I. Businesses in Major Economic Sectors Are Affected by Reporting Requirements
A. Summary of the Proposed Regulations
Pursuant to the Global Warming Solutions Act (which requires that California reduce greenhouse gas emissions to 1990 levels by 2020), the California Air Resources Board (ARB) has issued draft final regulations that will require California businesses across most major economic sectors to account for and report on their greenhouse gas emissions. Emissions reporting is the first of many significant provisions under the Act that will affect the operation of California businesses, especially those in industries that emit high levels of greenhouse gases. ARB estimates that the sectors which will be required to report emit 94% of the total greenhouse gases produced in California from industrial and commercial stationary sources.
Businesses in the following sectors will be required to provide detailed reports of their greenhouse gas emissions (carbon dioxide, nitrous oxide and methane) starting in 2009 (which will cover 2008 emissions):
1. Cement Manufacturing
2. Electric Power Sector: Electric Generating Facilities, Retail Providers and Power Marketers (in addition to carbon dioxide, nitrous oxide and methane, the electric power industry must also report on hexafluoride and hydrofluorocarbons)
3. Cogeneration Facilities
4. Petroleum Refineries, Hydrogen Plants, and Oil & Gas Production
5. Other Stationary Industrial Sources That Emit More Than 2,500 Metric Tonnes of CO2. This "catch-all" category is broad and covers many industries, and examples include the following:
a. Natural Gas Transmission
b. Industrial Gases
c. Paperboard Manufacture
d. Colleges and Universities (however, primary and secondary schools are explicitly exempt from the reporting requirements)
e. Glass Container Manufacture
f. Food Processing
g. Steel Foundries
h. Mineral Processing
i. Malt Beverage Production
B. Reporting Must Be Conducted By the Entity With Operational Control of an Individual Facility
Reporting is facility-specific, which means that each individual facility must report its own emissions and a company owning many facilities cannot simply issue one report on all of its operations. The entity with "operational control" of a regulated facility (i.e., the entity with the authority to introduce and implement operating, health & safety and environmental policies) is responsible for providing the yearly emissions report.
C. Reporting Schedule and Verification
Under the draft final regulations, the first emissions reports are due in 2009 (by April or June of that year, depending on the facility) and will cover 2008 emissions. Because 2009 is the first year of reporting, the 2009 reports do not need to be verified. However, starting in 2010 and continuing therefrom, reports will require a verification by a third party essentially serving as an emissions auditor. For most facilities, a full verification (consisting of site visits, sampling, review of data management systems and other requirements) will be required every third year of reporting, with a less-intensive verification submitted in interim years. The verifier must issue an opinion that states that reported emissions are within 95% of the true greenhouse gas emissions, and that all applicable methodologies were followed.
All verifiers must be accredited after a formal application and review process by ARB. The verifier must demonstrate technical and educational competence, must attend ARB-approved training courses, pass an exam, and have no conflicts of interest with any facilities for whom it provides verification services.
D. Status of the Regulations and Future Scheduled Actions
After considering public comments, ARB will adopt these reporting regulations by January 1, 2008. ARB is hosting a public hearing on the proposed regulations December 6, 2007 at 9:00 a.m. at the Air Resources Board Auditorium, 9530 Telstar Avenue, El Monte, CA 91731. Those unable to attend in person can participate in a live web cast at www.calepa.ca.gov/broadcast. The proposed regulations and a detailed report explaining the regulations can be found at www.arb.ca.gov/regact/2007/ghg2007/isor.pdf.
II. Explanation of Reporting Requirements For Each Affected Business Sector
A. Cement Manufacturing
ARB has determined that cement production and related emissions from combustion of fuels (usually coal) to heat the kilns where limestone is manufactured into clinker contribute about 12 million metric tonnes of greenhouse gas emissions. In total, there are eleven cement manufacturing plants which will be subject to reporting using a specific calculation methodologies and emission factors set forth under the regulations.
Cement manufacturers must report:
(1) Process-related CO2 emissions from clinker production;
(2) Process-related emissions from the organic carbon entrained in non-carbonate raw materials;
(3) Annual CO2, N2O and CH4 emissions from fuel combustion;
(4) Direct fugitive methane emissions from coal combustion storage;
(5) Indirect energy usage in kilowatt hours (electricity, steam, heat and cooling purchases); and
(6) Cement plants must report two efficiency metrics:
(a) CO2 emissions per ton of cement product; and
(b) annual CO2 emissions per ton of clinker manufactured.
B. Electric Power Sector: Electrical Generating Facilities, Retail Providers and Power Marketers
ARB has determined that this industry emits about 124 million metric tonnes/year of greenhouse gases from fossil fuel combustion (usually coal-fired plants), transmitting and distributing electrical power, and handling and storing fuels. ARB must account for emissions from all electricity consumed in the state, and as a result, the proposed reporting threshold for electric generating facilities is > 1 megawatt (MW) and > 2,500 tonnes of CO2 per year. Industries in this category must report not only on carbon dioxide, nitrous oxide and methane, but also on hyrofluorocarbons and hexafluoride.
Three categories of operators must report:
(1) Electrical generating facilities;
(2) Retail providers (any entity that provides electricity to end-uses in California, including private and public utilities and the California Department of Water and Power); and
(3) Electric power marketers (purchasing/selling entities that are not retail providers but are the "first point of delivery" for power imported into California or the "last point of receipt" for power exported from California.
All such operators must report emissions from the following sources: combustion, process emissions, fugitive emissions, nameplate generating capacity, fuel consumption, heat content by fuel type, carbon content, annual net power generated, and power exported.
C. Cogeneration Facilities
Cogeneration facilities with electricity generation capacity greater than or equal to 1 megawatt (MW) with annual emissions of 2,500 metric tonnes or more, are required to report annual CO2, CH4 and N2O emissions from fuel combustion. As with cement manufacturing and electrical facilities, cogeneration facilities must also report on fugitive emissions.
D. Petroleum Refineries, Hydrogen Plants, and Combustion from Oil and Gas Production.
The oil and gas industry is a major greenhouse gas emitter, and the proposed regulations include very detailed methods for calculating emissions from oil and gas production and hydrogen plants from the following sources:
(1) Statutory combustion, CO2 emissions by the following fuel types:
(a) refinery fuel gas;
(b) natural gas;
(c) fuel mixtures; and
(d) other fuel;
(2) Stationary combustion of CH4 and N2O emissions;
(3) Fuel consumption;
(4) Hydrogen production plant emissions;
(5) Process emissions;
(6) Fugitive emissions;
(7) Flaring emissions;
(8) Cogeneration emissions; and
(9) Indirect energy purchases.
E. General Stationary Combustion Facilities
This can be described as "catch all" category which requires reporting by any large California emitter not already required to report under other regulatory provisions. The operator of any facility that emits greater than or equal to 25,000 metric tonnes per year of CO2 from stationary combustion sources shall report on its greenhouse gas emissions, fugitive emissions, cogeneration and emissions from indirect energy usage.
As noted in Section I.A., business sectors likely to be covered by this requirement include:
- Natural gas transmission;
- Industrial gases;
- Paper board manufacture;
- Colleges and universities;
- Glass container manufacture;
- Food processing;
- Steel foundries;
- Mineral processes; and
- Malt beverage manufacture.
Business in all major sectors of the California economy should be aware of and begin preparing for mandatory greenhouse gas emissions reporting, which will require substantial coordination both within a facility and with outside technical consultants and accredited emissions verifiers.
For further information please contact Randolph C. Visser and Olivier F. Theard. Randy Visser is a partner in the Construction, Environmental, Real Estate and Land Use Litigation Practice Group in the firm’s Los Angeles office. Olivier Theard is an associate in the Business Trial Practice Group and the Environmental and Construction Practice Group in the firm’s Los Angeles office.