The U.S. Environmental Protection Agency (EPA) this month announced a proposed rule designed to reduce methane emissions from the oil and gas industry by imposing a charge on that pollution. The proposed rule was published in the Federal Register on Friday, January 26, 2024.
First, let’s get some routine background out of the way.
A word about methane: EPA has taken aim against these emissions because methane is a potent greenhouse gas and second-leading cause of climate warming.
Now some needed info on how - and why - the proposed regs came about. Buckle up, because it’s gonna get a little technical - there’s just no getting around it!
Here goes:
The proposed rule will be codified, follow, and supplement, section 136 of the Clean Air Act - a relatively new addition signed into law in 2022 as part of the Inflation Reduction Act.
Section 136(c) directs the EPA to impose a waste emissions charge on “methane emissions…from an owner of an applicable facility that reports more than 25,000 metric tons of carbon dioxide equivalent of greenhouse gasses emitted per year.
Almost every term in Section 136(c) is defined, so there is a lot to unpack here.
First, EPA will impose the waste emissions charge only on methane emissions from certain facilities, all of which are part of the petroleum and natural gas industry:
Petroleum and natural gas production
Nonproduction petroleum and natural gas systems including onshore natural gas processing, onshore petroleum and natural gas gathering and boosting, liquefied natural gas storage, and liquefied natural gas import and export equipment and
Natural gas transmission including onshore natural gas transmission compression, underground natural gas storage, and onshore natural gas transmission pipelines.
The waste emissions charge will not be imposed on facilities outside of the petroleum and natural gas industry (or on non-applicable facilities within that industry) no matter how much methane they emit.
Second, EPA will impose the waste emissions charge only on methane emissions. “There will be no charge on emissions of other greenhouse gasses, no matter how much or how little of them a facility otherwise subject to the waste emissions charge might emit,” GASP senior attorney John Baillie explained.
Third, EPA will impose the waste emissions charge only on methane emissions that exceed what is referred to as a facility’s waste emissions threshold set by Section 136(f) of the Clean Air Act.
Section 136(f) sets the waste emission threshold at:
0.20% of the natural gas sent to sale from petroleum and natural gas production facilities
0.05% of the natural gas sent to sale from or through nonproduction petroleum and natural gas systems
and 0.11% of the natural gas sent to sale from or through natural gas transmission facilities.
These percentages are to be measured by weight, expressed in metric tons.
“It bears mention that natural gas is not typically - or perhaps even ever - sold by weight expressed in metric tons, but rather by volume in terms of cubic feet,” Baillie said.
EPA proposes to get around this mismatch by requiring facilities subject to the waste emissions charge to convert threshold amounts expressed in volume to metric tonnage by multiplying by a factor of 0.0192 metric tons per thousand cubic feet of methane.
Fourth, EPA will collect the waste emissions charge from facilities in the petroleum and natural gas industry whose emissions of all greenhouse gasses - not just the methane emissions on which the fee is actually to be imposed - exceed 25,000 metric tons per year.
“Notably, Section 136 allows the netting of methane emissions across different, but commonly-owned facilities, which may work to reduce the incentive for some owners of affected facilities to reduce their methane emissions,” Baillie added.
Now let’s talk about the timeline: The EPA will begin imposing the waste emissions charge on methane emitted in 2024. The owners of applicable facilities who owe waste emissions charges on methane emissions will be required to pay it by March 31, 2025.
The waste emissions charge is $900 per metric ton of methane emissions reported in 2024, $1,200 per metric ton reported in 2025, and $1,500 per metric ton reported in 2026 and thereafter.
In the meantime, Section 136 will also provide $1.55 billion in funding to help reduce the petroleum and gas industry’s methane emissions and improve the monitoring and reporting of such emissions.
Of that, $700 million is specifically earmarked for marginal conventional wells, and the remaining $850 million presumably will be available to anyone in the petroleum and natural gas industry.
Because the waste emissions charge is required by statute, the EPA is not obligated to provide a cost-benefit analysis for its proposed rule implementing it.
“The EPA also provided no estimate in support of the proposed rule regarding how much the waste emissions charge is expected to reduce the petroleum and natural gas industry’s methane emissions, no prediction of what the impact of that reduction will be on global warming, and no estimate on how much it will impact energy supplies and prices,” Baillie said.
EPA is accepting comments on the proposed rule implementing the WEC through March 11. Written comments can be submitted at https://www.regulations.gov under Docket ID No. EPA–HQ–OAR–2023–0434.
EPA will also hold a virtual public hearing regarding its proposed rule on Feb. 12. You can register to speak at the virtual public hearing by following this link.