EPA Issues Supplemental Proposal to Regulate Methane Emissions from the Oil & Gas Industry

Practical Law Legal Update w-037-5862 (Approx. 7 pages)

EPA Issues Supplemental Proposal to Regulate Methane Emissions from the Oil & Gas Industry

by Practical Law Oil & Gas

Background

Clean Air Act Sections 111(b) and 111(d)

Section 111(b) of the Clean Air Act (CAA) authorizes the EPA to establish New Source Performance Standards (NSPS) for new, modified, and reconstructed sources of air pollutants (42 U.S.C. § 7411(b)). NSPS require affected sources to comply with emissions limits based on the best system of emission reduction (BSER) adequately demonstrated for that type of source.

CAA § 111(d) also requires the EPA to adopt regulations under which states will enforce performance standards for existing sources of air pollution that both:

Would be subject to NSPS if they were new, modified, or reconstructed sources.
Are not already regulated under other sections of the CAA.

(42 U.S.C. § 7411(d).)

Existing Oil & Gas Methane Regulations

The oil & gas industry is the largest industrial contributor to US methane emissions. Methane is a potent greenhouse gas (GHG) and significantly contributes to climate change. In recent years, the EPA has adopted various NSPS for emissions from oil & gas sites, including NSPS for methane emissions in 2016. EPA regulations currently include NSPS for methane and volatile organic compound (VOC) emissions from new, modified, and reconstructed oil & gas sources including:

Hydraulically fractured oil and gas wells.
Pneumatic pumps and controllers.
Some types of compressors.
Storage tanks.
Natural gas processing plants.

For more information on these NSPS, see Practice Note, Environmental Regulation of Upstream and Midstream Oil & Gas Operations: Overview: New Source Performance Standards.

The 2021 Proposed Methane Rule

In response to President Biden's Executive Order 13990, "Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis" and to carry out international commitments by the US to cut methane emissions, the EPA issued the 2021 Proposed Rule to:

Adopt additional NSPS regulations for methane and VOC emissions from oil & gas sources.
For the first time, regulate VOC and methane emissions from existing oil & gas sources under CAA § 111(d) by adopting regulations setting emission guidelines (EGs) for those sources.
Address regulatory inconsistencies caused by Congress's disapproval of Trump-era regulations that rescinded parts of the pre-existing methane NSPS for oil & gas sources (see Legal Update, President Biden Signs Congressional Resolution Repealing Trump-Era Rule that had Weakened Regulations to Limit Methane Emissions from the Oil & Gas Industry).

(86 Fed. Reg. 63110-01.)

The 2021 Proposed Rule did not include the text of the proposed NSPS and EG regulations. Instead, the EPA sought public comment on all aspects of the proposed rules and stated that it intended to issue a supplemental rule proposal including proposed text for the new NSPS and EGs. The EPA received over 470,000 written comments on the 2021 Proposed Rule.

For more information on the 2021 Proposed Rule, see Legal Update, EPA Proposes Rule to Regulate and Reduce Methane Emissions from the Oil & Gas Sector and Practice Note, Biden Administration Energy and Climate Change Policies and Regulations: 2022 Tracker: New EPA Methane Emission Rule.

The Supplemental Proposed Methane Rule

The Supplemental Proposal:

Adds and makes substantive changes to the 2021 Proposed Rule (see Key Changes in the Supplemental Proposed Methane Rule).
Includes the proposed regulatory text of the new oil & gas NSPS and EGs (see Proposed Text of the New NSPS and Emission Guidelines).
Solicits additional public comment and discusses timelines for regulatory action (see Public Comment and Future Action).

Key Changes in the Supplemental Proposed Methane Rule

The Supplemental Proposal builds on and expands many requirements in the 2021 Proposed Rule, including making the following key changes:

Regular emissions monitoring for all well sites. Unlike the 2021 Proposed Rule which contemplated regular emissions monitoring for only a subset of oil and gas wells, the Supplemental Proposal would require periodic fugitive emissions monitoring of all well sites and compressor stations. Depending on the site, monitoring may require:
- quarterly, monthly, or bimonthly audio, visual, and olfactory (AVO) leak inspections;
- quarterly or semi-annual inspections using optical gas imaging (OGI) or EPA Method 21; or
- both periodic AVO and OGI inspections.
Use of advanced methane detection technology. Building on the 2021 Proposed Rule, the Supplemental Proposal would allow the use of a broader range of advanced technologies in lieu of OGI or other leak detection methods and tie the frequency of required monitoring surveys to the detection ability of the technology used.
Monitoring required until well plugging. The Supplemental Proposal would require monitoring to continue at well sites until:
- all wells have been plugged and equipment has been removed;
- the owners submit a required well closure plan; and
- the owners conduct a final survey using OGI to ensure no emissions are found.
Super-emitter response program. The Supplemental Proposal includes a super-emitter response program to quickly identify large methane leaks and emissions events. Under the proposed program:
- regulatory authorities or EPA-approved private parties could notify owners and operators of regulated sites when a super-emitter event (100 kilograms of methane per hour or more) is detected; and
- the owners and operators would be required to determine the cause of the event and promptly correct it.
Additional requirements for flares. The Supplemental Proposal includes additional measures to reduce emissions from flaring of gas, including requirements:
- to continuously monitor flares to ensure that a pilot flame burns at all times; and
- that owners or operators submit a certified demonstration that a gas sales line is not available and that other beneficial uses are not feasible before flaring.
Updating NSPS for pneumatic pumps and compressors. The Supplemental Proposal proposes to:
- set a zero-emissions standard for pneumatic pumps; and
- update the NSPS for certain compressors and establish NSPS for dry seal compressors.

Proposed Text of the New NSPS and Emission Guidelines

New Source Performance Standards

The EPA published the proposed text of the new NSPS as part of the proposal. Under the current proposal, the new NSPS apply to facilities built, modified, or reconstructed after November 15, 2021.

Emissions Guidelines for Existing Sources

The EPA also published the proposed text of the EGs for existing sources.

Rather than allowing the EPA to set emissions standards for existing sources, CAA §111(d) requires the EPA to promulgate regulations under which states make implementation plans to adopt and enforce emissions standards. If a state fails to submit a satisfactory plan, the EPA must promulgate and enforce a federal plan. The EGs include requirements for state implementation plans along with presumptive emissions standards for regulated sources. In most cases, the presumptive standards are the same or similar to BSER in the proposed NSPS. In preparing state plans, states may either:

Adopt the presumptive standards.
Use state standards of performance, if the state demonstrates they are equivalent to the federal standards based on criteria in the EG regulations.

Under the proposed EGs:

State plans would be due 18 months after the publication of the final EG rule in the Federal Register.
Existing sources would be required to comply with the new performance standards 36 months after the plan submission deadline.

Expected Benefits and Costs of the Supplemental Proposal

The EPA estimates that in 2030, the Supplemental Proposal would reduce methane emissions from covered sources by 87% from 2005 levels (compared to 74% under the 2021 Proposed Rule). The EPA further estimates that the Supplemental Proposal would:

Avoid 36 million tons of methane emissions from 2023 to 2035.
Avoid 9.7 million tons of VOC emissions from 2023 to 2035 and 390,000 tons of emissions of toxic air pollutants including benzene and toluene.
Result in $34 to $36 billion in climate benefits from 2023 to 2035 ($3.1 to $3.2 billion annually).
Increase recovery of natural gas valued at $3.3 to $4.6 billion from 2023 through 2035.

The EPA estimates compliance costs of the proposed regulations over the period from 2023 to 2035 to be $19 billion using a three percent discount rate and $15 billion using a seven percent discount rate.

Public Comment and Future Action

The EPA has published a fact sheet on the Supplemental Proposal and has compiled the Supplemental Proposal and supporting documents on its website.

The EPA is soliciting comments on the Supplemental Proposal and has published a memo listing specific subjects on which comments are requested. Comments must be received by February 13, 2023. The EPA is additionally holding a virtual public hearing on the proposal on January 10-11, 2023. The EPA expects to adopt a final rule in 2023.

Practical Implications

The proposed regulations substantially advance the Biden administration's Long-Term Strategy to address climate change including a plan to achieve net zero GHG emissions in the US by mid-century (see Practice Note, Biden Administration Energy and Climate Change Policies and Regulations: 2022 Tracker).

The regulations also increase regulatory burdens on the oil & gas industry, especially for operators of existing oil & gas wells and upstream infrastructure that are not already subject to NSPS. Of particular industry concern:

The requirement to conduct monitoring on all existing oil and gas wells until they are plugged could substantially affect oil & gas operators with many older, low-producing wells. A January 2022 report by the Energy Information Administration (EIA) estimates there were over 930,000 producing oil and gas wells in the US as of 2020, most of which produce less than 15 barrels of oil equivalent per day.
The EG regulations may significantly impact some types of older oilfield equipment that would need to be modified or upgraded to meet performance standards.
The super-emitter response provisions potentially allow environmental groups or private citizens to obtain EPA approval to help enforce the new regulations.

Once finalized and adopted, the regulations are likely to be challenged, including potentially under the major questions doctrine (see Legal Update, West Virginia v EPA: Supreme Court Limits the EPA's Authority to Regulate Emissions from Existing Power Plants, with Implications for the Administrative State).

EPA Issues Supplemental Proposal to Regulate Methane Emissions from the Oil & Gas Industry | Practical Law