International Paper 2014 Annual Report Download - page 41

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Conference of the Parties to the Kyoto Protocol
scheduled for December 2015. It is not yet clear if these
negotiations will result in a new International Climate
Change Agreement and, if so, what form it may take.
Due to this uncertainty, it is not possible at this time to
estimate the potential impacts of future international
agreements on the Company.
To assist member countries in meeting obligations
under the Kyoto Protocol, the EU established and
continues to operate an Emissions Trading System (EU
ETS). Currently, we have two sites directly subject to
regulation under Phase III of the EU ETS, one in Poland
and one in France. Other sites that we operate in the
EU experience indirect impacts of the EU ETS through
purchased power pricing. Neither the direct nor indirect
impacts of the EU ETS have been material to the
Company, but they could be material to the Company
in the future depending on how allocation of and market
prices for greenhouse gas (GHG) credits evolve over
the coming years.
National Efforts
In the U.S., the Kyoto Protocol was not ratified and
Congress has not passed GHG legislation. The U.S.
EPA has enacted (i) regulations to control GHGs from
mobile sources (through transportation fuel efficiency
standards), (ii) New Source Performance Standards
(NSPS) for new Electrical Generating Units (EGUs) and
(iii) regulations requiring reporting of GHGs from
sources of GHGs greater than 25,000 tons per year. In
2014, the Company reported to EPA the GHG
emissions from 23 of our U.S. manufacturing sites and
8 landfills.
In 2010, EPA issued GHG regulations for new and
modified sources under the New Source Review and
Title V Operating Permit programs and shortly
thereafter deferred the applicability of these GHGs
regulations to biomass carbon emissions until the
summer of 2014. EPA subsequently issued guidance
clarifying that GHGs cannot be the sole basis for
designating a new or modified source as a major source
subject to new source review or Title V air permitting
requirements. EPA also established that BACT (Best
Available Control Technology) would be required for any
GHG emissions increase above 75,000 tons per year
if a new source or Title V review was required for other
regulated pollutants.
On November 19, 2014 EPA issued a revised draft
carbon accounting framework addressing the
circumstances under which biomass combustion can
be considered carbon neutral. EPA has stated it intends
to issue future rulemakings to address how states may
use the revised framework in implementing state permit
rules and in developing plans for regulating GHGs from
utility electric generators. Given the uncertainties
regarding the framework and scope of future GHG
rulemaking, it is unclear what impacts, if any, EPA’s
actions in this area will have on the Company’s
operations.
In 2013, EPA issued final regulations establishing New
Source Performance Standards (NSPS) for new
Electrical Generating Units (EGUs). This regulation is
the first of several expected NSPSs that EPA will
implement over the coming years. The EPA has not yet
identified the pulp and paper industry in the first phase
of sectors to be covered by the new standards.
However, we anticipate that at some future time pulp
and paper sources will be subject to new GHG NSPS
rules. It is unclear what impacts, if any, future GHG
NSPS rules will have on the Company’s operations.
In 2014, EPA proposed regulations for GHGs from new
and existing utility electric generators. These
regulations have the potential to increase purchased
electricity prices across the United States. The
proposed rules phase in the compliance obligations
between about 2018 and 2030 and they remain subject
to substantive revisions before final promulgation. EPA
estimates purchased electricity prices will increase by
less than seven percent, but some utilities are
estimating significantly higher price increases. Given
the uncertainties regarding the scope of the final
regulations, it is unclear what impacts, if any, these
regulations will have on the Company’s operations.
State, Regional and Local Measures
A few U.S. states have enacted or are considering legal
measures to require the reduction of emissions of
GHGs by companies and public utilities, primarily
through the development of GHG emission inventories
or regional GHG cap-and-trade programs. One such
state is California. The Company does not have any
sites currently subject to California's GHG regulatory
plan. There may be indirect impacts from changing input
costs (such as electricity) at some of our California
converting operations but these have yet to manifest
themselves in material impacts. Although we are
monitoring proposed programs in other states, it is
unclear what impacts, if any, state-level GHG rules will
have on the Company’s operations.
Summary
Regulation of GHGs continues to evolve in various
countries in which we do business. While it is likely that
there will be increased governmental action regarding
GHGs and climate change, at this time it is not
reasonably possible to estimate either a timetable for
the implementation of any new regulations or our costs
of compliance. In addition to possible direct impacts,
future legislation and regulation could have indirect
impacts on International Paper, such as higher prices
for transportation, energy and other inputs, as well as
more protracted air permitting processes, causing