In accordance with the FY2008 Consolidated Appropriations Act, the U.S. Environmental Protection Agency (EPA) has issued its proposed rule to require annual mandatory reporting of greenhouse gases from over 13,000 businesses. Businesses covered by the rule must start tracking emissions by 2010 and report in 2011 on an annual basis. While specific sources are named, EPA has decided to use an emission threshold of 25,000 metric tons of CO2 equivalents (mtCO2e) to determine coverage for many businesses under the rule.
The details of the EPA reporting rule may provide a glimpse into the structure of President Obama's Cap and Trade program. For example, the 25,000 mtCO2e and specifically named source categories may be used to determine which businesses are covered by the cap. It is also important to note, the coverage of the reporting rule contrasts with much lower threshold triggers used by other regulatory programs under the Clean Air Act.
Which gases are covered by the rule?
U.S. EPA will require reporting of anthropogenic GHG emissions covered under the United Nations Framework Convention on Climate Change (UNFCCC); carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), and sulfur hexafluoride (SF6), as well as other fluorinated gases (e.g., nitrogen trifluoride and hydrofluorinated ethers). These gases are often expressed in metric tons of carbon dioxide equivalent (mtCO2e).
All the other GHGs have higher potential to cause global warming. Therefore, as with other the European Union Trading System, a conversion ratio is applied to create carbon dioxide equivalents. For example, 1 ton of methane is equal to 20 tons of CO2. These conversion ratios are important to understand because they determine which businesses are covered by the reporting rule.
For example, a large agricultural operation will have significant emissions of methane. The facility will need to convert its methane emissions to CO2 equivalents to determine if it is a facility covered. [Note: most agricultural operations are exempted from coverage under the rule]
How did EPA pick the 25,000 mtCO2e threshold?
EPA considered thresholds of 1,000, 10,000, 25,000, and 100,000 mtCO2e/year when developing the proposal. For each threshold, EPA assessed the number of facilities that would be covered as well as the total amount of emissions that would be covered. These analyses suggested that at a threshold of 25,000 metric tons of mtCO2e/year, 13,000 facilities and 85-90% of total GHG emissions would be covered. At a threshold of 10,000 mtCO2e/year approximately 20,000 facilities and 86-91% of GHG emissions would be covered. EPA felt reducing the threshold increased costs for smaller businesses and would not result in a significantly larger inventory of emissions.
Are other facilities with lower than 25,000 mtCO2e required to report?
Yes. EPA also named specific source categories that are covered by mandatory reporting regardless of whether they cross the 25,000 mtCO2e threshold. These sources include, among others, the following: electric generating plants subject to the Acid Rain program, aluminum, ammonia, cement, electronics, lime, petrochemical, petroleum refining, certain underground coal mines, manufacturers of engines, and municipal landfills.
EPA also included "downstream" sources. Those facilities that produce fuel that when burned result in GHGs emissions. This producers include: coal, coal-based liquid fuels; petroleum products, natural gas and natural gas liquids; producers of industrial greenhouse gases as listed in the rule; and importers/exporters of 25,000 mtCO2e.
How will this affect small and medium sized businesses?
Using this threshold, EPA estimates this will capture 90% of GHG emissions and require 13,000 businesses to report. In rolling out its proposed rule, EPA tries to deflect criticism leveled by the U.S. Chamber and others that EPA GHG regulations will have a negative impact on small and medium sized businesses. EPA provides the following fact relative to the 25,000 threshold:
25,000 mtCO2e are equivalent to emissions from annual energy use of about 2,200 homes. It is also equivalent to just over 58,000 barrels of oil consumed or 131 railcars’ worth of coal.
This statistic does give you some perspective on the magnitude of the sources covered by the reporting rule. However, just because these larger sources are covered by the reporting rule does not necessarily mean that regulation of GHGs under the Clean Air Act would not capture much smaller sources. For example, the New Source Review permitting threshold for a major source is 100/250 tons of a pollutant.
What is the method for monitoring emissions?
EPA selected a combination of direct measurement and facility specific calculations as the general monitoring approach. Direct measurement will require Continuous Emission Monitors (CEMs) on some sources. Other sources will have to use emission calculations designed for that type of facility. EPA asserts that the emission calculations are similar to those used in other programs such as the Climate Registry or California's AB-32.
Consistency is an important issues. EPA estimates the cost to report will be around $13,000 per facility. This is an average which means it will be much higher for some facilities. Many companies have voluntarily begun measuring emissions under the Climate Registry or another approach. Other companies are covered by mandatory state programs like RGGI.
The ability to agree on a common method for measuring emissions is critical. It will reduce compliance costs and prevent criticism that there are inconsistencies in the various programs. For these reasons, the comments on this portion of the rule are critical.
Has there been an early criticism of the rule?
Yes. The largest amount of criticism has been focused on the reporting requirement being applied to both upstream and downstream sources of GHGs emission. As an example, the coal mine and the power plant who later burns the coal are both required to report under the rule. Some have criticized this approach as "double counting" or a waste of resources. Others have pointed out that EPA needs to gather a range of data to keep policy options open for controlling GHGs.
For more information on the rule, see EPA's web page dedicated to the GHG reporting rule. Also, EPA has prepared a four page fact sheet that does a good job summarizing the major components of the rule.