Carbon Accounting Compliance Challenges Strategies to Meet the EPAs - - PowerPoint PPT Presentation

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Carbon Accounting Compliance Challenges

Strategies to Meet the EPA’s New Mandatory

presents

Strategies to Meet the EPA s New Mandatory GHG Reporting Requirements

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features: John L. Clancy, Shareholder, Godfrey & Kahn, Milwaukee, Wis. Rich Baltimore, Senior Analyst, ClearCarbon, Arlington, Va. Ch i ti M C ll P t M K L & Ald id W hi t D C

A Live 90-Minute Teleconference/Webinar with Interactive Q&A

Christina M. Carroll, Partner, McKenna Long & Aldridge, Washington, D.C.

Tuesday, June 8, 2010 The conference begins at: The conference begins at: 1 pm Eastern 12 pm Central 11 am Mountain 10 am Pacific 10 am Pacific

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G h G M d t Greenhouse Gas Mandatory Reporting Rule 101: Basic Concepts

June 1 2010 June 1, 2010 Presented by: John Clancy j l @ kl jclancy@gklaw.com Godfrey & Kahn, S.C. Milwaukee, Wisconsin

4

GHG MRR Basics GHG MRR Basics

• Requires monitoring and reporting of

GHG emissions from certain sources

– Data collection only at this point – Precursor to GHG control rules

• R&D excluded

5

GHGs Reported GHGs Reported

• CO (carbon dioxide)
• CO2 (carbon dioxide)
• CH4 (methane)
• N2O (nitrous oxide)
• Fluorinated GHGs

– HFCs (hydrofluorocarbons) – PFCs (perfluorocarbons) PFCs (perfluorocarbons) – SF6 (sulfur hexafluoride) Other fluorinated gases – Other fluorinated gases

6

Reporting Units Reporting Units

D t ti

• Downstream reporting

– Facility based reporting

• Limited exceptions: fuel importers non-light-duty
• Limited exceptions: fuel importers, non light duty

vehicle/engine manufacturers

• Upstream reporting

– Supplier reporting

• Manufacturers of vehicles and engines (heavy-

duty trucks, motorcycles, nonroad engines) must y , y , g ) report CO2 beginning in model year 2011, other GHGs in following years

7

Facility Defined Facility Defined

Facility:

• Facility:

– Physical property, plant, building, structure, source, or stationary equipment located on i dj

• ne or more contiguous or adjacent

properties; – In actual physical contact or separated solely p y p y by public roadway or other public right of way; – Under common ownership or common Under common ownership or common control; and – Emits or may emit GHGs.

8

Facility Assessment of Rule l b l Applicability

• Any one facility may contain multiple
• Any one facility may contain multiple

“sources.”

• Thus each facility must evaluate each source
• Thus, each facility must evaluate each source

to determine applicability.

All in – All-in – Threshold – Combustion Only: Facilities with stationary combustion Combustion Only: Facilities with stationary combustion units with rated heat input capacity of 30 mmBtu/hr or more that emit 25,000 tpy of CO2e from all stationary fuel

• mb

tion o e combustion sources

9

Report Coverage Report Coverage

• For all-in or threshold sources, if the

rule applies, the facility must report emissions for all sources with rule- defined methods.

• For combustion only sources, the

report covers emissions from stationary fuel combustion sources

• nly.

10

All-In Sources All In Sources

“ ll ”

• “All-in” source categories:

– Any facility that contains an all-in source is subject to the rule subject to the rule.

• Examples:

Producers of: cement aluminum ammonia – Producers of: cement, aluminum, ammonia, HCFC-22, nitric acid, petrochemicals, phosphoric acid, silicon carbide, soda ash, p p , , , titanium dioxide – Petroleum refineries

11

Threshold Sources Threshold Sources

F iliti t i i th h ld t

• Facilities containing threshold sources must

aggregate source categories to determine if the 25,000 metric tons of CO2e per year the 25,000 metric tons of CO2e per year threshold is met.

• Examples:

– Producers of: ferroalloys, glass, hydrogen, iron and steel, lead, zinc Pulp and paper manufacturers – Pulp and paper manufacturers – Stationary combustion units

12

Combustion Only Sources Combustion Only Sources

F iliti th t

• Facilities that

– Are neither all-in nor threshold sources; and That contain stationary fuel combustion units – That contain stationary fuel combustion units with aggregate maximum rated heat input capacity of 30 mmBtu/hr or greater; and – That emit 25,000 tpy of CO2e in combined emissions from all stationary fuel combustion units units

• Must report GHG emissions from stationary

fuel combustion sources only.

13

All-in & Threshold Sources - b Remember:

• Once you’re in, you’re in all the way.

Once you re in, you re in all the way.

– If a facility contains an all-in source, or aggregate CO2e emissions from all facility aggregate CO2e emissions from all facility sources exceed the 25,000 tpy CO2e threshold, then all GHG emissions from all , sources must be reported. – Calculation methodologies are provided in 40 Calculation methodologies are provided in 40 CFR 98 Subparts C-JJ.

14

Categories Not Currently l d d l Included in Rules

El t i f t

• Electronics manufacturers
• Ethanol production
• Food processing
• Oil and natural gas systems

g y

• Underground coal mines
• Geologic sequestration

Geologic sequestration

• Industrial landfills
• Wastewater treatment
• Wastewater treatment

15

Monitoring of Emissions Monitoring of Emissions

CEMS C ti i i

• CEMS: Continuous emission

monitoring systems

F iliti t thi th d if th – Facilities must use this method if they already use under NSPS or Acid Rain Program and meet criteria Program and meet criteria

• Rule-defined source calculation

Defined GHG equations – Defined GHG equations – 40 CFR 98 Subpart C-JJ

16

Facility Assessment Decision Tree Facility Assessment Decision Tree

All-in source category?

Yes

category? Th h ld

Subjec t to

Emit ≥ 25,000 tpy

• f CO2e?

Yes

Yes N

• Threshold

source category?

t to rule.

Yes

y e s N

Combustion only category? Aggregate max. rated heat input capacity ≥ 30 mmBtu/hr?

N

• Yes

g y

N

• N
• Not subject

to rule.

No

17

Combustion Only Source bb d Abbreviated Reporting

Abb i t d t b b itt d

• Abbreviated reports may be submitted

for reporting year 2010. C b ti l

• Combustion only sources may use any

method of GHG emission calculation. C b ti l l

• Combustion only source examples:

– Boilers, stationary internal combustion engines process heaters combustion engines, process heaters, combustion turbines, incinerators

18

Suppliers: Upstream Reporting

• Suppliers of certain products are also required to

report the quantity of those products introduced into the economy and the GHG “emissions” from those the economy and the GHG emissions from those products based on an assumption of 100% oxidation

• f fuels and 100% release of gases
• Examples:

– Producers of petroleum products, coal-based liquids, industrial GHGs (F GHG and N O) and CO industrial GHGs (F-GHG and N2O), and CO2 – Exporters/importers of 25,000 tpy of CO2e – Fractionaters and distributors of natural gas and Fractionaters and distributors of natural gas and natural gas liquids

19

Reporting Logistics Reporting Logistics

lf f d

• Reports self-certified
• Electronic submission

– Automatic calculation and completeness checks

• Confidential business information claims can be

d t t 40 CFR P t 2 S b t B made pursuant to 40 CFR Part 2, Subpart B

– Emissions data not generally eligible for CBI treatment treatment

• Records to be retained for 3 years

20

Reporting Exit Provisions Reporting Exit Provisions

• You may, after notification to EPA, stop

You may, after notification to EPA, stop reporting if:

– All processes/supply operations are shut All processes/supply operations are shut down; or – Annual reports show Annual reports show

• CO2e<25,000 tpy for 5 years; or
• CO e<15 000 tpy for 3 years
• CO2e<15,000 tpy for 3 years
• Any future threshold exceedence requires

ti t t reporting startup

21

Timeline Timeline

• January 1, 2010: Monitoring begins (except vehicle/engine

manufacturing) manufacturing)

• January 28, 2010: Any extensions for best available

monitoring must be requested

• January 1 – March 31, 2010: Best available monitoring

methods can be used in lieu of prescribed monitoring in applicable Subpart pp p

• April 1, 2010: Rule-defined monitoring methods must be

used (where no extension granted); monitoring plan must be completed be completed

• January 1, 2011: Combustion only sources must begin

preparing a full report and must use prescribed monitoring methods; vehicle/engine manufacturers begin monitoring methods; vehicle/engine manufacturers begin monitoring

• March 31, 2011: First reports due

22

Caution Caution

• EPA has indicated that GHG reporting

may be an enforcement priority

• Carefully determine applicability and

reporting requirements, seeking p g q g assistance if necessary

23

Assistance Assistance

• http://www.epa.gov/climatechange/e

missions/ghgrulemaking.html

– Online applicability tool – Frequently asked questions database q y q

• rganized by Subpart

– Source category checklists g y

• Email: GHGMRR@epa.gov

24

GHG Accounting Basics

Overview

• Section I:

Who is ClearCarbon?

• Section II: Greenhouse Gas 101
• Section III: How to calculate a GHG

inventory Q & A discussion

26

Section I: Who is ClearCarbon?

27

ClearCarbon Enables Companies to Improve Performance through Carbon Capitalization g p

28

ClearCarbon Solutions Drive the Sustainability Efforts of Leading Companies Worldwide g p

29

Section II: Greenhouse Gas 101

30

What is the Greenhouse Effect?

31

Where do Greenhouse Gases Come From?

Agriculture

Percentage of U.S. GHG Emissions, 2006

Industry 19.4% 7.6% Commercial 5.6% R id ti l Transportation 19.4% Residential 4.9% US Territories 0.9% Electricity Generation 33 7% Transportation 27.9% 33.7%

32

Source: Chart created from Table 2-12 in U.S. EPA’s Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006. April 15, 2008.

Section III: Calculating a GHG Inventory

33

Getting Started – Terminology g gy

• Boundary Conditions: The
• Major Greenhouse Gas (GHG)

breadth and depth of an inventory.

• Base Year: A year against which

GHG emissions are tracked over ti

Emissions:

• Carbon Dioxide (CO2)
• Methane (CH4)

time.

• The GHG Protocol: A corporate

accounting standard developed by the World Resources Institute (WRI)

• Nitrous Oxide (N20)
• Hydrofluorocarbons (HFC)
• Perflorocarbons (PFC)

the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).

• Scope: Emissions source categories
• Sulphur Hexafluoride (SF6 )
• Carbon Dioxide Equivalents

(CO2e): Standard GHG emissions Scope: Emissions source categories

• 1: Direct Emissions
• 2: Indirect Emissions
• 3: (Optional) Other Indirect

(

2 )

reporting metric.

Emissions

34

Calculation Tools and Emissions Factors

• WRI
• U S EPA Climate Leaders
• U.S. EPA Climate Leaders
• U.S. Department of Energy 1605b Voluntary Reporting of

Greenhouse Gases Program g

• Intergovernmental Panel on Climate Change (IPCC)
• Carbon Consultants

35

Two-Phased Approach pp

Phase I: Defining GHG inventory parameters GHG inventory parameters

• Organizational boundaries , base

year, business units and key individuals

Identify operational boundaries:

• Scope 1, 2 and 3 emissions

sources

Phase II: Quantifying Data collection and gap analysis Data review, modeling, and completion D t i t ti d lit l i Data integration and quality analysis Calculate GHG emissions Analysis and reporting

36

Phase I – Define: Organizational Boundaries g

• All countries

All countries

• All facilities
• All business units
• All business units
• Offices
• Fleets
• Fleets

37

Phase I – Define: Operational Boundaries p Emissions Sources:

• Scope 1: Direct

Scope 1: Direct

• Scope 2: Indirect

S 3 Oth

• Scope 3: Other

Indirect

38

Scope 1 Emissions p

• Direct GHG emissions owned or controlled by

company:

On-site combustion of fuels or

company:

On site combustion of fuels or chemicals Fleet Fugitive emissions (gas line leaks Fugitive emissions (gas line leaks, refrigerants) Other?

39

Scope 2 Emissions p

• Indirect emissions:

Purchased electricity Purchased steam Purchased chilled water

40

Scope 3 Emissions

• Other Indirect Emissions:

p

Employee business travel Waste disposal Outsourced activities

41

Phase I – Define: Operational Boundaries p

• Determining Business Units and Key Individuals

Company

Scope 1 Scope 2 Scope 3

Purchased Electricity Transport to C t Mobile emissions Refrigerant Leakage Onsite fuel emissions Electricity Customer emissions Leakage emissions

Contact: Engineer Contact: Building Engineer Contact: Contact: EHS Director Contact: Contact: Accounts Payable Contact: Contact: Logistics Manager Contact: Manager Contact: Fleet Manager g Payable Payable g g

42

Phase I – Regulated Facilities g

• Not all facilities are required to report to the EPA

“F ilit ” th b ildi (i

• “Facility” can mean more than one building (i.e.

campus) Mi i th h ld t i d t t

• Minimum threshold not required to report:

Facilities with a Maximum rated heat input capacity of less than 90 mmBtu/hr capacity of less than 90 mmBtu/hr

• Some facilities have to report regardless of

capacity or quantity of emissions capacity or quantity of emissions

43

Phase II – Quantify: EPA Monitoring Q y g

• Tier 1

Based on fuel use, default high heat value (HHV) of fuel and fuel specific emissions factor (in Table (HHV) of fuel, and fuel specific emissions factor (in Table C-1 of the rule)

• Tier 2

Based on fuel use, calculated HHV of fuel, and fuel specific emissions factor (in Table C-1 of the rule)

• Tier 3

Based on fuel use and the calculated annual

• Tier 3

Based on fuel use and the calculated, annual average carbon content of the specific fuel

• Tier 4

Based on data collected from continuous emission monitoring systems (CEMS) Rule of thumb: Measure GHGs the way the Clean Air Act i t f th i ll t t requires measurement of other air pollutants

44

Phase II – Quantify Q y

• Data Collection

Facility Data

• kWh purchased electricity
• Onsite fuel usage

Database

Facility A Business Travel Data

• Facility refrigeration
• Actual GHG’s
• # Trips

Collect all data in

• ne place to begin

l i

Facility B Facility C Fleet Data

• Miles per trip
• Mode of transportation
• Fuel Usage

analysis and identify gaps.

Facility C Facility D Fleet Data

• # Trips
• Miles per trip
• Mode of transportation
• Weight transported

ac ty Facility E 45

Phase II – Quantify Q y

• Calculate GHG emissions
• Collect energy data

Collect energy data

• Apply emissions factors and global warming potentials

Refrigerant Data

Global Warming Potentials

GHG

Onsite Fuel Data Electricity Data Fleet Data

Potentials

Emissi

• ns

Emissions Factors

Transport Data

46

Phase II – Quantify Q y

• Example Calculation
• Facility A uses 600,000 MMBTUs of Natural

Gas in 2010

Fuel-Specific CO2 Emissions Factor X Mtons CO2 = Fuel Usage Fuel-Specific CH4 Mtons CO2eq CH4 Global Fuel Usage Quantity Fuel Specific CH4 Emissions Factor X Mtons CO2eq (CH4) = CH4 Global Warming Potential X Fuel-Specific N2O Emissions Factor X Mtons CO2eq (N2O) = N2O Global Warming Potential X Mtons CO2eq (CH4) + Total Mtons CO2eq from Onsite Combustion = Mtons CO2 Mtons CO2eq (N2O) +

47

Phase II – Quantify Q y

Calculation Results

MMBTU Emissions Factors Global Warming CO2e (kg) CO2e (tons)

(kg GHG / kWh)

g Potential (kg) (tons)

53 24

x 1 (CO2) = 31 944 000 31 944 600,000 x

53.24

x 1 (CO2) = 31,944,000 31,944

.004747

x 21 (CH4) = 59,812 60

0 0000949

x 310 (N2O) = 17 651 18

0.0000949

x 310 (N2O) = 17,651 18

Total Tons CO2e

32,022

48

EPA Reporting Requirements p g q

• The EPA requires the following for each

f ilit th t i b th th h ld facility that is above the threshold:

• Unit Specific ID
• Heat Input
• Fuel Type and Annual Usage
• Calculation Approach Used (Tier 1, Tier 2, etc.)
• Emissions in CO2, CH4, N2O, and CO2e

49

Phase II – Quantify Q y

• Analysis and reporting
• Categorize data by emissions source to understand where the biggest

Categorize data by emissions source to understand where the biggest impacts are coming from

Business

Company X 2008 Footprint

40 45

Facility Footprints

Onsite Fuel 17% Travel 2%

25 30 35 40

• usands)

Electricity Refrigerants /

Transport Fuel 29% P rchased

10 15 20 25 Tons CO2e (tho Refrigerants / Fugitive Mobile Fuel Onsite Fuel

29% Refrigerants Purchased Energy 50%

5 10 A B C D E F G

2%

50

Questions?

Rich Baltimore rbaltimore@clearcarboninc.com 571 303 2246 571-303-2246

51

Carbon Accounting Carbon Accounting Compliance Challenges

Christina M. Carroll McKenna Long & Aldridge LLP McKenna Long & Aldridge LLP June 8, 2010 ,

52

EPA’s Final GHG Reporting Rule

• Designated Representative
• Verification
• Recordkeeping
• Recordkeeping
• Enforcement
• Implications

– Disclosure of data Disclosure of data

• To who?
• Confidential Business Information

– Use of data Pl i tiff ’ b t t

• Plaintiffs’ bar targets
• State AG targets
• Cap and trade

– Corporate governance p g – SEC reporting

53

Designated Representative

• Need not be the owner or operator (per facility, per

supplier)

– but actions bind owners and operators

• Representative needs to be designated 60 days

prior to reporting deadline prior to reporting deadline

– certificate of representation

• Report needs to be personally examined, signed

– true, accurate, and complete – under penalty of law

• See 40 CFR § 98.3 - 98.4

54

Verification

• Self-certification / EPA emissions verification

Allows EPA to make the data available more quickly – Allows EPA to make the data available more quickly

• Automated review of data

– comparison to past data similar facilities – comparison to past data, similar facilities

• Review of facility-level monitoring plans
• Audits of selected reporting facilities to follow up on
• Audits of selected reporting facilities to follow up on

discrepancies

• See 40 CFR § 98.3

§

55

Recordkeeping

• Retain for at least 3 years
• Records available for inspection in expeditious fashion

p p

• Retain the following:

– A list of all units, activities, etc. for which GHG emissions were calculated calculated – Data used to calculate emissions – Annual GHG reports – Missing data computations Missing data computations – GHG Monitoring Plan – QA/QC, maintenance

• See 40 CFR § 98 3(g)
• See 40 CFR § 98.3(g)

56

Enforcement

• Violators of the rule could be potentially

subject to enforcement action by EPA under subject to enforcement action by EPA under CAA sections 113 and 203-205.

• CAA provides for injunctive relief to compel

compliance.

• CAA provides for civil and administrative

penalties of up to $37 500 per day per penalties of up to $37,500 per day per violation.

• Preamble to Rule.

57

Enforcement

• Potential violations include:

– Failure to reports GHG emissions (for suppliers, the emissions p ( pp that would result from combustion or use of the products they supply). – Failure to collect data needed to calculate GHG emissions. – Failure to continuously monitor and test as required. – Failure to calculate GHG emissions according to the methodology(s) specified in the rule. methodology(s) specified in the rule. – Failure of keep required records needed to verify reported GHG emissions. – Falsification of reports – Falsification of reports.

58

I li ti Implications- Disclosure of Data

• EPA plans to publish the data submitted or

collected pursuant to this rule through EPA’s collected pursuant to this rule through EPA s website, EPA reports, or other mechanisms with the exception of any confidential business p y information (CBI).

• EPA plans to share emissions data (with the

exception of CBI) with state, tribal, and local level emissions reporting programs for the sake of i t consistency.

59

I li ti Implications- Disclosure of Data

• Confidential Business Information

EPA will protect any information claimed as CBI in – EPA will protect any information claimed as CBI in accordance with 40 CFR Part 2, Subpart B – However, information collected under CAA sections 114 d 208 t b d il bl t th bli d t and 208 must be made available to the public and cannot be claimed as CBI. – Inputs used for calculating GHG emissions

• Concern that it is trade secret information
• EPA, however, requires reporting and disclosure

– Separate CBI rulemaking Separate CBI rulemaking

60

I li ti Implications – Disclosure of Data

• Future regulatory schemes

d t di l d b d t d l – data disclosed may be used to develop more regulations d t d – cap and trade

• State AG targets
• Plaintiffs’ bar targets

61

I li ti Implications - Disclosure of Data

• Corporate Governance

Reporting puts spotlight on GHG emissions – Reporting puts spotlight on GHG emissions – Evolving approaches / responsibilities for GHG accounting within organizations accounting within organizations – No department  environmental, health and safety  executive / Board level – Climate Change Risk Perception and Management: A Survey of Risk Managers (April 2010) 2010)

62

I li ti Implications - Disclosure of Data

• Relationship to SEC reporting?
• SEC Issues Interpretive Guidance on

Disclosure Related to Business or Legal C C Developments Regarding Climate Change (Jan. 27, 2010)

63