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Hundreds Send Comments to EPA On Proposed Greenhouse Gas Reporting Rule, Set To Begin In 2010

June 23, 2009

Hundreds of comments have been submitted to EPA[1] on its proposed mandatory greenhouse gas (“GHG”) reporting rule.[2] The comment period closed on June 9, 2009, and EPA has declined to extend it, citing a need to begin collecting data in order to implement future GHG policy – including cap and trade legislation, if enacted.[3] If adopted as EPA has proposed, the rule will impose yearly reporting requirements on GHG emissions from over 13,000 facilities, covering 85 to 90 percent of U.S. GHG emissions.[4] Covered sources would be required to begin tracking their GHG emissions on January 1, 2010, and submit their first annual report by March 31, 2011.[5]

The proposed reporting threshold generally would be annual GHG emissions of 25,000 tons, the same as is used by California, although all facilities in 19 source categories would have to report regardless of their emission levels.[6] Some state programs have lower reporting thresholds, such as Washington state’s threshold of 10,000 tons for stationary sources and 2500 tons for vehicle fleets. Others set a higher reporting threshold, like Wisconsin’s 100,000 ton threshold (adopted in 1992).[7]

Public comments fall into a few main categories. Many commented that the effective date of the proposed rule was too soon for covered sources to be prepared to comply. Other commenters voiced concerns over coordination of the national rule with existing state and regional GHG reporting requirements, such as those in California. Some commenters questioned the emission thresholds for those required to report, the types of emissions that must be reported, data verification requirements, ways to avoid double counting, and protection for confidential business information. Several comments questioned coordination of the rule with existing federal Clean Air Act regulatory programs.

Background on Mandatory Federal GHG Reporting

In December, 2007, EPA was directed by a provision tucked into a massive omnibus appropriations bill to develop and adopt rules that would “require mandatory reporting of GHG emissions above appropriate thresholds in all sectors of the economy of the United States.”[8] See EPA to Establish Nationwide, Mandatory Greenhouse Gas Reporting Scheme by 2009, Marten Law Group Environmental News (January 16, 2008). The provision directed EPA to complete the final emission reporting rule by June, 2009. EPA has acknowledged that it will not meet that deadline, while pointing to this statutory direction as another reason for not extending the comment period on its proposed rule.[9] EPA released the proposed rule on March 10, 2009. The proposal then appeared in the Federal Register on April 10, starting the 60-day public comment period that closed on June 9, 2009.[10]

The proposed rule calls for annual reporting by: (1) facilities with “CO2 equivalent”[11] emissions greater than 25,000 metric tons a year; (2) any hydrocarbon fuel supplier (they must report the potential emissions from the fuels they produce, import, or export); (3) vehicle and engine manufacturers ( they must report emission rates from their products); and (4) any facility that falls within specific industrial sectors, regardless of their emission rates, including aluminum and cement producers and petroleum refineries.[12] The proposed rule also specifies what monitoring is required for each covered sector, required data quality assurance methods, and what methods and formulas each sector must use to supply any missing data. The proposed rule contains requirements specific to 39 industrial sectors, as well as general requirements for facilities that fall outside those sectors but still generate enough GHG emissions from fuel combustion each year to exceed the 25,000 metric ton reporting threshold.

Purpose of the Federal Program

The Consolidated Appropriations Act directed EPA to use its existing authority under the Clean Air Act in setting up the GHG reporting rule. Following that direction, EPA has based the GHG reporting rule on its authority under sections 114 and 208 of the Act to collect information from stationary and mobile sources, respectively.[13] These statutory provisions authorize EPA to require reporting of emissions data and other information to assist in developing emission standards, determine compliance, or “carry out any provision” of the Act. EPA claims that the GHG reporting rule is within the scope of its authority under those provisions, as data collected through the rule could inform a variety of future agency actions and assist it in implementing various provisions of the Act.[14]

A number of industry commenters point out that the rule is broader in scope than typical information requests under sections 114 or 208, as those statutes normally are invoked when EPA is seeking specific data to support a particular rule, or is investigating the compliance status of a particular facility or industry sector. They suggest that the data needed to inform policy decisions could be collected within two or three years, and that the rule should then sunset. They also object to what they perceive as a pre-determined view of the likely outcome of policy decisions on GHG controls, rather than a reporting scheme designed to inform future policy decisions.

Other commenters, dismissing EPA’s stated intent for the rule, instead see it as a foundation for a GHG cap-and-trade program, and go on to offer suggestions to improve the rule’s utility in a market-based regulatory system. This broader view of the rule’s purpose is reflected in comments on topics such as public access to reported data, coordination with other reporting programs, and data validation methods. The rule does appear designed to serve this broader purpose, although EPA has attempted to fit it within the still relatively narrow confines of its authority under the existing Clean Air Act.[15]

Timing

It is not difficult to understand why EPA wants covered sources to report next year’s emissions by March of 2011. Congress is considering legislation that would obligate EPA to put in place all of the regulatory tools needed to implement an economy-wide GHG cap-and-trade program before 2012. See Federal Climate Change Bill Works Its Way Through the 111th Congress: Update As of Day 134, Marten Law Group Environmental News (May 20, 2009). If the legislation passes, perhaps in 2010, then EPA faces an enormous slate of rulemaking decisions – a set of tasks that the agency’s track record over the last 20 years suggests is insurmountable (the proposal for this reporting rule alone took more than a year to develop). EPA is pressing the schedule for this reporting rule because it at least wants a solid set of wide-ranging emissions data to guide those decisions.

Comments from those who will have to collect and report this data point out that if the agency acts too quickly, it could compromise accuracy and increase costs. In particular, there is concern that the data quality requirements of EPA’s proposed rule will be difficult to satisfy.[16] These commenters urge EPA to allow covered sources to rely more on estimation and less on instrumentation, at least in the first one or two years of the reporting program. They also point out the logistical challenge and expense that many facilities will face if required to obtain and install new instrumentation this coming winter, in a matter of weeks after the reporting rule is finalized. Finally, they note that reporting companies face the risk of enforcement actions if the haste forced by the pace of the rule causes inaccuracies or errors in reporting.[17]

But comments from those who want access to the data emphasize the importance of having several years’ worth of facility-level emissions data to support any future allocation of emission credits in a cap-and-trade system.[18] Given the Obama Administration’s support for aggressive national GHG emission reduction goals, it appears likely that the reporting rule will begin with the 2010 calendar year, despite concerns expressed by those who will have to report under the rule. It remains to be seen whether EPA agrees that additional latitude should be provided during the first year of the program, and modifies the rule accordingly.

Relationship to Existing State and Regional GHG Reporting Requirements

At least 17 states have developed or are developing mandatory GHG reporting programs.[19] Currently, 12 of those programs are in effect, and the other 5 are slated to begin between 2010 and 2012. The State programs vary in the criteria for covered facilities, what emissions must be reported (only CO2, or some or all of the 6 primary greenhouse gases), and monitoring and data verification requirements.

In addition, 41 states, the District of Columbia, a number of Canadian provinces and Mexican states, and several Indian tribes are members of a non-profit entity – the Climate Registry – that operates a voluntary GHG emission reporting program, and has developed extensive protocols for emission monitoring, verification, and reporting.[20] The Climate Registry’s protocols vary from EPA’s proposal in a number of respects, including data verification requirements and the inclusion of indirect emissions associated with electricity consumed by the reporting entity in the Climate Registry’s program. Approximately 330 companies and governmental entities have voluntarily reported their GHG emissions through the Climate Registry.

EPA’s proposed reporting rule is silent on its relationship to existing and future state and regional GHG reporting programs. Predictably, some commenters have called on EPA to expressly preempt the state programs to avoid duplication, while others have asked EPA to make it clear that the federal reporting rule does not preempt state requirements.

In addition to concerns about duplication of effort that may result from reporting different data to multiple programs, some commenters also have pointed out potential conflicts between the proposed federal rule and existing state programs. For example, California and several other states, as well as the Climate Registry and the European Union, require third party verification of emissions data. EPA’s proposed rule would require self-certification with EPA verification. EPA’s proposed approach is consistent, however, with the self-certification requirements in Clean Air Act’s existing regulatory programs, such as the Title V air operating permit program.[21]

Reporting Thresholds

EPA’s proposed rule asked for comments on whether the reporting threshold should be lower (1,000 or 10,000 tons) or higher (100,000 tons).[22] Few suggested the threshold should be lower – a 10,000 ton threshold would increase the number of reporting facilities by nearly 50 percent, while capturing information on only about 1-2 percent more of the nation’s GHG emissions. Several commenters suggested, however, that EPA consider a higher, 100,000 ton threshold, which they point out would reduce the number of covered sources to about 6500, while still encompassing more than 80 percent of U.S. GHG emissions.[23]

Data Verification

EPA has proposed that covered sources self-certify the accuracy of their data, subject to verification by EPA.[24] It considered two other options: self-certification alone, and third-party verification of self-certified data. EPA believes agency verification of the reported data will produce more accurate data than use of third party verification, due to a consistent approach across all data, and will have a lower cost than third-party verification (which EPA recognized could cost each facility thousands of dollars each reporting cycle).[25]

A number of nonprofits and governmental entities filed comments urging EPA to adopt third-party verification, which would be consistent with existing voluntary programs like the Climate Registry, as well as some State mandatory reporting programs, like California’s.[26] Interestingly, some companies that already are subject to state mandatory reporting rules that require third-party verification also urged EPA to change its approach as well, so that they would not face inconsistent data requirements across multiple, independent reporting obligations.[27] Some features of the third-party verification system are attractive to reporting sources, particularly compared to an EPA-verification approach: data errors can be corrected in a third-party verification system without penalty; also, much more detailed information must be submitted to EPA to support agency verification, which raises confidentiality concerns. This leads to the next topic: confidential business information.

Protecting Confidential Business Information

A number of industry commenters expressed concerns that some of the facility-level data EPA would require, as well as some of the fuel and feedstock data, is commercially sensitive, and that public disclosure of that information would put companies at a competitive disadvantage or have other economic consequences.[28] EPA’s proposed rule states that the agency will protect any properly designated confidential information under its confidential business information (“CBI”) rules.[29] But EPA also stated that in general, emissions data collected under sections 114 and 208 of the Clean Air Act – the authority it is relying upon in issuing this rule – is not considered CBI.[30]

From the other end of the spectrum, EPA also received comments urging it to sharply limit the use of CBI restrictions for GHG data.[31] Some comments advocate for requiring companies claiming CBI protection to substantiate those claims at the time they are made, rather than when or if a request is made for disclosure of the protected information.[32]

Based on EPA’s comments in the preamble, it appears likely the agency will rely upon its existing CBI rules, which means limited protection for the information submitted by reporting companies. However, EPA’s preamble comments were directed to emissions data. As the American Petroleum Institute points out, emissions data is different from information concerning the marketing and distribution of fuels and other products.[33] It remains to be seen whether EPA will respond with express protection for individual company or facility-level data concerning fuel supply and feedstock data.

Indirect Emissions, Di Minimis Sources, and Double Counting

EPA has proposed to exclude from reporting so-called indirect emissions, such as emissions produced while generating the electricity purchased by a facility.[34] The Climate Registry and some other reporting programs require facilities to report indirect as well as direct emissions, the theory being that inclusion of indirect emissions provides a more complete picture of the carbon footprint of a facility. Comments on whether EPA should include indirect emissions in its reporting program are mixed. None of the commenters that will actually have to report under the rule appear to support inclusion of indirect emissions. Those who addressed this issue point out the difficulty facilities would face in obtaining accurate and reliable information on emissions by other facilities, which presents compliance concerns and potential enforcement exposure for the reporting entities. Since EPA has approached reporting obligations under the GHG rule in much the same way as its other reporting regulations – with enforcement consequences for errors in reporting – it seems unlikely that EPA will hold GHG reporting entities accountable for data they would have to obtain from third parties, like indirect emissions data. Accordingly, EPA probably will not add an indirect emissions reporting component to the GHG reporting rule.

One of the concerns with any broadly based emission reporting program is that the smallest covered sources account for very little of a facility’s total emissions, but determining those emissions can consume a substantial part of the total effort needed to quantify plant-wide emissions. EPA dismissed this concern in connection with the GHG reporting rule, in the proposed rule’s preamble; the agency stated that covered facilities only need report emissions from processes and equipment for which EPA has proposed calculation methods, and those methods include simplified estimation methods for smaller sources.[35] But many commenters took issue with EPA’s claim that there would be little need to track emissions from small sources at covered facilities.[36] They asked EPA to expressly exclude small emission sources from a facility’s reporting obligations.

There also were a number of comments from the petroleum and fuels sector on EPA’s decision to require reporting of production, imports, and exports of fuels and hydrocarbon feedstocks.[37] The comments on this issue generally made two points: (1) reporting the GHG content of fuels being introduced into the market amounts to double counting, since emissions from burning those fuels also will be reported by other facilities, and (2) most of the information EPA has proposed to require regarding petroleum products already is reported to the federal government, for example to the Energy Information Agency, for economic statistical purposes.[38] Whether or not EPA chooses to retain these requirements, their burden could be reduced by coordinating them with existing federal data collection programs.

Implications For Other Clean Air Act Programs

Over the last several years, interest groups have attempted through litigation to force limits on CO2 emissions into air permits for power plants and other industrial facilities. One of their arguments has been that the Clean Air Act’s permitting requirements for large stationary sources (the prevention of significant deterioration, or “PSD” program) requires limits on all air pollutants that are “subject to regulation” under the Clean Air Act. See EPA Appeals Board Decision Stirs the Pot on Whether to Address Carbon Emissions by Regulation or Legislation, Marten Law Group Environmental News (Dec. 3, 2008). So far, no court has ruled in their favor, although the Supreme Court’s decision in Massachusetts v. EPA[39] that CO2 is a pollutant has added some fire to their arguments.

With this history in mind, a number of commenters have asked EPA to expressly state, when it finalizes the rule, that this reporting rule would not make GHGs “subject to regulation” under the Clean Air Act.[40] Their concern is that the mere existence of the reporting rule will be cited in future litigation as evidence that the PSD program should apply to GHG emissions. This would become particularly important should pending cap-and-trade legislation fail, and EPA and interest groups turn their attention to adapting the existing Clean Air Act to the task.

Conclusion

If Congress enacts a cap-and-trade program for GHG emissions and requires that the program begin in 2012, then EPA will be facing a massive rulemaking effort in 2011. Given this potential predicament, it is not surprising that EPA has stated its intent to stick to the schedule set out in its proposed reporting rule. If the schedule slips, then EPA would face the daunting task of establishing a nationwide cap-and-trade program with no nationwide GHG emissions data.

The quandaries posed by this rule also illustrate a broader question: even if a GHG control program is enacted by Congress in the next 12-18 months, whether it will be physically possible for EPA to set up that program in time to have it take effect in 2012. As with many things in the climate change debate, the answer to that question remains to be seen.

For more information, contact any member of Marten Law Group’s Climate Change practice group.

[1] Comments may ultimately total in the thousands. EPA’s docket for the proposed rule, including public comments, is available at http://www.regulations.gov/fdmspublic/component/main?main=DocketDetail&d=EPA-HQ-OAR-2008-0508. As of the date of this article, EPA was continuing to post additional public comments, dated prior to the comment deadline, to the online docket.

[2] Mandatory Reporting of Greenhouse Gases, Proposed Rule, 74 Fed. Reg. 16448 (April 10, 2009).

[3] See, e.g., EPA’s April 24, 2009 response to the American Petroleum Institute’s request for a 30-day extension, EPA-HQ-OAR-2008-0508-0224.

[4] 74 Fed. Reg. at 16467.

[5] Proposed 40 CFR § 98.3.

[6] See 74 Fed. Reg. at 16469.

[7] A summary of State mandatory rules appears in EPA’s docket at EPA–HQ–OAR–2008–0508–056.

[8] Consolidated Appropriations Act, 2008, Public Law 110–161, 121 Stat 1844, 2128 (2008).

[9] See Note 3.

[10] See 74 Fed. Reg. at 16448.

[11] There are six compounds that are generally considered “greenhouse gases,” of which carbon dioxide (CO2) is the most common. Each of the gases has a different heat-trapping capacity, and so are not directly comparable without translating that capacity into common units. This is accomplished by expressing the heat trapping capacity of the individual gases in relation to the capacity of CO2. This is referred to as “CO2 equivalent,” or “CO2e.”

[12] Proposed 40 C.F.R. § 98.2(a).

[13] 74 Fed. Reg. at 16454-55.

[14] 74 Fed. Reg. at 16455.

[15] 74 Fed. Reg. at 16454-55.

[16] See, e.g., collective comments of American Chemistry Council, American Coke and Coal Chemicals Institute, American Iron and Steel Institute, American Petroleum Institute, Corn Refiners Association, CropLife America, National Association of Manufacturers, National Oilseed Processors Association, National Petrochemical and Refiners Association, and Rubber Manufacturers Association (June 9, 2009) (“consolidated trade association comments”), docketed at EPA–HQ–OAR–2008–0508–0477.

[17] Id.

[18] See, e.g., collective comments of Center for Biological Diversity, Clean Air Task Force, Environmental Defense Fund, NRDC, Sierra Club, National Wildlife Federation, Union of Concerned Scientists, and WildEarth Guardians (June 8, 2009) (“consolidated environmental group comments”), docketed at EPA–HQ–OAR–2008–0508–0635.

[19] See Note 7.

[20] See Climate Registry.

[21] See 40 C.F.R. §§ 70.5(d), 70.6(a)(3)(iii)(A).

[22] 74 Fed. Reg. at 16468.

[23] See comments of National Association of Manufacturers (June 9, 2009), docketed at EPA–HQ–OAR–2008–0508–0572.

[24] 74 Fed.Reg. at 16447.

[25] Id.

[26] E.g., comments of the Climate Registry (June 9, 2009), docketed at EPA–HQ–OAR–2008–0508–0567.

[27] See comments of Chevron Corporation (June 5, 2009), docketed at EPA–HQ–OAR–2008–0508–0352.

[28] E.g., consolidated trade association comments.

[29] 74 Fed. Reg. at 16463.

[30] Id.

[31] See consolidated environmental group comments.

[32] See comments of OMB Watch (June 5, 2009), docketed at EPA–HQ–OAR–2008–0508–0353.

[33] See comments of American Petroleum Institute (June 9, 2009), docketed at EPA–HQ–OAR–2008–0508–0679.

[34] 74 Fed. Reg. at 16473.

[35] Id.

[36] See, e.g., comments of National Association of Manufacturers; comments of Valero (June 9, 2009), docketed at EPA–HQ–OAR–2008–0508–0571.

[37] See 74 Fed. Reg. 16466.

[38] See comments of American Petroleum Institute.

[39] 127 S. Ct. 1438 (2007).

[40] See consolidated trade association comments.

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