EPA Releases Bold Proposal on Oil and Gas Methane Emissions: (natlawreview.com)
National Law Review, November 4, 2021
Building on the Biden Administration’s strategy to achieve net-zero greenhouse gas (GHG) emissions by 2050, and as world leaders begin gathering in Glasgow, Scotland, yesterday, the US Environmental Protection Agency (EPA) issued a proposal under the Clean Air Act to significantly expand regulation of methane from oil and gas operations in the United States. The proposal—issued in conjunction with measures proposed by at least five other cabinet-level agencies to address GHG emissions—is part of President Biden’s “whole of government” approach to addressing climate change and represents EPA’s most ambitious regulatory effort to date to curb oil and gas sector emissions. EPA estimates compliance costs of $12 billion (present value, 3% discount rate) for existing sources, which it indicates would be offset by an estimated $4.7 billion (present value) through the capture of natural gas pursuant to the fugitive emission requirements in the proposal.
Four key areas of the proposal to understand are:
- Increasing Stringency of Current Standards for New/Modified/Reconstructed Facilities: EPA proposes to increase stringency of the current new source performance standards (NSPS) for GHGs and volatile organic compounds (VOCs) for the Crude Oil and Natural Gas source category. The proposed standards would be codified in a new section of the federal regulations, 40 C.F.R. Part 60, Subpart OOOOb (“Quad Ob”). At the end of this post is EPA’s Table 2 from the proposal summarizing the new proposed standards in Quad Ob. EPA’s proposal for new, modified, and/or reconstructed sources in oil and natural gas would expand and make more stringent regulatory requirements currently in place under the NSPS 40 C.F.R. Part 60, Subparts OOOO (“Quad O”) and OOOOa (“Quad Oa”).
In a unique, but not wholly unprecedented approach, EPA has withheld at this time the language that it would include in a regulation if one were issued. Instead, it seeks comment and states that it will issue a supplemental proposal in 2022 to make that language available for public comment. This approach could have been chosen for any one or a combination of the following reasons:
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- Time: The proposal is being issued “quickly” as regulatory proposals go, less than a year after the administration took office—typically, it would take at least two years to issue a nearly 600-page proposed regulatory action, and even accounting for the fact that the Administration is building on prior actions, much of it is brand new. Thus, there simply may not have been time to develop the language.
- Complexity: The number of changes being suggested and their interaction with a series of regulatory provisions that previously were issued, rescinded, subject a Congressional Review Act (CRA) action, means that the task is challenging.
- OMB: All regulatory proposals and final actions require review by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OMB and OIRA). This proposal underwent an expedited review at OMB, passing through the system in less than 60 days. Although OMB is charged with completing reviews in 90 days, it is far more typical to see proposals take upwards of 120 days to clear OMB. For such a massive regulatory package, the complexity of adding this language could have been a factor.
- Signal Openness to Key Constituencies: By not proposing regulatory language and seeking comment on the scope of its ultimate proposal, EPA signals potentially to others that there may be additional opportunities to push the proposal further.
EPA invites public input about the proposed modified standards and about additional sources that may further reduce methane and VOC emissions from the oil and natural gas sector. See here for a table that EPA issued listing the sources covered under the current and proposed standards.
- Regulating Existing Oil and Gas Sources Currently Covered by State Rules or Addressed by Industry Best Practices But Not Previously Regulated by EPA: Section 111, which authorizes NSPS—the new source performance standards, under subsection (b)—can also lead to and may require regulation of existing sources, which would occur pursuant to subsection (d) of Section 111. States have been regulating existing oil and gas sources extensively for many years, but the federal government has not yet taken action on them, with some stakeholders viewing federal regulation as duplicative of and potentially conflicting with already sound state programs and other stakeholders seeking uniformity and a federal right to bring citizen enforcement of standards, which does not generally exist under state regulations.
EPA now proposes Emissions Guidelines (EGs) for existing sources in the Crude Oil and Natural Gas source category for states to follow in developing, submitting, and implementing state plans to establish existing source performance standards to limit GHGs. The proposed EGs would reside in a new section of the federal regulations, 40 C.F.R. Part 60, Subpart OOOOc (“Quad Oc”). The proposed EGs include “presumptive standards” for the same types of facilities that are covered by the NSPS, with the exception of well completions and liquids unloading. According to the proposal, the presumptive standards are intended to provide states with a starting point in their plans, which EPA believes “reflect the emission reductions achievable by applying the Best System of Emission Reduction (BSER) that the EPA Administrator determines has been adequately demonstrated.” At the end of this post are EPA’s Tables 3, 20, and 21 from the proposal summarizing the proposed technology determinations and presumptive standards for GHGs from existing facilities in Quad Oc.
On the whole, the proposed presumptive existing source standards generally mirror the new source standards EPA is proposing for new, modified and reconstructed sources. And as noted above, those new source standards ratchet up the stringency of what is already in place for the sector.
To be sure, many companies are already implementing the types of programs that would be called for by these regulations, either voluntarily or under state and local regulations. But even where companies are already implementing in practice the core elements of a proposed regulation, such as leak detection and repair, the transformation of such elements into enforceable obligations subject to compliance certifications “ups the compliance risk ante”—companies need to review the proposal carefully to ensure that when it comes to complying with the detailed requirements, they understand what will be required and what they must certify to the government they have done (and report deviations) on an annual basis. This task is somewhat complicated by the fact that regulatory language is not available at this time, which is a critical aspect of analyzing the impacts of a rule. At the same time, regulated entities can treat this as an opportunity for to provide input on key aspects of how EPA should craft the regulatory language for the existing sources to take into account practical compliance concerns from the outset. And when the proposed regulation text is made available in early 2022, careful examination and comment will be in order and a key to success in complying with whatever regulations are issued. Finally, though state plans may differ from the federal existing source emissions guidelines, in practice, we see states largely adopt the federal language, which sets a stringency floor for state plans.
- Amendments to the 2020 Technical Rule: Another important aspect of the proposal is that it would revise Quad Oa to (1) rescind the revisions to the VOC fugitive emissions monitoring frequencies at well sites and gathering and boosting compressor stations in the Technical Rule as EPA believes “those revisions were not [well] supported” and (2) adjust other modifications made in the Technical Rule to address implementation issues that result from the CRA disapproval of the Policy Rule. These changes are important and may have more practical implications worth addressing in comments than the switch regarding regulation of methane from the sector, as many companies have publicly stated that they favor methane regulation and are already subject to extensive regulation at the state level.
- Implementing the Congressional Review Act Resolution That Repealed the Trump Administration’s 2020 Policy Rule: In September 2020, EPA issued a regulation that rescinded the Obama Administration’s determinations regarding the appropriateness of regulating the Transportation and Storage segment of the oil and gas sector, while supporting the propriety of regulating the Processing and Production segment for VOCs, but not for GHGs (again due largely to statutory process concerns). The crux of that action was a determination that the proper procedure had not been followed under Section 111 to regulate Transportation and Storage activities at all and to regulate methane from the Production and Processing segment, though such a procedure could be followed in the future and if it were, such regulations could be issued. This action was commonly referred to as the “2020 Policy Rule,” in part because it was issued in tandem with a “2020 Technical Rule” that made several changes to the Quad O and Quad Oa regulations related to implementation of the requirements that had been issued previously.
In June 2021, pursuant to a Congressional Review Act (CRA) resolution, the 2020 Policy Rule was rescinded. The 2021 CRA resolution nullified the 2020 Policy Rule and thereby reinstated regulation of VOC and methane emissions for the Transportation and Storage segment and for methane emissions for the Production and Processing segments. The 2020 Technical Rule was not a part of the CRA resolution. The proposal on November 2 states that it aims to implement in regulatory language the effect of the CRA Resolution rescinding the 2020 Policy Rule, which largely involves adding the word “GHGs” as well as deleting Transportation and Storage segment definitions and applicability provisions back into the rule. While seemingly straightforward, the impacts of what appear to be simple changes are more complex than first meets the eye, as reflected in an EPA Q&A document issued earlier this summer.