1. National Regulatory Picture September 25, 2009 Claire Schary EPA Region 10 Climate Change Policy Advisor schary.claire@epa.gov (206) 553-8514

2. 2 EPA Regulatory Actions Related to Climate Change GHG Mandatory Reporting Rule – now final (as of 9/22/09) Two proposed rule packages now at OMB for internal review before they can be published in Federal Register: −Proposed rule for GHG emission standards for light-duty vehicles −Proposed rule to regulate GHG emissions from large stationary sources Final Endangerment Finding expected to be at OMB very soon Other proposed rules in or near post- public comment period: −Proposed Renewable Fuel Standard −Proposed Carbon Capture & Storage Rule Admin. Jackson says it’s “open legal question” if EPA has authority to establish cap and trade unless Congress provides new regulatory tool as it did for Acid Rain Program’s SO2 trading (1990 Clean Air Act Amendments) –Recent court rulings struck down EPA-administered Clean Air Interstate Rule (regional cap and trade program for SO2 and NOx)

3. 3 GHG Mandatory Reporting Rule Objective – To provide accurate data that will inform and support development of national climate policy Required by FY08 Appropriations Act – Dec. 26, 2007 –Congress gave EPA 18 months & $3.5 million to develop rule - Proposal due Sept. 26, 2008; final due June 26, 2009 Timeline: –Preamble and rule draft submitted to OMB Oct. 24, 2008 –Proposal signed March 10, 2009; published in Federal Register April 10, 2009 –Public comment period closed June 9, 2009 –Final rule approved by White House & announced Sep. 22 Could take a while to be published in Federal Register, but effective now. Website, webinars, fact sheets, getting word out through trade associations & conferences are primary outreach methods.

4. 4 Design Elements of Final Rule Source Category Coverage Level of Reporting Reporting Thresholds Reporting Methodology Reporting Frequency Verification Six greenhouse gases covered: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE). Approximately 85% of total U.S. GHG emissions covered by this rule (abut 10,000 reporters)

5. 5 Source Category Coverage Applies to 29 specific categories of covered sources Both upstream & downstream suppliers of fossil fuels, producers of aluminum, cement, iron and steel, glass, and various chemicals (both direct emitters and consumers of fuels & chemicals) –Upstream sources covered includes producers, importers and exporters of petroleum products, natural gas, and industrial GHGs. They will report based on GHG content of fuels or gases they supply to the market. Covers fuel, vehicle, and engine manufacturers and suppliers but light duty engines exempt because of separate rule making. –Starts with CO 2 in model year 2011 and other GHGs in subsequent model years –Individual car and truck owners and fleet owners excluded –Added NOx requirement for aircraft engine manufacturers from proposed rule, but postponed CH 4

6. 6 Source Category Coverage Methane emissions from large-scale manure management systems (>25,000 mtCO2e) covered, but other agriculture sources excluded –Estimated less than 100 livestock operations affected –Is not redundant with other EPA initiatives affecting CAFOs Inclusion of some source categories delayed to consider comments, options: –Includes electronics manufacturing, food processing, oil & natural gas systems, underground coal mines, suppliers of coal, industrial landfills, wastewater treatment –Some categories may be added in revised final rule next year but others may require proposed & final rulemaking to add For more information, fact sheets: http://www.epa.gov/climatechange/emissions/ghgrulemaking. html

7. 7 Level of Reporting & Thresholds Facility-based reporting for all source categories for which there are methods –Limited exceptions for a few reporters (e.g., fuel importers, vehicle and engine manufacturers outside of light-duty sector) Emissions-based threshold of 25,000 metric tons of CO 2 e per year for most sources (other than mobile sources) –25,000 metric tons of CO 2 e is equivalent GHG emission from energy use of approximately 2,300 homes or annual GHG emissions from approx. 4,600 passenger vehicles Final rule dropped “once in-always in” requirement – sources can leave program if they demonstrate emissions below 25,000 MT CO 2 e for 5 years in a row, or below 15,000 MT CO 2 e for 3 years in a row. Capacity-based threshold where appropriate and feasible (e.g., Acid Rain Program threshold for power plants is 25 MW) Applicability tool available online to help facilities assess whether they are required to report

8. 8 Reporting Methodology & Frequency Hybrid of direct measurement and facility-specific calculation –Facilities already reporting and collecting emissions data (e.g., under the Acid Rain Program) must use direct measurement of emissions –Other source categories can use facility-specific calculations –Industrial gas & fossil fuel suppliers use direct reporting of gas produced, imported and exported –Vehicle/engine manufacturers will use existing certification and test protocols, generally. –Best available monitoring methods may be used for Jan.1 – March 31, 2010 period. Annual reporting to EPA –Begins Jan.1, 2010 to start data collecting, and reporting on March 31, 2011 (except for Acid Rain Program sources, which continue to report quarterly) EPA verification –Reporters self-certify and submit emissions and activity data necessary for verification –Electronic verification and targeted audits will be used –EPA can take enforcement action for non-compliance –Consistent with most EPA programs

9. 9 Estimated Costs & CBI Issue Expected cost to private sector to comply with reporting requirements: –$115 million for the first year –$72 million annualized costs for subsequent years Estimated cost of reporting for small businesses will be less than 1% of the average annual sales –Small Business Administration thought 25,000 MT CO 2 e threshold would avoid most small businesses Confidential Business Information (CBI): –EPA will do separate notice and comment process next year on CBI status of data elements collected

10. 10 Relationship to State & Regional Programs Rule does not preempt States from regulating or requiring reporting of GHGs –EPA rule in response to request from Congress and narrow than scope of many State programs that are tied to reduction programs No state delegation EPA recognizes that direct reporting to EPA means sources may have to report to state programs too –EPA working with states, The Climate Registry, and the Exchange Network on a data exchange standard –EPA committed to working with State and Regional programs to provide timely access to verified emissions data, establish mechanisms to share data as efficiently as possible, and harmonize data systems to extent possible WCI announced at Sep. meeting its states will harmonize their GHG reporting with EPA’s rule starting in 2011, but will keep 10,000 MT CO 2 e threshold Canada’s GHG reporting rule has 50,000 MT CO 2 e threshold –Canadian WCI partners will be able to require reporting like that mandated by EPA only if WCI essential requirements for reporting are changed.

11. 11 Endangerment: Background April 2, 2007– In Massachusetts v. EPA, the Supreme Court found that greenhouse gases are air pollutants covered by the Clean Air Act EPA was required to determine whether: –GHG emissions from new motor vehicles cause or contribute to air pollution; –This air pollution may reasonably be anticipated to endanger public health or welfare; or –The science is too uncertain to make a reasoned decision

12. 12 Endangerment Finding April 17, 2009 – Administrator signed a proposal with two distinct findings regarding greenhouse gases under section 202(a) of the Clean Air Act –Proposed Endangerment Finding: Current and projected concentrations of the mix of six key greenhouse in the atmosphere threaten the public health and welfare –Cause or Contribute Finding: Combined emissions of CO 2, CH 4, N 2 O, and HFCs from new motor vehicles and motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change 60 day public comment period from date of publication in Federal Register (April 24-June 23) –Over 400 pre-publication comments received –Two public hearings held May 18, 2009—Arlington, VA 83 people testified, 113 people in audience, 50 via audio webstream May 21—Seattle, WA 150 people testified, 322 people in audience, 25-40 via audio webstream

13. 13 California Waiver Decision & CAFÉ Standards Dec. 2007 - Denial of California waiver to allow CA to establish, enforce own GHG standards at tailpipe –14 other states and District of Columbia also requested to adopt CA standard –Bush Administration directed Dept. of Transportation to issue CAFÉ standards for 2011-2016 model years (passenger models = 35.7 mpg and light-duty truck models = 28.6 mpg) –Administrator Lisa Jackson announced she would reconsider CA waiver decision Public hearing March 5, 2009, public comment period closed April 6

14. 14 Proposed rule for GHG Emission Standards for Light-Duty Vehicles On May 19, Pres. Obama announced major agreement among auto industry, states, & environmental groups to create a single national GHG emissions program: –EPA & DOT to work together to create new GHG emission standards for vehicles, with harmonized but separate tailpipe emissions and efficiency standards Will achieve 35.5 MPG average by 2016 and nearly 40% reduction of GHG emissions from levels of today’s fleets –California agreed to conform to new federal fuel economy standards from 2012 to 2016, if it receives a waiver to set its own vehicle standards after 2016 –Automakers also agreed to drop lawsuits against California’s proposed vehicle standard On August 25, EPA & DOT submitted rule packages to OMB: –DOT submitted proposed rule for CAFÉ standards for 2012-2016 model years –EPA submitted tailpipe GHG emission standards for cars & light trucks –Final rules need to be published in Federal Register by end of March 2010 in order to meet deadline for affecting 2012 fleets

15. 15 Proposed Rule for GHG Emission Limits for Stationary Sources On Aug. 31 EPA sent to OMB a proposal for “Prevention of Significant Deterioration / Title V Greenhouse Gas Tailoring Rule” –PSD provisions of CAA requires new and modified major pollution sources to have modern pollution controls (BACT), to prevent increases in areas already meeting air quality standards –Rule would also determine how Title V permitting requirements apply to GHG emissions –Proposes requirement for sources above 25,000 tons per year threshold to comply with PSD requirements for CO2 (rather than 250 tons per year as CAA requires) –EPA may consider general permit approach for sources under 25,000 tons/year Since action triggered by regulation of CO2 emissions under motor vehicle rule, must finalize PSD proposal by March 31, 2010 for PSD requirements to apply to newly regulated CO2 emissions (tied to deadline for 2012 vehicle model year) Action relates to Admin. Jackson’s announcement in Feb. that she is reconsidering Admin. Johnson’s “Interpretive Memo” –In the Memo, EPA said that CO 2 is not a regulated New Source Review (NSR) pollutant in Prevention of Significant Deterioration (PSD) regulations EPA now considering a New Source Performance Standard for power plants and industrial boilers

16. 16 Renewable Fuel Standard  Proposed rule announced May 5, 2009 (called “RFS2”)  Responding to Energy Independence and Security Act of 2007 - requires 36 billion gallons of renewable fuels available by 2022 –Revises existing National Renewable Fuel Standard (RFS) program to establish new specific volume standards for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel that must be used in transportation fuel each year.  Five-fold increase over 10 years from current RFS levels. –Provides new definitions and criteria for both renewable fuels and the feedstocks used to produce them, including new GHG thresholds for renewable fuels. –Will apply to domestic and foreign producers and importers of renewable fuel. –60-day public comment period closes Sep. 25th

17. 17 Renewable Fuel Standard Congress specified EPA must conduct lifecycle GHG analysis, including land-use change –Renewable fuels must achieve min. of 20% lifecycle GHG reduction relative to fuels they displace; advanced biofuels = 50% reduction; cellulosic fuel = 60% reduction. –Proposed rule exempts ethanol produced by plants in existence or under construction before 2007 law. –Expecting wide-ranging comments on lifecycle analyses on emissions levels and whether or not to include “indirect” land use changes, especially international. Feasibility of achieving proposed volume targets by fuel type in designated years are also receiving lots of comments e.g., American Petroleum Institute questions if 2010 target of just under 13 billion gallons of total renewable fuel, including 950 million gallons of “advanced” fuel ( which includes but is not limited to cellulosic biofuels) can be achieved.

18. 18 Carbon Sequestration Rule Proposed rule for geologic carbon capture and storage –Purpose: to protect underground sources of drinking water from injection related activities –Establishes new class of injection well –Proposed rule published July 25, 2008, comment period extended to Dec. 24, 2008. –Two public hearings held: Sep. 30. 2008 Chicago, IL Oct. 2, 2008 Denver, CO Proposal applies to: –Owners or operators of wells that will be used to inject CO 2 into the subsurface for the purpose of long-term storage –State agencies that choose to administer the program in the future EPA issued Notice of Data Availability (NODA) on Aug. 26, 2009 to request more data and to seek comment on: –New data from the Department of Energy concerning ongoing GS projects and modeling to predict the potential impacts on groundwater from GS activities, –Request by state officials to allow them -- rather than EPA -- to waive permit requirements to allow geologic sequestration of carbon above an area's deepest drinking water source. Final rule expected in late 2010/early 2011 – or later

19. 19 Regional GHG Programs Western Climate Initiative (WCI)’s cap & trade program: –7 states (AZ, CA, MT, NM, OR, UT, WA) + 4 provinces (BC, Manitoba, Ontario, Quebec) –Proposing to create cap of GHG emissions from multiple sectors, to reduce 15% from 2005 levels by 2020. –Broader scope of sources, more GHG pollutants, and bigger geographic region than RGGI. –Status: Completed final design recommendations - now up to states and provinces to establish rules to implement program. –WCI workgroups also formed to develop regional functions and minimum requirements (e.g., allowance allocation process, trading system, offset protocols, etc.) –WCI Partners Meeting held July 23 in Portland – next is Sep. 16-17 in Toronto, Ontario WCI discussing potential alliance with other regional trading programs: Regional Greenhouse Gas Initiative (RGGI)’s CO2 Budget Trading Program: –10 states in NE US (CT, DE, ME, MD, MA, NH, NJ, NY, RI, & VT) –Caps CO2 emissions from electric power plants, starting in 2010. Goal: 10% reduction by 2018 –Status: 2009 is first year of compliance; four allowance auctions held so far, raising millions for energy efficiency and renewable energy projects Midwest GHG Reduction Accord –6 states (IA, IL KS, MI, MN, WI) + one province (Manitoba) –April 2009 - Finalized recommendations for Midwest program design elements for back-stop regional GHG trading program if no national trading system; similar design to WCI’s. –Status: Currently focusing on providing recommendations to Congress for national cap and trade program.