proposed rule, announced yesterday, would require major emitters from nearly every sector in the economy to report their GHG emissions to the EPA. Facilities that emit 25,000 metric tons or more per year of listed GHGs, manufacturers of vehicles and engines and suppliers of fossil fuels, among others, would be required to submit annual reports to EPA, beginning in 2011. Reports would be required for emissions of carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF₆) and other fluorinated gases including nitrogen trifluoride (NF₃) and hydrofluorinated ethers (HFE). Each facility’s reported emissions would be made public by EPA.

Yesterday’s rulemaking was issued pursuant to the 2008 Consolidated Appropriations Act, which required EPA to publish a rule “to require mandatory reporting of greenhouse gas emissions above appropriate thresholds in all sectors of the economy of the United States.

This proposal marks the first attempt by the federal government to collect GHG emissions data from major emitters across nearly all economic sectors. The establishment of a national GHG emissions registry is widely viewed as a necessary first step towards broad-based regulation of GHG emissions, through a cap-and-trade or other GHG emission-reduction regulatory scheme. The proposed rule is not expected to affect existing state and regional GHG emissions programs.

The Proposed Registry Will Cover 85 to 90 Percent of US Emissions

The proposed rule requires reporting from both upstream and downstream producers of GHG emissions, dividing covered entities into facilities emitting greater than 25,000 metric tons of CO₂ equivalent emissions and 19 specific source categories.

Entities or facilities from nearly every economic sector will be affected, including general stationary fuel combustion sources; electricity generators; food processors; HFC-23 destruction facilities; oil and natural gas systems; petroleum refineries; electrical equipment that emits SF₆; underground coal mines; landfills; wastewater treatment; and manure management. Suppliers of the following materials would also be subject to the rule: coal, coal-based products and liquid fuels; petroleum products, natural gas and natural gas liquids, industrial GHGs and CO₂ . The rule would also apply to producers and manufacturers of adipic acid, aluminum, ammonia, cement, electronics, ethanol, ferroalloys, fluorinated GHGs, glass, HCFC-22; iron and steel, lead, lime, magnesium, mobile sources, nitric acid, petrochemicals, phosphoric acid, pulp and paper, silicon carbide, soda ash, titanium dioxide and zinc. Entities must generally report at the facility level, except for certain suppliers of fossil fuels and industrial gases and manufacturers of vehicles and engines, which would report at the corporate level. EPA expects that the rule would likely cover 13,000 facilities in the United States.

Most small businesses would fall below the 25,000 metric ton threshold and would be exempt from any reporting requirements. The rule also excludes most emission sources within the agricultural sector, limiting reporting to manure management systems that meet or exceed the 25,000 metric ton threshold. EPA estimates that the rule would apply to no more than the 50 largest livestock operations in the US.

Reporting Requirements

Reporting methods for the proposed rule largely incorporate standards used among existing federal, state and non-governmental protocols. Covered entities would be required to report total annual GHG emissions for all source and supply categories, while also presenting annual mass GHG emissions for each source and supply category, by gas. Entities would also be required to comply with various monitoring, record-keeping and verification requirements. Starting in 2011, the rule would require these entities to submit their first annual report electronically to the EPA for emissions from the 2010 calendar year, except for vehicle and engine manufacturers, which would begin reporting for model year 2011.

An entity failing to comply with the proposed rule may be subject to an EPA enforcement action, including a fine of up to $32,500 per day.

State and Regional GHG Emissions Programs

Several states and regional climate initiatives either require mandatory reporting or are in the process of establishing reporting requirements. The proposed federal reporting requirements should not impact an entity’s reporting requirements under these state and regional programs.

For example, the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade agreement between several Northeastern states, currently incorporates existing CO₂ reporting requirements for electric utilities under federal law. The Western Climate Initiative (WCI) – a cap-and-trade agreement between several Western states and Canadian provinces – is developing reporting requirements and would be expected to coordinate its requirements with the new EPA rule.

Twelve states currently require mandatory greenhouse gases reporting, while five states are in the process of finalizing rules to take effect between 2010 and 2012. These 17 states include California, Colorado, Connecticut, Delaware, Hawaii, Iowa, Maine, Maryland, Massachusetts, New Jersey, New Mexico, North Carolina, Oregon, Virginia, Washington, West Virginia and Wisconsin. These state programs vary widely with regard to which facilities must report and which GHGs must be reported.

Mandatory GHG Reporting is a Likely Precursor to Climate Change Regulation

The establishment of a greenhouse gas registry is widely viewed as a necessary first step towards broad-scale regulation of GHG emissions. Most observers agree that Europe’s failure to set up a comprehensive emissions registry before initiating its cap-and-trade system led to excessive emissions allocations and ultimately the collapse in the price of carbon. The United States appears to have learned from Europe’s mistakes and will seek to have a working registry in place before a potential cap-and-trade program goes into effect.

In line with the Obama Administration’s commitment to addressing climate change, the registry will likely be used as the basis for establishing proportionate emissions credit allocations among regulated entities. These allocations could be part of either GHG regulations promulgated by EPA pursuant to a congressionally mandated cap-and-trade program or another GHG emission-reduction regulatory scheme.

Increased Public Disclosure of Emissions

As noted, EPA will publish reported emissions data collected on an annual basis through the EPA website, reports and other formats. Public disclosure of each facility’s annual GHG emissions could increase incentives on the facility to voluntarily reduce their emissions and at the same time increase exposure to potential private lawsuits. Publication of GHG emissions data could also influence investor behavior, channeling investment dollars to industries and facilities with lower GHG emissions.

Comment Period

The rulemaking was issued pursuant to the 2008 Consolidated Appropriations Act, which required EPA to publish a rule “to require mandatory reporting of greenhouse gas emissions above appropriate thresholds in all sectors of the economy of the United States.” EPA was to publish the proposed rule by September 26, 2008, but failed to do so. The Appropriations Bill requires EPA to issue a final rule by June 26, 2009. Interested parties may submit comments on the proposed rule until 60 days after its publication in the federal register.

EPA plans to conduct two public hearings: April 6 and 7, 2009, at the EPA Potomac Yard Conference Center, Arlington, Virginia; and April 16, 2009, at the Sacramento Convention Center, Sacramento, California. Those wishing to attend or submit comments are encouraged to register on-line prior to the hearing.

DLA Piper will continue to monitor the latest developments with respect to the mandatory greenhouse gas reporting rule and potential climate change regulation. Please contact us if you have any comments or concerns.