EPA’s Proposed Changes to Mandatory Greenhouse Gas Reporting Rule Take on Greater Significance in ESG Era

Legal Intelligencer

(By Gary Steinbauer and Christina Puhnaty)

In June 2022, the U.S. Environmental Protection Agency proposed revisions to its greenhouse gas reporting program rule (GHGRP rule or rule). See 87 Fed. Reg. 36,920 (June 21, 2022). Established in 2009 following a Congressional mandate in the 2008 Consolidated Appropriations Act, the GHGRP rule requires large direct sources of greenhouse gas (GHG) emissions (e.g., with certain exceptions, sources emitting at least 25,000 metric tons of carbon dioxide equivalent), fuel and industrial gas suppliers, and carbon dioxide injection sites to report total annual GHG emissions and other information using specific calculation methodologies. See generally 40 C.F.R. Part 98. The rule requires reporting for over 40 different source categories, with more than 8,000 facilities reporting annually. According to EPA, the reported data cover covers 85% to 90% of the GHG emissions in the United States, and data collected under the program shows that Pennsylvania ranks among the top five states with the highest reported GHG emissions.

The proposed rule does not limit covered sources’ GHG emissions or require sources to take any steps to reduce their GHG emissions. It is strictly a reporting rule, creating a massive dataset that the EPA uses to assess trends and make other policy decisions. The EPA publishes summaries of annual GHG emissions data, including summaries of GHG emissions by sector and facility, geographic information on reported GHG emissions, and environmental justice-related information for each sector.

This GHG emissions data are taking on greater significance as more companies focus on environmental, social and governance (ESG) issues and roll out net zero target dates. In addition, the Securities and Exchange Commission’s recently proposed climate disclosure rule provides that registrants reporting under the SEC reporting regime would be able to rely on data reported under the EPA’s GHGRP rule to partially fulfill their SEC climate-related reporting obligations. See 87 Fed. Reg. 21,334 (Apr. 11, 2022).

According to the EPA, its latest proposed revisions are designed to improve the quality of reported data by changing, among other things, GHG emissions calculations and monitoring methods. In addition, the EPA is proposing to require the reporting of data from certain new source categories as well as new emission sources within existing source categories. The EPA’s proposed revisions to the rule come after roughly six years of no changes. The public comment period for the EPA’s proposed revisions to the GHGRP rule closes on Oct. 6, after being extended an additional 45 days after numerous industry trade groups and other reporters raised concerns about the adequacy of the initial 60-day comment period.

Several of the more noteworthy proposed revisions to the Rule include:

Exiting the GHGRP and Continuing Obligations: The EPA proposes to clarify that reporters seeking to “off-ramp” or exit the GHGRP because calculated GHG emissions are below the reporting threshold, must use the Rule’s emissions estimation methodologies to determine their ability to “off-ramp.” The EPA is also proposing to clarify that the rule’s emissions estimation methodologies must be utilized after exiting the GHGRP to determine whether reporting is triggered again during subsequent years. These proposed revisions have the effect of limiting covered sources to the EPA’s emissions estimation methodologies to exit and potentially return to the GHGRP.

Petroleum and Natural Gas-Related Revisions: The EPA has revised the Petroleum and Natural Gas Systems reporting requirements at 40 C.F.R. Part 98, Subpart W approximately ten times since the rule first required reporting from this source category in 2010. In its latest round of proposed revisions, the EPA states that it is seeking to improve data quality and require reporting for new emission sources. These proposed changes will almost certainly result in higher emissions estimates for petroleum and natural gas facilities than in previous years. Sources that will be covered by reporting requirements for the first time include pneumatic controller venting, abnormal emission events that are unaccounted for with existing reporting requirements (i.e., “other large release events” such as storage wellhead leaks and well blowouts), and acid gas removal vents. The EPA is also proposing to revise existing requirements for emissions from several sources within this source category, including glycol dehydrator vents, liquids unloading, atmospheric storage tanks, associated gas flaring, and equipment leaks. See 87 Fed. Reg. at 36,962–82. Many of these proposed revisions are based on the EPA’s recently proposed changes to the new source performance standards (NSPS) and emissions guidelines (EG) for volatile organic compound and methane emissions from the oil and natural gas industry that would be codified at 40 C.F.R. Part 60, Subpart OOOOa, OOOOb, and OOOOc. See 86 Fed. Reg. 63,110 (Nov. 15, 2021). The EPA proposed the changes to the NSPS and EG in November 2021, without releasing proposed regulatory text. The EPA’s reliance on these proposed NSPS and EG revisions to justify changes to the GHGRP Rule raises questions, particularly when the changes to the NSPS and EG are very likely to be challenged.

Additional Data Proposed for Cement, Glass, and Iron and Steel Industries: For these source categories, the EPA proposes to collect more detailed data to verify reported emissions and, in some instances, calculate back-estimates of process emissions. For example, the EPA proposes requiring affected cement facilities to report emission equations inputs to the agency. The EPA seeks to add this requirement for cement production to back-estimate reported GHG emissions. For glass production, the EPA proposes to require facilities report the “annual quantity of glass produced by the facility in tons, by glass type, from each continuous glass melting furnace and from all furnaces combined.” For iron and steel production, the EPA proposes to require facilities to report the specific type of unit that is an emission source, as well as the annual production capacity and operating hours of the unit. The EPA is also proposing to streamline monitoring requirements for iron and steel production under 40 C.F.R. Part 98, Subpart Q, giving reporters several options to account for carbon dioxide uptake in produced metal materials.
Proposed Clarifications on Carbon Sequestration and Hydrogen Production: EPA is proposing to refine and add requirements to subparts of the GHGRP related to carbon dioxide suppliers, carbon capture and sequestration (CCS), and hydrogen production. 87 Fed. Reg. at 37,012 (carbon dioxide); 37,016 (CCS); 36,958 (hydrogen production). The EPA is also proposing to add a new subpart to the GHGRP Rule—Subpart VV—to create an additional reporting option for geologic sequestration of carbon dioxide in association with enhanced oil recovery operations. Id. at 37,016. These proposed changes are described by EPA as improving the data surrounding these activities. Tax incentives, such as the Internal Revenue Code Section 45Q credit, have relied on the GHGRP rule calculation methodologies as the basis for demonstrating the amount of tax credits available to entities engaged in carbon capture and sequestration. See 26 U.S.C. Section 45Q; IRS Notice 2009-83, //www.irs.gov/pub/irs-drop/n-09-83.pdf. The calculation methodologies in the GHGRP rule for CCS and hydrogen production may continue to serve as guideposts for future tax and financial incentives in these emerging areas.

Potential New Sectors: The EPA’s proposal solicits input on whether it should expand the GHGRP rule to include new source categories, including energy consumption, ceramics production, calcium carbide production, coke calcining, carbon dioxide utilization and others. The EPA has pledged to continue using GHGRP data to evaluate potential new regulations for reporting sectors. Companies currently reporting under the GHGRP and those engaged in activities that are the subject of the proposed rule should carefully review the EPA’s proposed revisions and understand how they may affect their reporting obligations under the GHGRP rule and any future SEC climate disclosure requirements, as well as ongoing ESG initiatives and progress toward achieving net-zero goals.

Gary Steinbauer is a shareholder and Christina Puhnaty is an associate in Babst Calland Clements and Zomnir’s environmental group. Their practices focus largely on matters arising under the Clean Air Act, analogous state clean air laws, and their implementing regulations. Contact them at gsteinbauer@babstcalland.com and cpuhnaty@babstcalland.com.

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Reprinted with permission from the August 4, 2022 edition of The Legal Intelligencer© 2022 ALM Media Properties, LLC. All rights reserved.