U.S. policymakers at the federal, regional and state level are discussing market-based policies
to reduce carbon dioxide (CO2) and other greenhouse gas (GHG) emissions. Below are answers to
commonly asked questions about the scope of such legislation and the costs and benefits for business.
Will my facility need to comply with climate change policy?
Rather than regulating all GHG emissions, most approaches focus
on the largest sources. This typically involves large “smokestack”
emissions (e.g., from electric power plants), as well as
the upstream bulk sale or import of fuels (e.g., petroleum) that
emit GHGs when used. This helps limit the number of facilities
under direct regulation while still covering most GHG
emissions—approximately 80 percent in some cases. Facilities
that are not directly regulated would still have a cost incentive
to reduce their indirect GHG emissions (e.g., from electricity
consumption) where compliance costs are passed through from
regulated fuel and electricity suppliers.
Recent legislative proposals in the U.S. Congress seek to regulate
facilities that emit 25,000 metric tons of CO2-equivalent
per year which is roughly equivalent to the CO2 emissions of a
4 MW gas turbine running at full load with 98 percent availability.
These “covered entities” would include electric power
plants and large industrial facilities. Federal legislative proposals
would also cover GHG-emitting fuels sold by natural gas
utilities (local distribution companies) and petroleum refiners
and importers. For more information on the point of regulation,
see WRI’s federal climate policy summary.
In addition to federal proposals, there are regional and state
programs a business may need to consider. Regional and state
climate policies vary in their respective points of regulation.
For more information on regional programs, see WRI’s summary
on regional cap-and-trade programs.
Will my facility need to report GHG emissions?
Beginning in 2010, a new mandatory GHG reporting rule went
into effect that requires large “smokestack” and other selected
sources to report emissions to the U.S. Environmental Protection
Agency (EPA). For more information on this rule, see the
EPA’s FAQ document on GHG emissions reporting.
In addition to the EPA GHG reporting rule, individual states
may also have reporting requirements. For example, the
Regional Greenhouse Gas Initiative (RGGI) requires energy
generation plants larger than 25MW to report GHGs.
What are the compliance costs for regulated facilities?
Compliance costs depend on how efficient a facility is in
reducing its GHG emissions and what policy mechanisms or
programs are implemented to reduce costs. A regulated facility
would need to weigh the various costs of these options to
understand full compliance costs. In a cap-and-trade program,
for example, covered facilities would need to hold GHG allowances
equal to their annual emissions, so costs depend on
how much the facility emits and the price of GHG allowances
(estimated to be about $32 per ton CO2e in 2020 according to
a Department of Energy analysis of a recent federal proposal1).
The trading option would allow entities to buy and sell allowances
(meant to encourage the most cost-effective emission
reduction options and lower overall compliance costs).
Most federal proposals provide these or other flexibility options
(including allowances allocated for specific purposes in early
years or tax incentives) to reduce costs and encourage investment
in GHG emission reduction projects. For more information,
see WRI’s Bottom Line on Cost Containment.
What costs can non-regulated facilities expect?
Facilities that are not directly regulated by climate policies may
see upstream costs passed down from energy providers and
other suppliers. Costs could be high for facilities that source
from suppliers that are major GHG emitters. Meanwhile, costs
could be minimal for facilities that source from suppliers that
produce few or zero GHG emissions.
Will facilities be able to leverage new competitive advantages?
Both regulated and non-regulated facilities could see new
market opportunities and competitive advantages. Facilities
that produce clean, low-GHG emissions technologies could
see increased market demand for those products and services.
Price signals and funding programs may provide additional
incentives for GHG reduction projects, such as both supplyand
demand-side efficiency upgrades, fuel switching from more
carbon-intensive to less carbon-intensive fuel sources and clean
energy equipment. In general, facilities that reduce their GHG
emissions—as well as upstream (supplier) and downstream
(customer) emissions—can optimize competitive positioning.
Will climate legislation increase energy bills?
According to analyses of recent federal proposals, climate
legislation will increase the price of producing energy from
resources that emit GHG pollution (e.g., coal and petroleum).
Higher energy prices or electricity rates, however, do not
always translate to higher energy bills. Facilities that reduce
total energy use by increasing their energy efficiency or that
purchase power from low-GHG energy sources can mitigate
energy costs or reduce energy bills.
The table (see PDF) presents estimates from the Energy Information
Administration (EIA) for how energy prices could change
under the American Clean Energy and Energy Security Act
(ACESA) that passed the House of Representatives in 2009.
What types of incentives and programs will be available to reduce GHG emissions at my facility?
Climate policies often incorporate additional incentives and
financing programs to assist facilities in reducing GHG emissions.
These can involve funding for federal, state and local
programs. These funds are generally distributed in the form
of competitive grants, rebates and tax credits. Below are a few
examples of activities typically eligible for such support:
Clean energy technology deployment (including wind turbines,
solar panels, electric vehicles and fuel cells)
Industrial electricity and thermal energy efficiency, including
combined heat and power (CHP)
Worker training for energy efficiency
Building efficiency retrofits
Motor efficiency upgrades
This issue builds on topics and policy mechanisms discussed in previous issues: