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California to Require Mandatory Reporting of Greenhouse Gas Emissions

October 24, 2007

Taking one of its first steps to implement a landmark greenhouse gas (“GHG”) emission reduction law, the California Air Resources Board (“CARB”) issued a draft regulation on October 19, 2007 requiring mandatory reporting of GHG emissions beginning in 2009. The proposed regulation requires more than 800 industrial and commercial sources in California to annually measure and report their GHG emissions to CARB. The regulation also requires third party verification of emission reports submitted by regulated sources. Adoption of a mandatory reporting rule is required by AB 32, also known as the Global Warming Solutions Act of 2006.[1] Several other states are already considering similar measures. The state of New Mexico has already proposed rulemaking to require mandatory GHG reporting from major GHG emitters and is scheduled to adopt rules early next year.[2] Other western states, including Washington and Oregon, have committed to adopting similar reporting rules as part of their involvement in the Western Climate Initiative, a regional collaboration among six western states and two Canadian Provinces to implement a joint strategy to reduce GHG emissions.[3]

Purpose of GHG Emissions Reporting

Reporting of GHG emissions is viewed by many as a necessary first-step to support comprehensive emission reduction programs such as those mandated by California’s AB 32. In order to craft policies to achieve the emission reductions required by the law, policymakers need up-to-date and accurate information relative to the source, size and growth of GHG emissions. This is particularly true for market-oriented approaches to reduce GHGs such as a cap-and-trade program, where reliable and transparent emissions data would be the foundation for developing the allocation systems, reduction targets, and enforcement provisions.

An example of the need for accurate emissions data can be found in the experience of the European Union (“EU”). The EU launched its carbon emissions trading system in 2005. Shortly after launching the system, the price of carbon allowances plummeted to near zero as a result of a surplus of permits issued in the market. Many commentators have speculated that the problems encountered by the EU were caused by poor and incomplete emissions data that resulted in an over-allocation of allowances. Here in the United States, some have argued that in order to avoid the problems encountered in the EU emissions trading system, the US should begin requiring companies to report their emission rates so that an accurate portrait of historical emissions can be obtained prior to implementing a credit based trading system. This is the approach California has taken in its proposed regulations.

Basics of California’s Proposed GHG Reporting Regulation

The proposed CARB regulation specifies GHG measurement, reporting, and verification requirements for specific industrial sectors. A copy of the proposed regulation and a staff report outlining reasons for the rulemaking can be viewed at http://www.arb.ca.gov/regact/2007/ghg2007/isor.pdf.

Facilities That Must Report

The proposed regulation would require the following types of facilities to annually report their GHG emissions:

  • cement plants;
  • oil refineries;
  • electricity generating facilities that emit more than 2,500 metric tonnes of carbon dioxide (“CO2”);
  • electricity retail providers and power marketers;
  • hydrogen plants that emit more that 25,000 metric tonnes of CO2;
  • cogeneration facilities that emit more than 2,500 metric tonnes of CO2; and
  • other industrial sources that emit over 25,000 metric tonnes per year of CO2 from stationary combustion sources, including facilities such as food processing, glass container manufacturer, oil and gas production, and mineral processing.[4]

Under the proposed rule, the reporting entity is the “operator” of the facility, which is defined as “the company or organization having operational control of a facility or entity. …” Operational control means the authority to introduce and implement operating, environmental, and health and safety policies.[5] The emissions thresholds for reporting are based on single facility emissions only. Therefore, the reporting requirement only applies if an individual facility exceeds the threshold. Companies with multiple facilities, which are each separately below the threshold, would not be required to report. Overall, CARB estimates that reporting facilities would account for approximately 94% of the total carbon dioxide (CO2) emissions produced in California from industrial and commercial point sources.[6]

Gases and Processes That Must Be Reported

Most facilities required to report under the rule will only have to account for their carbon dioxide (C02), nitrous oxide (N2O), and methane (CH4) emissions.[7] Reporting requirements for the power generation sector are broader and require two additional GHGs to be reported, sulfur hexafluoride (SF6) and hydroflourocarbons (HFCs).[8]

All facilities required to report under the regulation must include emissions from direct, on-site combustion of fossil-fuels. In addition to emissions from fossil-fuel combustion, some industrial sectors, such as cement and refineries, are required by the rules to report process emissions that result from non-combustion activities.[9] Process emissions are emissions that occur not as a result of combustion of fossil fuels but rather result from the intentional or unintentional reaction betweens substances, such as chemical or electrolytic reduction of metal ores, the thermal decomposition of substances, and the formation of substances for use as a product or feedstock.[10] Finally, some facilities with significant fugitive emissions will be required to quantify and report these emissions. Fugitive emissions are unintended emissions of GHGs from the transmission, processing, or transportation of fossil fuels or other materials (e.g., SF6 from electric transmission equipment or methane from mined coal).[11]

In addition to the reporting of direct emissions, the proposed regulations also impose an obligation on facilities to report fuel usage by type, and indirect energy usage. Indirect energy usage refers to electricity or other energy sources provided by a retail provider.[12] CARB’s rationale for requiring information on indirect energy usage is that the information provides a more complete picture of the emissions footprint of the facility. Facilities are not, however, required to calculate their actual emissions resulting from indirect energy use.

Finally, the regulations place some additional requirements on the electric power sector that do not apply to other industries. Utilities and power marketers must provide information detailing electricity transactions, such as purchases, sales, imports, exports, and exchanges.[13] The premise behind requiring this information is to “provide an accurate picture of the emissions associated with the electricity produced to serve each retail provider’s customers.”[14]

Methodologies for Calculating Emissions

For each industrial sector required to report, the proposed regulations provide detailed specifications outlining the facility processes and gases that must be reported. Methodologies for calculating emissions vary depending on the complexity of the source and the industrial sector. For simple sources of GHG emissions, the regulations contain a look-up table of emissions factors. Emissions can be calculated by multiplying the quantity of fuel combusted by the appropriate emission factor. More complex sources or variable emissions sources require the use of other parameters to measure GHG emissions, such as heat fuel value, carbon content, or direct measurement of emissions through the use of an emissions monitoring system.

Verification of Emissions Reports

Emission reports filed with CARB must be independently verified by third parties in a manner consistent with international standards.[15] The proposed regulations require either annual or triennial verification of emission reports depending on the complexity and type of emission sources involved. Facilities that are required to report annually may elect to undertake a full verification every third year (e.g., site visit, sampling plan, review of data management system, and data checks), and a less intensive verification in interim years (e.g., data checks based on the previously developed sampling plan). Facilities required to report every third year must undergo a full verification.

In order to verify an emissions report, the verification team must issue a verification opinion.[16] The opinion must state with reasonable assurance that the reported emissions are within 95% of the true CO2e (CO2 equivalent) emissions for the sources subject to reporting and that all regulatory methodologies and requirements have been adhered to in the estimation and reporting process.

Third-party verifiers must satisfy educational and experience requirements and demonstrate that they do not have a conflict of interest with any facilities for whom they work. Verifiers must also attend a CARB-approved verifier training course and pass an exam prior to commencing their verification work.[17]

Technical Implementation and Schedule

For purposes of implementing the reporting regulation, CARB intends to develop a web-based reporting tool. According to the CARB staff report issued with the proposed rule, the web-based system will closely resemble and will work in conjunction with the reporting system being developed by the Climate Registry. The Climate Registry is a collaboration between more than 30 states and several Canadian provinces to develop and manage a common greenhouse gas registry. The Climate Registry aims to standardize best practices in GHG emissions data reporting and to establish a set of common reporting protocols that corporations, governments and nonprofit groups can use nationwide to track emissions and coordinate policy.[18]

The proposed regulation sets two reporting deadlines for facilities. Power generation facilities and industrial sources emitting over 25,000 metric tons of CO2 per year would report each year by April 1. All other facilities would report by June 1.[19] Facilities would have six months after the filing of their emissions report to complete the verification process and file a verification opinion with CARB. Under the proposed regulation, initial emission reports would be filed in 2009 and would cover 2008 emissions.

Schedule for Implementing Other Measures Required By AB 32

Adoption of a mandatory reporting rule is just one of many benchmarks that CARB must meet to implement AB 32. In July 2007, CARB met the first of its deadlines imposed by the law when it developed a list of discrete early action measures to reduce GHG emissions. These discrete early action measures must be promulgated as regulations by CARB and made enforceable by January 1, 2010. Implementation of the early actions will occur two years before the agency is required to adopt its comprehensive approach for meeting the 2020 emission reduction target. CARB is now fully engaged in the adoption of the mandatory reporting rule. This task must be completed by January 1, 2008. After the reporting rules are in place, CARB must adopt an overall scoping plan to identify the framework for reducing GHG emissions to 1990 levels by 2020. The scoping plan is required to be adopted by January 1, 2009. Using the scoping plan, CARB has until January 1, 2011 to adopt regulations to implement that plan. Implementation of comprehensive measures to reduce GHG emissions must begin no later than January 1, 2012 and the emissions reduction target is to be achieved by January 1, 2020. The table below summarizes the deadlines imposed on CARB by AB 32.

AB 32 Timeline 

Conclusion

The reporting regulations proposed by CARB are one of the first steps in implementing California’s aggressive GHG emission reduction law. The proposed rule will impose new requirements and costs on over 800 facilities across the state, and will mark the first time that many state businesses are impacted by climate change laws. Other states and businesses across the country are watching California’s reporting rules closely, and may follow suit.

For more information about Marten Law Group’s climate change practice, contact Brad Marten.

[1] A copy of AB 32 can be found at http://www.arb.ca.gov/cc/docs/ab32text.pdf.

[2] Information on New Mexico’s GHG reporting rulemaking can be found at http://www.nmenv.state.nm.us/aqb/GHG/ghgrr_index.html.

[3] See press release, Five Western Governors Announce Regional Greenhouse Gas Reduction Agreement, copy available at http://www.governor.wa.gov/news/2007-02-26_WesternClimateAgreementRelease.pdf.

[4] See Proposed Rule, Article 1, Section 95101.

[5] See Proposed Rule, Subarticle 1, Section 95102.

[6] See Staff Report: Initial Statement of Reasons for Rulemaking, Public Hearing to Consider Mandatory Reporting of Greenhouse Gas Emissions Pursuant to the California Global Warming Solutions Act of 2006 (Assembly Bill 32), at iii. Available at http://www.arb.ca.gov/regact/2007/ghg2007/isor.pdf.

[7] See generally, Proposed Rule, Subarticle 2, Requirements for the Mandatory Reporting of Greenhouse Gas Emissions from Specific Types of Facilities.

[8] See Proposed Rule, Subarticle 2, Section 95111.

[9] See Proposed Rule, Subarticle 2, Section 95110.

[10] See Proposed Rule, Subarticle 1, Section 95102(a)(144).

[11] See Proposed Rule, Subarticle 1, Section 95102(a)(82).

[12] See Proposed Rule, Subarticle 1, Section 95192(a)(96).

[13] See Proposed Rule, Subarticle 2, Section 95111.

[14] See Staff Report at 34.

[15] See Proposed Rule, Subarticle 4, Section 95130.

[16] See Proposed Rule, Subarticle 4, Section 95131.

[17] See Proposed Rule, Subarticle 4, Section 95132.

[18] More information on the Climate Registry can be found at http://www.theclimateregistry.org/.

[19] See Proposed Rule, Subarticle 1, Section 95103.

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