Law and the Environment

EPA Issues Final Greenhouse Gas Monitoring and Reporting Rule

On September 22, 2009, the United States Environmental Protection Agency (EPA)  issued its final greenhouse gas monitoring and reporting rule that will require as many as 10,000 facilities in the United States to measure their greenhouse gases (GHGs) and start reporting them in early 2011 (GHG Reporting Rule).  Some industry groups had asked EPAfor a delay until 2011 to start monitoring and 2012 to start reporting their GHG emissions.  EPA chose not to provide such a delay and regulated facilities only have three and a half months to prepare for the monitoring that they must begin January 1, 2010.  This may be particularly challenging for those companies that must install or modify continuous emission monitors.

Following a Congressional amendment to the Omnibus Spending Bill in December of 2007 that required the EPA to issue a proposed rule by September of last year and a final rule by June of this year, the EPA under the Obama Administration has now moved forward with an initial step in establishing a GHG regulatory system.

In the GHG Reporting Rule, EPA has adopted a substantial program of GHG monitoring and reporting with a publicly available registry.  The program is “economy wide” and covers 85-90 percent of GHG emissions in the United States.

The EPA is in part implementing the GHG Reporting Rule to gather information for future regulatory and policy decisions. Thus, many of those sources that would be required to report under the GHG Reporting Rule may also be those that would be regulated under a federal GHG cap and trade system being discussed by Congress and the Obama Administration.

While the rule does not impose any reduction obligations, as prior reporting rules, such as the Toxic Release Reporting of SARA Title III, have shown, companies reporting emissions “manage what they measure.”  In other words, once companies must publicly report their emissions, they start to invest in ways to reduce those emissions.

I.     WHEN MUST YOU START MONITORING?

As stated above the monitoring must begin on January 1, 2010.

 

II. WHEN MUST YOU START REPORTING TO EPA?

The first report will have to be submitted to EPA by March 31, 2011, and then for subsequent years thereafter.

 

III.    WHAT GASES ARE COVERED?

The EPA has identified the traditional GHGs for reporting: carbon dioxide (CO2), methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons, chlorofluorocarbons, perfluorocarbons, and certain other fluorinated gases. For purposes of comparing emissions of the various gases using a single unit, the gases are converted into the equivalent GHG impact of CO2. The conversion is based on the principle that the other gases have a greater impact in terms of causing the greenhouse effect and thereby global warming. As an example, one metric ton of methane emissions would be reported in terms of the carbon dioxide equivalent (CO2e) of 21 metric tons. This is critical in understanding the threshold levels for application of the reporting requirements, as the non-CO2 GHG emissions may need to be converted to CO2e before determining whether the GHG reporting obligations apply to a particular facility.

IV.   WHAT FACILITIES ARE COVERED?

Four categories of facilities are required to measure and report their GHG emissions. In addition, vehicle manufacturers would be required to report the GHG emissions of their vehicles. We will focus on facility-based emitters in this Article.

1. Source Categories

The first category of facilities required to report under the GHG Reporting Rule are facilities that fall under a list of source categories identified by the EPA. These sources include, among others,

• coal-fired electric generating plants subject to the Acid Rain program,
• aluminum,
• ammonia,
• cement,
• electronics,
• lime,
• petrochemical,
• petroleum refining,
• certain underground coal mines, and
• municipal landfills.

2. Other Facilities That Emit 25,000 Tons Per Year or More of CO2e of Combined Emissions From Listed Source Categories

The second category of sources required to report are facilities that emit 25,000 or more metric tons of CO2e per year of combined emissions from stationary fuel combustion units, miscellaneous uses of carbonate, and all source categories that are listed and located at the facility in any calendar year.

These sources include, among others,

• electricity generation,
• electronics,
• ethanol production,
• food processing,
• glass production,
• iron and steel production,
• ferrous alloy production,
• oil and natural gas systems,
• pulp and paper,
• industrial landfills, and
• wastewater treatment.

3. Facilities That Do Not Meet the First Two Source Categories, but That Emit 25,000 Metric Tons of CO2e Per Year From Stationary Fuel Combustion Sources

The third source of facilities required to report are those that meet all of the following conditions:

(1) the facility does not contain any source category designated for the first two groups of categories;

(2) the aggregate maximum rated heat input capacity of stationary fuel combustion units at the facility is 30 mmBtu/hr or greater; and

(3) the facility emits 25,000 metric tons of CO2e per year or more from all stationary fuel combustion sources.

4. Entities That Sell, Import, or Export Fossil Fuels, Industrial GHGs, and CO2

The final category of entities required to submit GHG emission reports under the proposed GHG Reporting Rule are suppliers of coal, coal-based liquid fuels, petroleum products, natural gas and natural gas liquids, producers of industrial GHGs as listed in the Rule, importers and exporters of industrial GHGs and CO2, and importers and exporters of industrial GHGs and CO2 exceeding 25,000 metric tons of CO2e per year.

V. WHAT MONITORING AND MEASUREMENT APPROACH MUST BE USED?

The EPA reviewed several monitoring or measurement options in developing the GHG Reporting Rule. The EPA selected the option of combined direct emission measurement and facility-specific calculations. Facilities that already have continuous emission monitoring (CEM) devices are generally required to add a GHG measurement capability. Those that do not have CEM devices would have the choice to install them or to use facility-specific calculation methods.

VI.   WHAT CERTIFICATION AND VERIFICATION IS REQUIRED?

The EPA reviewed several options regarding certification and verification of the GHG emissions reported to the EPA. The agency decided to require certification by a designated representative of the facility submitting the report and to have the EPA verify the emissions report. No third-party verification is currently proposed.

VII.     WILL THE INFORMATION REPORTED TO EPA BE AVAILABLE TO THE PUBLIC?

The information provided by the regulated facilities will be made available to the general public by a website developed by EPA.

VIII. WHAT CORPORATE FINANCIAL DISCLOSURE AND CORPORATE STRATEGIES SHOULD BE DEVELOPED AS A RESULT OF THIS NEW REGULATION?

The GHG Reporting Rule is one of the significant steps made by the Obama Administration into climate change regulation and extends GHG measurement and reporting to a large part of the economy. As companies continue to review and develop their strategies for evaluating the potential risks and opportunities that a GHG regulatory system and potential cap and trade system will present, the GHG Reporting Rule is the one of the first salvos in what will be a concerted effort by Congress and the President to impose a GHG regulatory system in the United States.  Since establishing a company’s “carbon footprint” is now mandatory, understanding the implications of the reporting and public disclosure of the amount of greenhouse gas emissions raises several issues.

With this rule and potential future legislation that may be passed as early as this year or early next year, many publicly traded companies should also consider their disclosures in their filings with the Securities and Exchange Commission to determine if any further description of the risks or opportunities presented by climate change legislation should be discussed in their public filings.

Companies that may be regulated by any future climate change legislation, whether state, federal, or both, should develop a climate change strategy. Such strategies should include an evaluation of the number of GHG or carbon allowances that may be required to comply with climate legislation. One allowance would be required for every ton of emissions of CO2e equivalent. In addition, those companies selling or importing fossil fuels may be required to obtain allowances for every ton of CO2e equivalent of fuel sold. In engaging in this planning, companies should consider the extent to which low cost offsets purchased today could reduce the ultimate liabilities of the company in the future.

Many utilities, oil and gas companies, and other potentially regulated companies are already investing in carbon offset projects or purchasing credits now. In what could be one of the most significant environmental regulatory programs in the history of the United States, planning today could pay off with significant savings or dividends in the future. For many companies, climate change impacts should be a key strategic issue for the board and management.

Natural Gas Not Getting It's Due in Congress Energy/Climate Debate

A New York Time's article entitled "Natural Gas Hits a Roadblock in New Energy Bill" discusses how natural gas producers have been outflanked by coal producers and coal-fired utilities in obtaining special treatment and incentives in climate and energy bills so far this year in Congress.  Congress and some environmental groups favor coal and carbon capture and storage over the use of natural gas to replace some coal use to produce electricity.

Natural gas producers are attempting to lobby the Senate for a better deal.  The trouble may be that the Democratic majority needs coal-state Democrats to vote for a climate bill and the natural gas state Repulicans have all but said they would not vote for any climate bill.  Thus, the natural gas states may have few bargaining chips in the climate-energy horse-trading that will go on over the next few months in the Senate. 

Natural gas could provide a very beneficial role in both producing electricity and powering vehicles.  More needs to be done in Congress to support expanded natural gas use.

ERCOT Releases a Study on Price Effects from Cap and Trade

The Electric Reliability Council of Texas has issued a study of the potential impact on electricity prices in Texas if a cap-and-trade system were imposed through federal legislation.  The study assumes that a price for carbon (cost per ton of carbon dioxide emitted) from electric utilities would have to be between $40 to $60 in order to incentivize reductions in C02 emissions.  At that price, the impact to consumers was estimated to be about $27 per month if no change in electrical usage occurs.  (The equivalent of about 10 stops at Starbucks.)  The system-wide effect was estimated to be about $10 billion dollars.  ( A substantial sum of money, but perhaps small in comparison to the 2008 Texas "gross state product" of $1.245 trillion).  The question is to what extent energy efficiency steps could reduce this cost impact by reducing the amount of electricity used.  If one invested in compact florescent bulbs, there could be a net break even or savings over time to the average consumer.  For industry, adapting to higher electricity costs is not as simple.  Some industries may be able to find inexpensive means of reducing electrical usage, others may find that it is very difficult.  Thus, the impact will vary across industries.

The other question to keep in mind is that Congress may impose price caps or "safety valves" to keep the price of carbon from reaching $40 to $60, so this level of impact may never occur, at least over the next five to ten years. 

The conclusions of the study were as follows:

In the reference case, with $7/MMBtu natural gas prices, expected load levels and the existing and committed level of wind and other generation, the carbon allowance costs must rise to between $40 and $60 per ton in order to reduce carbon emissions from electric generation in ERCOT to 2005 levels by 2013. This  level of allowance costs would result in an annual increase in wholesale power  costs of approximately $10 billion and would increase a typical consumer’s  monthly bill by $27;   

At higher natural gas prices, brought about by increased demand for natural gas  due to carbon dioxide emission limitations or other reasons, allowances would rise  to a higher cost (well over $60/ton in the case of $10/MMBtu natural gas prices) in  order to achieve the desired reductions. At this higher gas price, the annual  increase in wholesale power costs to meet the 2005 level of emissions through  reductions by generators in the ERCOT region would be in the range of $20  billion;     

Increases in wholesale power costs due to carbon emissions limits may result in lower energy demand. These reductions in system energy use have the potential to allow the emission reduction targets to be met at a lower allowance cost. Total CO2 emissions are reduced below 2005 levels at a carbon allowance price between $40 and $60 per ton for expected load levels at $7/MMBtu natural gas, but fall below 2005 levels between $25 and $40 per ton if total energy use was reduced by 10%. This level of allowance costs would result in an annual increase in wholesale power costs of approximately $7 billion, a savings of $3 billion over the cost of meeting the 2005 levels of CO2 emissions in the reference case. At this allowance cost, a typical consumer’s monthly bill would increase by $17, a monthly savings of $10 over the reference case;     

The additional wind generation envisioned by the CREZ plan (up to a total of  18,456 MW) reduces carbon emissions by 17.6 million tons above the reduction  due to existing and committed wind generation even with no carbon emissions  limits imposed by climate-change legislation;     

The additional CREZ wind generation allows the targeted emissions reductions to be met at a lower allowance cost. At $7/MMBtu gas, the 2005 carbon emissions levels are met at an increase in annual wholesale power costs of approximately $7 billion, which is a $3 billion savings compared to the reference case. At this allowance cost, the increase in a typical consumer’s monthly bill would be $22;     

The combination of additional CREZ wind and lower energy usage results in  smaller increases due to CO2 emissions limits in both wholesale power costs and  the typical consumer’s monthly bill at a $7/MMBtu gas price, as compared to the  reference case;     

The combination of additional CREZ wind generation and 2% lower energy usage  does not offset the impact of an increase of natural gas prices from $7/MMBtu to $10/MMBtu on the level of allowance costs at which emissions reductions targets would be met.

EPA Issues Finding That Lays Foundation for Regulating Greenhouse Gas Emissions under the Federal Clean Air Act

In a long expected finding, the U.S. Environmental Protection Agency (EPA) issued a regulatory decision that lays the foundation for EPA to regulate greenhouse gas emissions under the federal Clean Air Act (CAA).  The decision announced on Friday, April 17, 2009 is entitled Proposed Endangerment Finding and Cause or Contribute Findings for Greenhouse Gases  and was published in the Federal Register.  This is a major step by the Obama Administration to attempt to force Congress to pass a climate change bill regulating greenhouse gases.  Time magazine may have said it best in an article entitle EPA's CO2 Finding: Putting a Gun to Congress's Head.  Whilee it was known that EPA was working on and would announce the finding, the actual announcement has gained enormous coverage in the media and serves as the Administration's opening salvo in its ultimate work to try to convince enough senators to vote for a bill to get beyond the 60 votes need to bypass a filibuster.

The EPA regulatory decision follows a U.S. Supreme Court decision two years ago that concluded the EPA under the Bush Administration had failed to articulate why greenhouse gases should not be regulated as emissions from automobiles.  In so doing, the Court indicated that greenhouse gases were pollutants under the Clean Air Act.  Now that EPA is going to issue a final regulatory decision after 60 days of public comment and several public hearings, it is clear that EPA can, and will, take action absent Congressional action.

Regulation under the Clean Air Act is messy and may not include a cap and trade program, but simple command and control in the form of emission reductions without the ability to trade for other facility allowances or domestic or international offsets.  This would not be good for industry.

Certain industry groups have already begun to work to promote their version of a cap and trade program.  The group USCAP, which stands for United States Climate Action Partnership, has issued a document entitled A Blueprint for Legislative Action, providing a general outline of a climate change program based on cap and trade.

The one question that will likely play out is how the world will look if Congress does not pass a bill or passes late next year or even later.  Permits for coal=fired power plants and other greenhouse gas-emitting facilities are already being challenged, and environmental groups and other plaintiffs are challenging the permits in court as not meeting CAA requirements to address all pollutants including greenhouse gases.  If EPA issues a final decision that greenhouse gases are an air pollutant, do these cases then have a much greater change of success?  Will EPA and the states be required to address greenhouse gas emissions in federal Title V permits?  These are the types of questions that will come to the fore relatively quickly.

What about cement kilns, lime plants, refineries, natural gas processing plants, manufacturing plants, will they be challenged as well?  Coal-fired power plants may not be the only plants whose permits are challenged.

One need not look beyond the administrative case of In re Deseret Power Cooperative.  This was a case in which the permit for a power plant in Utah that was challenged because the plant permit did not address CO2 emissions under the Prevention of Significant Deterioration program under the CAA. the challengers argued the plant should implement the Best Available Control Technology or "BACT" to achieve greenhouse gas, largely CO2 emissions. 

The EPA Appeals Board remanded the issue back to the EPA, then under the Bush Administration, not to require such technology or reductions as the Appeals Board concluded that the decision was not supported by the administrative record.  The Appeals Board called on EPA to address the issue of CO2 and other greenhouse gases being pollutants governed by the CAA.

Other cases have been brought against various sources and several petitions have been filed with the EPA to regulate mobile sources and stationary sources.

With the finding by EPA, all such permits, petitions, and proceedings could be affected.  Could this be a snowball effect with EPA and states finding themselves forced to regulate greenhouse gas emissions before Congress makes any final decisions whether to regulate greenhouse gas emissions?  The next year promises to be a challenging time for industry as they face a great deal of uncertainty as to how greenhouse gases will be regulated and how individual facilities and companies will be affected.  It appears more likely that some form of greenhouse gas regulation will be required.  For those companies that may be affected, it is time to develop a corporate strategy to address the risks and any opportunities that greenhouse gas regulation may bring.

Texas Warming Up to Carbon Capture and Storage

Although Texas is probably at the polar opposite from California in recognizing and passing state legislation to address climate change, the State is very much behind promoting carbon capture and storage (or sequestration) (CCS).  Texas stands to gain as much as any state if carbon capture and storage becomes a real industry. 

 

Carbon dioxide (CO2) can be used to enhance oil recovery from depleted oil fields and to extract methane from deep coal seems.  Texas has plenty of both.

 

It is not surprise then that the Texas legislature is considering a number of bills addressing CCS.  Last Wednesday, both the House Environmental Regulation Committee and the House Energy Regulation Committee heard testimony on four such bills (HB 469 and HB 2811 in Energy Resources; HB 1796 and HB 2669 in Enviro. Reg.).

 

The testimony regarding the CCS bills was very positive from both the regulated community and from environmental groups.  The federal government is looking to Texas to lead the way in this area because of our highly-developed oil and gas laws and vast underground storage capacity.  Entrepreneurs and local government leaders testified about the economic potential for CCS, while environmentalists and the EPA testified about the benefits to the environment that CCS would have.  It is amazing in the State of Texas that industry and environmentalists can agree on anything.  They usually do not.

 

Hearings on four CCS bills have been conducted so far.  None of these bills have been voted out of  committee.   Descriptions of these bills are provided below:

 

HB 469 - This bill provides state tax incentives for coal-fired electric generating companies that sequester CO2, and for oil companies that use CO2 from coal-fired electric generating companies for enhanced oil recovery projects.

 

HB 1796 - This bill authorizes the TCEQ to adopt rules regarding the location, construction, maintenance, monitoring, and operation of offshore deep subsurface geologic repositories for the storage of carbon dioxide, and for a pilot study of state-owned offshore land to identify potential locations for a carbon dioxide repository. 

 

HB 2669 - This bill divides jurisdiction for CCS between the Texas Commission on Environmental Quality (TCEQ) and the Railroad Commission (RRC).  The TCEQ would have primary jurisdiction with the RRC having jurisdiction under some limited areas.

 

HB 2811 - This bill provides the authority for the allocation of matching state funds for projects involving certain electric generating plants that sequester CO2.  The bill also authorizes a grant and loan program to accelerate the commercialization of technologies for the control of air contaminant emissions by electrical power generating facilities, including the capture, transport, and storage of carbon dioxide.

 

The Texas Railroad Commissioner, the agency that regulates the oil and gas industry in Texas, has been very outspoken about the opportunities for CCS in Texas and he is promoting the business.  Stay tuned as Texas may be adding significant incentives for the CCS business in this legislative sessions.

 

 

TCEQ Remediation Division Announces Assignments in All Sections

The Texas Commission on Environmental Quality (TCEQ) Remediation Division has issued its assignments of all those staff members to one of the new sections recently established by Section headBrent Wade.  The team leaders and each person assigned to that leaders group have been announced.  We were looking for people with long-held experience to be in charge of and assigned to the group that will work on the Texas Voluntary Cleanup Program, the Texas Innocent Owner/Operator, and the Municipal Settings Designation Program.  However, this was not the decision. 

We are hoping to have the opportunity to work with the team leaders and team members to help them understand the needs of the real estate and banking industries that are involved in redeveloping contaminated properties.  It is critical in these tough economic times and during the freeze in lending to be sure that the Brownfield programs understand and provide their vital role in the Brownfield redevelopment process.

We hope to develop close working relationships with these staff members as the process evolves over the next year.

If you would like a copy of the assignments, please do not hesitate to contact me.

EPA Sends Endangerment Finding Regarding Greenhouse Gas Emissions to White House

The US Environmental Protection Agency has forwarded an "endangerment finding" under the Clean Air Act that would lay the foundation for EPA greenhouse gas emission regulations under the Act.  Under the Massachusetts v. EPA case in which the US Supreme Court remanded an EPA decision under the Bush Administration to not regulate greenhouse gas emissions from automobiles, EPA may use the endangerment finding, that greenhouse gas emissions as a pollutant are a risk to human health and welfare, to move forward with restrictions on greenhouse gas emissions if Congress does not pass greenhouse gas legislation this year or early next year.

This is a second major step in only a short time.  Recently, EPA issued a proposed regulation that would require many industries and businesses to monitor and report their greenhouse gas emissions (GHG Reporting Rule).  In the preamble to the GHG Reporting Rule, EPA states that one purpose for the rule is to gather information for future regulatory and policy decision making. 

Taken together these two steps reveal a move forward by EPA to develop the basis for a greenhouse gas regulatory system.  The Obama Administration has not slowed at all with climate change actions and rhetoric, despite what many thought would be a slowdown on climate change as a result of the economic situation in the country.

Texas Commission on Environmental Quality Announces New Managers in Remediation Division

The Texas Commission on Environmental Quality (TCEQ) has named the new managers of the five sections of the remediation division of the agency.  A few years ago, the TCEQ "reorganized" such that people in the remediation division worked on all types of projects Superfund, Petroleum Storage Tank, Voluntary Cleanup, and Corrective Action.  One of the complaints voiced by the regulated community was that the parties that knew an area well were struggling in the other areas.  In particular, I led a group of ten or more environmental attorneys and consultants to meet with the TCEQ last fall, and discuss our concerns that one of the leading Voluntary Cleanup Programs in the country was becoming less effective as a result of the reorganization. 

We thought that the parties who were working on the VCP matters were not in tune with the purpose of the program and did not understand fully the VCP Program, the Innocent Owner/Operator Program (IOP), and the Municipal Setting Designation Program. 

Fortunately, Brent Wade took over the remediation division and determined to put the programs back in specialized groups.  He recently announced the managers of those programs as follows:

PST/Dry Cleaners - Bill Shafford

 

Superfund/SSDAP - Bob Patton

 

QA/Technical Support - Pat Fontenot

 

VCP/CAS - Ashley Forbes

 

Financial Monitoring/Contract Support - Chris Drewy

 

These changes will take effect April 1.  The remediation division is working toward hiring the people who will make up the staff of each section now.

 

This is a very positive step for the TCEQ and those individuals and firms that work with the remediation division.  In addition, we believe that it will help to maintain a top voluntary cleanup program in Texas.  This will help the real estate industry in Texas that has been hit by the financial crisis as VCP and IOP applications had numerous delays and unnecessary requests from those staff who were working hard, but simply did not fully understand or appreciate the Brownfield programs.