Greenhouse gas rules gain a foothold

Three years ago this month, the Supreme Court, in Massachusetts v. EPA, ruled that greenhouse gases (GHGs) like carbon dioxide, methane and nitrous oxide are “air pollutants” under the Clean Air Act (CAA) and, therefore, subject to regulation under the law. That decision set in motion a wave of regulatory and legislative activity, which is still unfolding today. While it is not clear how all this activity will shake out, one thing is for certain — environmental, safety, and health managers and company executives have many compliance challenges (and opportunities) ahead.

EPA finding

On April 2, 2007, the Supreme Court essentially ordered the Environmental Protection Agency (EPA) to review the science behind climate change. Then last December, EPA published a final “endangerment finding” for GHGs, concluding that six of these gases taken in combination threaten both the public health and welfare of current and future generations of Americans.

Despite EPA Administrator Lisa Jackson’s confidence in her agency’s determination, the endangerment finding has been attacked by industry groups, commenters, Congress members and one state. These stakeholders have brought a petition of review to the U.S. Court of Appeals, sent a petition for reconsideration to EPA, submitted comments expressing their concerns and filed a “disapproval resolution” in the Senate (the same type of resolution used to strike down the Ergonomics Rule in 2001). At the same time, 16 states and others have filed motions to defend the endangerment finding.

Should the Senate disapproval resolution pass, Administrator Jackson predicts that it would prevent her agency from issuing a GHG rule for cars and trucks, leaving a patchwork of state standards and no nationwide uniformity for the automobile industry. Moreover, without an auto rule EPA cannot require GHG permit requirements for stationary facilities.

GHG reporting rule

Revoking the endangerment finding will not, however, put an end to the Mandatory Greenhouse Gas Reporting Rule, which took effect on December 29, 2009. The regulation, found at 40 CFR Part 98, requires roughly 10,000 U.S. large sources and suppliers to report GHG emissions, including carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride and other fluorinated gases. To help facilities determine if they are covered by the regulation or not, EPA provides an “Applicability Tool.”

Emissions monitoring requirements already began on January 1 of this year. Starting this month, facilities may no longer use “best available monitoring methods,” but instead must implement a written monitoring plan and begin using the monitoring methods specified in the regulation, unless an extension has been obtained.

The first annual emissions report is due March 31, 2011, for 2010 emissions, but manufacturers of vehicles and engines outside of the light-duty sector will begin reporting carbon dioxide for model year 2011 and other GHGs in subsequent model years as part of existing EPA certification programs.

Although EPA will verify the data submitted, reporters will be required to self-certify the data they submit to the agency. The agency plans to roll out a web-based reporting system this summer so that reporters may begin to register in time to submit reports by the first reporting deadline in 2011.

Because several states have their own GHG reporting requirements, EPA is working to find a way to reduce the burden on reporters complying with both federal and state submission rules.

The rule carries civil and administrative penalties of up to $37,500 per day per violation. However, EPA has touted the program’s ability to raise awareness of emissions among reporters and other stakeholders, and thus contribute to efforts to identify and implement emission reduction opportunities.

Upcoming GHG legislation

While EPA has the authority to push ahead with further GHG rulemakings, President Obama and Administrator Jackson have stated that they support Congressional efforts to develop a legislative solution to climate change.

Last summer, the House passed the American Clean Energy and Security Act (H.R. 2454), which would establish a cap-and-trade system for GHG emissions and set goals for reducing such emissions. The bill would authorize holders of emission allowances, compensatory allowances or offset credits to sell, exchange, transfer, hold or retire them, much like the cap and trade program for sulfur dioxide and nitrogen oxides.

Senator John Kerry (D-MA) introduced the Clean Energy Jobs and American Power Act (S. 1733) in September. Like the House bill, this bill would reduce GHG emissions and provide a cap and trade program. Kerry calls it a market-based opportunity. However, sources say Senate leaders have decided to scrap the bill’s cap and trade model for something with less opposition. Despite the progress in Congress, it is still uncertain what, if any, GHG legislation may reach the President’s desk.

Upcoming EPA rulemakings

Meanwhile, EPA has its own command-and-control agenda. By this month, EPA plans to publish national emissions standards to control GHG emissions from certain passenger cars and trucks. The standards would be phased in beginning with 2012 models.

In calendar year 2011, EPA anticipates phasing in CAA permit requirements and regulating GHGs for large stationary sources. In response to public comments, the agency is considering a higher threshold for obtaining permits than the 25,000 tons of GHGs a year proposed last September. In addition, EPA has stated it does not intend to subject the smallest sources to CAA permitting for GHG emissions any sooner than 2016.

Public disclosures

Finally, companies that submit public filings to the Securities and Exchange Commission (SEC) may have further disclosure duties. According to the SEC, a company should consider whether the impact(s) of certain existing and pending laws and regulations regarding climate change is material. The SEC says companies should also evaluate the actual and potential material impacts of environmental matters on their business.

Final thoughts

The complexity of the GHG reporting rule has already forced many companies to confront a brave new compliance world. Upcoming actions may only steepen the learning curve for environmental, safety and health professionals and managers. However, now may be the time to identify opportunities amid the sea of challenges. Opportunities to reduce pollution, save costs, earn tax breaks, improve facility processes, train employees, hire GHG-mindful contractors, win over shareholders’ trust, and/or prepare for a potential cap and trade system may be at hand.