Size Thresholds for Greenhouse Gas Regulation: Who Would be Affected by a 10,000-ton CO2 Emissions Rule?

Opponents of action on climate change have warned that jobs will be lost to a cap and trade system that encompasses small businesses. This report addresses this concern by seeking to identify what type and size of businesses will be, and won’t be, regulated under various legislative proposals that target facilities that emit at least 10,000 metric tons of carbon dioxide or its greenhouse gas equivalent per year. Understanding this will help design policy to assist those who would be most affected.

Author(s): Institute Staff

Published: September 2007

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Executive Summary:
One of the first questions posed when new regulations of any kind are being considered is—who is regulated? Lack of clarity on the point of regulation can lead to incorrect assumptions and policy decisions. Opponents of action on climate change have warned that jobs might be lost to a cap and trade system that encompasses small businesses. This concern is especially prevalent in the manufacturing sector, where most facilities currently do not measure emissions, and are unsure how they would be affected by a cap and trade system. It is critical, therefore, to understand what type and size of business entities might be subject to regulation, both to allay concerns and design policy to assist those most affected.

Various legislative proposals have sought to target only “large emitters,” commonly measured as those facilities that emit at least 10,000 metric tons per year of carbon dioxide or its greenhouse gas equivalent. This report uses a 10,000-ton requirement to identify who is in, and who is out, of regulation in three U.S. sectors. Data on fuel consumption per employee used in this report to derive total annual CO2 emissions per employee are from the Energy Information Administration’s (EIA) Manufacturing Energy Consumption Survey (MECS). Data on the number of facilities and employees in each industry, used with fuel consumption data to estimate total annual emissions per facility, are from the U.S. Census Bureau’s Economic Census.

In the electric power sector, virtually all CO2 emissions (99.9 percent) come from 58 percent of plants. Large power plants, and those that use fossil fuel for generation, are almost certain to be covered under a 10,000-ton regulation; small generating units used intermittently may be exempt. In the commercial sector, farms and commercial buildings generally would be outside the scope of a program that sets the threshold at 10,000 tons per year, except for a few very large universities and hospitals that run large boilers for central heat.

The manufacturing sector, given the variety of facility sizes and industry processes, presents an interesting story. The general rule of thumb is that if the facility has a smokestack, it will probably be required to account for its emissions under a 10,000-ton reporting scheme. If the facility has fewer than 50 employees, and no smokestack, it will be virtually guaranteed safe passage around any reporting requirement, regardless of the industry. The vast majority of manufacturing industries are not expected to cross a 10,000-ton reporting threshold until the employee count is in the hundreds, and for a large number of industries, that threshold is never crossed. For those few energy-intensive industries where a larger segment will be affected, policy can be designed to mitigate potential cost increases or competitive disadvantages.