EPA Finalizes GHG Reporting Rule

On January 1, 2010, the U.S. Environmental Protection Agency (EPA) will require the collection and reporting of greenhouse gases (GHG) from specified facilities for the first time under its recently finalized GHG reporting rule (the "Final Rule").

The Final Rule is broad-based and is expected to cover about 85% of all of the GHG emissions in the United States, requiring the monitoring, recording and submission of data from thousands of previously unregulated sources. The Final Rule represents a major step to comprehensively measure GHG emissions on a facility-by-facility basis in the United States. The Final Rule will become effective sixty days from the day it is published in the Federal Register.

Based on the imminent initial compliance date, now is the time to determine whether your facility is covered, understand your facility's obligations, and update existing compliance programs to meet the new requirements.

I. Key Aspects of the Final Rule

Reporting Entities

• Owners and operators of specified facilities (primarily large facilities with GHG emissions equal to or greater than 25,000 metric tons of carbon dioxide equivalent (CO2e) per year), as well as upstream suppliers of fossil fuels and industrial gases and Vehicle and Engine Manufacturers (outside of the light duty sector) are required to report under the Final Rule. Among others, major industries covered by the Final Rule include:
  • Electricity Generation (units that report CO2 emissions year-round through 40 CFR Part 75)
  • Aluminum Production
  • Petrochemical Production
  • Petroleum Refineries
  • Iron and Steel Production
  • Pulp and Paper Manufacturing
• The following source and supply categories, originally proposed to be included in the GHG reporting rule, are not subject to the Final Rule:
  • Electronics Manufacturing
  • Oil and Natural Gas Systems
  • Ethanol Production
  • SF6 from Electrical Equipment
  • Fluorinated GHG Production
  • Underground Coal Mines
  • Food Processing
  • Wastewater Treatment
  • Industrial Landfills
  • Suppliers of Coal
  • Magnesium Production

Scope of Reporting

• For most entities regulated by the Final Rule, reporting occurs on the facility level. However, for some source categories, like general stationary fuel combustion sources, emissions are required to be reported at the unit level as well as the facility level.
• Facilities that already are required to report data using Continuous Emissions Monitors (CEMs) under existing federally enforceable programs (e.g., Acid Rain Reporting program) are also required to use CEMs for measuring CO2 for purposes of compliance with the Final Rule. Facilities that do not currently have CEMs installed can choose to install CEMs or use facility-specific GHG calculation methods.

Vehicle and Engine Manufacturers

• Vehicle and Engine Manufacturers are required to report on the corporate level, starting with the model year (MY) 2011. Vehicle and Engine Manufacturers must report the emission rates from the vehicles and engines they produce.
• In the Final Rule, EPA revised its earlier proposal that required engine manufacturers to measure and report N2O for all of their engines; instead, the Final Rule only requires N2O reporting for engines that use NOx exhaust after-treatment technology.
• N2O reporting will not be required until MY 2013. Reporting of CH4 emissions will not be required until MY 2012.
• EPA expects that N2O and CH4 testing will require most manufacturers to install new CH4 exhaust analytical equipment or arrange for testing at another facility.
• The new technology requirements account for EPA's decision to extend the initial compliance date for reporting on these gases. However, the Final Rule also includes an opportunity for a manufacturer to provide EPA with appropriate alternative information in lieu of N2O and/or CH4 testing.

Timing, Verification and Enforcement

• In the draft GHG reporting rule, once a facility was required to report under the GHG reporting rule, it would have always remained subject to the rule, even if its emissions fell beneath the threshold in subsequent years. Under the Final Rule, the EPA has eliminated that "once in, always in" requirement. Now facilities and suppliers may cease reporting if:
  • after five consecutive years, emissions are below 25,000 mtCO2e/year;
  • after three consecutive years, emissions are below 15,000 mtCO2e/year; or
  • the GHG-emitting processes or operations are shut down.
• Facilities subject to the Final Rule, other than Vehicle and Engine Manufacturers, must begin collecting and recording data on January 1, 2010. For these facilities, the first emissions report is due March 31, 2011 for 2010 calendar year emissions and then annually thereafter. As a temporary measure, the Final Rule allows the use of best available data, instead of the required monitoring methods, for the limited time period of January-March 2010. Third-party verification of each emissions report prepared by a facility is not required. Instead, the EPA itself will verify submitted reports. Prior to EPA's independent verification, reports must be self-certified.
• Facilities that violate the Final Rule could be subject to civil, criminal or administrative penalties under the Clean Air Act. The Act provides for injunctive relief to compel compliance and civil and administrative penalties of up to $37,500 per day per violation.

Impact on State-Based GHG Reporting Rules

• The Final Rule does not preempt reporting rules promulgated by various States (e.g., California's GHG reporting rule). Entities that are covered by both State and Federal reporting rules will be required to submit separate reports that comply with the specifics of each system, which may require the collection of different or additional data.

II. What This Means For You

Based on our recent experience with advising clients about applicability, monitoring, recordkeeping, and reporting requirements under California's GHG reporting rule, we encourage companies that may be covered by the Final Rule to allot sufficient time to –

• Determine applicability.
• Identify relevant facility personnel or third parties who will be needed to promptly develop and implement a compliance plan that will allow for applicable monitoring and recordkeeping obligations to be timely met.
• Ensure that the facility's ability to consistently and accurately compile, analyze, and review data can be accomplished beginning in January 2010.
• Consider, install and test any instruments (e.g., flow meters) required to be operated by, or shortly after, January 1, 2010.
• Develop data integrity/quality assurance measures to ensure that the facility provides accurate information to the EPA because the EPA is expected to depend on the data submitted under the Final Rule for future policy and regulatory development related to climate change.

III. We Can Help

Setting up the necessary processes and plans to collect relevant GHG emission information, which will ultimately be used to determine applicability, monitor data and report emissions, can be overwhelming without proper guidance and knowledgeable assistance. We can help with our unmatched experience in the GHG area. Our North American Climate Change Group has recently been recognized by Chambers USA as Tier 1 for Climate Change Law. Additionally, we have already advised clients about their relatively similar GHG reporting obligations under California's GHG reporting rule as well as the potential impacts of that rule on their businesses. Finally, we actively track other U.S. developments in climate change laws and regulations and remain prepared to share with you how they all interrelate with your unique business.