Audit, Compliance and Risk Blog

On June 26, the federal District of Columbia Circuit Court of Appeals issued a major decision, upholding four rulings by the U.S. Environmental Protection Agency (EPA).  All four rulings expand the regulation of greenhouse gas (GHG) emissions under the Clean Air Act (CAA). The case is Coalition for Responsible Regulation v. EPA.1 

What rules does the decision uphold?

 The four EPA rulings are commonly referenced as follows:

• Endangerment Finding (2009) This provides EPA’s formal finding that GHGs “may reasonably be anticipated both to endanger public health and to endanger public welfare.”  The quoted language invokes EPA’s duty to regulate a pollutant under CAA.

•  Tailpipe Rule (2010) This sets GHG limits for cars and light trucks from a joint rulemaking with the National Highway Traffic Safety Administration, which sets vehicle fuel efficiency standards.

• Timing Rule and Tailoring Rule (2010) Together these rules order phased-in regulation for major stationary sources of GHG emissions (such as fossil fuel power plants) and establish a timeline for progressively lower emission thresholds.

The decision spends 82 pages rejecting a broad range of attacks from states and industry groups.  It finds each of EPA’s decisions reasonable, given the scientific evidence of harm, and the agency’s duties under CAA.

The Court decision allows EPA to move ahead with significant new regulatory requirements for mobile and stationary sources. In addition, the Endangerment Finding is broader and provides EPA with formal authority to design additional regulatory tools in the future. These will supplement EPA’s Mandatory GHG Reporting Rule, which is based on authority outside the CAA, and is now in its second year.

Since we're not a car company or an energy utility, why should we care?

The immediate effects of these EPA rulings are narrow, because EPA designed them to target the largest emitters first. Unless you’re an automaker or operate a very large generator, furnace or boiler, you won’t face any immediate regulatory requirements.  Costs of electricity, vehicles, and goods produced using significant energy may tend to rise, depending on how fast the organizations that are subject to these new rules can adjust their operations to reduce GHG emissions, and associated regulatory compliance costs.

But the decision is a significant endorsement of efforts to regulate GHG emissions by EPA and by individual states, most notably California. It also provides strong general reinforcement by market-driven initiatives to count, report and limit GHG emissions. These private sector initiatives include major “supply chain” reporting requirements imposed on suppliers by Walmart, IBM, Procter & Gamble, and others.

How can we prepare for GHG reporting and reduction requirements when they hit us?

Regulatory requirements from EPA or states tend to be specific and detailed, so it’s risky to hurry to meet specific requirements that may have changed before they extend to your operations. In contrast, market-driven reporting and reduction requirements tend to provide much more generalized direction, and to give organizations greater flexibility in how to approach evaluation, reporting and management.

Most market-driven approaches are patterned after methodologies developed by the Greenhouse Gas Protocol Initiative, which is an international effort launched by the World Resources Institute and the World Business Council for Sustainable Development. The GHG Protocol issues standards that apply these methodologies to a wide variety of situations.  Some private programs reference these standards directly, while others derive elements of their own separate surveys from GHG Protocol approaches.  The following checklist is based on these methodologies.

Implementation Checklist

Has our organization identified activities that cause GHG emissions? If so, has it assembled this information into an emissions inventory that can be used to focus evaluation, reporting and management efforts?

If so, does it distinguish among the following types of activities and emission sources such as:

• Emissions from activities controlled by the organization (referred to as “Scope 1” emissions)?

• Emissions from activities not controlled by the organization, but undertaken by third parties to support provision of goods and services to the organization such as: energy utilities (referred to as “Scope 2” emissions) and, other suppliers (referred to as “Scope 3” emissions, and sometimes as “supply chain” or “value chain” emissions)?

• Emissions from activities not controlled by the organization, but undertaken by third parties using goods and services produced by the organization, and/or managing wastes from the organization (also included are “Scope 3” emissions, which are sometimes referred to as “value chain” emissions)?

Does my organization compile this information:

• For internal use in managing our activities?
• For internal use in setting goals?
• For external publication and/or reporting to specific third parties (such as customers or shareholders) and/or the general public?