January 29, 2015 at 5:00 am ET
The Obama Administration has recently released a statement on how it plans to address the hotly contested issue of methane emissions from the oil and gas sector. As explained below, the President and his agencies are trying to walk a fine line between development of resources that bolster the economy and move the U.S. toward cleaner and self-sufficient energy production, and minimizing emissions of a potent greenhouse gas (GHG). Falling too far on one side of the line threatens to undermine developments on the other. It remains to be seen whether such a careful balance can be achieved in practice, and whether there is sufficient time and energy to do so.
Background on the Issue
The development of unconventional sources of oil and natural gas, particularly through hydraulic fracturing, has had a transformative impact on the U.S. economy, energy production and environmental policies. The explosive growth in domestic production of abundant, low-priced oil and natural gas has resulted in a parallel expansion of resource development and revenues in many states and an economic resurgence in petrochemical and other manufacturing. At the same time, it has led to an increased use of lower-emitting natural gas for power production that has displaced coal, helped lower the country’s emissions of GHGs and essentially made possible major Administration climate regulatory proposals, such as EPA’s new source performance standards (NSPS) for GHG emissions from new and existing power plants.
On the other hand, this tremendous growth has also led to concerns that leaks and other emissions of methane during production, development and transmission of oil and gas could significantly undercut any advances in GHG emission reduction. Methane is a an extremely potent GHG, some 25 times the global warming potential of carbon dioxide, though shorter-lived in the atmosphere, and emissions from the oil and gas sector are significant. According to EPA, methane accounted for 10% of US GHG emissions in 2012, with 30% from production, transmission and distribution of oil and gas. Though methane emissions have reportedly dropped 16% from the oil and gas sector since 1990, EPA estimates they will increase 25% over the next decade without further steps to address them.
President Obama therefore has had to walk a careful line, seeking both to encourage further domestic production of oil and gas while ensuring such production does not result in long-term environmental harm. And the President has had to navigate between two highly motivated and critical stakeholder groups: the oil and gas industry, which generally believes it can and has taken necessary action to reduce emissions of the valuable and volatile chemical through voluntary actions and best practices; and environmental advocacy groups that believe methane emissions are far more substantial and a substantial contributor to climate change. These latter groups have pressed EPA to regulate methane directly in all aspects of production and distribution, citing studies of the significant leaks throughout the processes. EPA has struggled to identify just how much methane is really at issue.
The White House Statement in Context
It comes as no surprise, then, that on January 14, 2015, the White House announced a series of initiatives to reduce emissions of methane and other volatile organic compounds (VOCs) from the oil and gas sector that seeks a middle ground, at least for the moment. In short, the White House announcement, more of a statement of intent rather than a specific proposal, looks to expand regulatory authority over new and modified sources from the oil and gas sector while relying on more voluntary or non-regulatory measures for existing sources. But the announcement clearly leaves the door open for further regulatory measures in the future.
The January 2015 announcement aims to reduce methane emissions from the sector between 40-45% below 2012 levels by 2025. The proposed actions are part of the Administration’s methane emissions reduction strategy, announced in March 2014, itself a part of the Administration’s overall framework for addressing climate change. To date, based on regulations issued in 2012, EPA has only required the capture of VOCs during completion of hydraulically fractured natural gas wells, and has regulated certain compressors, storage tanks and pneumatic controllers. By regulating VOC emissions, these rules have the co-benefit of reducing methane leaks.
Regulation of New Sources
According to the White House statement, EPA plans to propose by Summer 2015 NSPS under the Clean Air Act for new and modified oil and natural gas production sources and natural gas processing and transmission sources for methane and VOCs. This is the same program under which EPA has proposed regulating GHGs from new and existing power plants (e.g. the Clean Power Plan). The NSPS regulations for methane are to be finalized by 2016, a year after the GHG regulations are to be final.
Although EPA did not specify the exact scope of the methane regulations, they are likely to focus on those processes not covered by EPA’s 2012 regulations of VOC’s from natural gas drilling and processing. These include regulating methane emissions from completions of hydraulically fractured oil wells; pneumatic pumps; and leaks from new and modified well sites, gathering and boosting stations and compressor stations. EPA studied emissions and potential controls from these and other processes in a series of white papers it issued in 2014, seeking industry and public comment and additional data on emissions and controls. But while the 2012 regulations focused on reductions of VOCs, which include methane, the new regulations would apply specifically and directly to methane.
Regulation (?) of Existing Sources
As to existing sources in the oil and gas sector, EPA will work with industry on voluntary adoption of cost-effective methane reduction technologies. It will also address VOC emissions from the oil and gas sector in ozone nonattainment areas and the Ozone Transport Region by issuing Control Technologies Guidelines (CTGs) for states which would analyze available, cost-effective technologies for VOC emissions from existing oil and gas systems. States would address these sources in their state implementation plans. The issuance of CTGs would follow the same schedule as the NSPS program.
In addition, EPA will expand the required scope of data from the oil and gas sector in its mandatory GHG reporting program, including by finalizing proposed regulations issued in 2014, and will analyze “potential regulatory opportunities” for applying remote sensing technologies and other measurement and monitoring technology to improve the identification and quantification of emissions from the sector. Some have viewed these additional proposals as potential precursors to future regulation of existing sources. Indeed, EPA Administrator Gina McCarthy has suggested recently that EPA has not acted on such sources in the past in part due to a lack of complete information on emissions and potential controls, and that if additional data shows voluntary industry efforts are not achieving necessary reductions, regulations could be proposed in the future. This has done little to assuage industry concerns over the scope of regulation. EPA also released a proposal in mid-2014 to update standards to reduce methane from new landfills and took public comment on whether to update standards for existing landfills.
Other Agency Proposals
EPA is not the only actor on methane reductions. The White House statement also references long-anticipated natural gas pipeline safety standards to be issued by the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration in 2015, which would have methane emission reduction co-benefits. In addition, the Department of Interior’s Bureau of Land Management (BLM) is poised to release in April a proposal to regulate flaring and venting from oil and gas wells on federal lands, as well as to issue in the near future a long-delayed and controversial final rule on hydraulic fracturing on public and tribal lands and a proposal on the capture and sale or disposal of waste methane from coal mines on public lands. Finally, the Department of Energy (DOE) will consider energy efficiency standards for natural gas and air compressors. All these regulatory programs would likely result in further reductions of methane from oil and gas drilling and production, and so could impact the costs of such practices.
Voluntary and Non-Regulatory Actions
The White House also proposed a range of voluntary programs with industry, including expansion of the Natural Gas Star program, the One Future Initiative and Downstream Initiatives, and efforts to work with the National Association of Regulatory Utility Commissioners (NARUC) to accelerate pipeline repairs for local distribution companies. DOE will examine leak detection and methane reduction technologies for transmission and distribution, and work with the Federal Energy Regulatory Commission on the modernization of natural gas infrastructure. The Quadrennial Energy Review, which is coordinated by DOE, will have policy recommendations on reducing natural gas system leaks, including through updating transmission, storage and distribution infrastructure.
Reactions to the Statement
The release of the White House statement was met with some relief by the oil and gas industry since it only focused regulatory actions, so far, on new sources. However, industry representatives have objected to any new regulatory programs which they consider unnecessary and burdensome, given the industry’s general approach to reducing its own emissions for safety and economic reasons. They have also noted that the inclusion of “modified” sources could still bring in many existing sources, such as operations that re-fracture during drilling since EPA treated re-fractured gas wells as “modifications’ under the 2012 rule unless the operator used the same controls as required for new sources. Industry representatives have also warned that new source regulation is only a precursor for regulation of existing sources, citing to EPA’s GHG proposals for power plants.
Congress, now led by Republican majorities in both houses, has also been hostile to the White House announcement, and can be expected to try to block further regulations, as they have endeavored to do with EPA’s power plant proposals. While EPA’s decision to focus first on new sources may relieve some of the pressure, there are undoubtedly some in Congress who believe EPA will eventually broaden its regulatory scope.
On the other side, environmental groups have supported EPA’s efforts to focus specifically on methane but have protested EPA’s focus on only new sources and demanded EPA broaden its regulatory scope to all sources. These groups will likely keep up the pressure, citing studies indicating significant amounts of methane emissions from the full universe of production, development and transmission.
What It All Means
In the end, it appears the Administration is clearly trying to carefully balance economic development concerns with environmental ones, and signaling that it is only willing to go so far, for now, in imposing additional regulatory controls on the oil and gas sector. But it has not taken the threat of future regulations on existing sources off the table. How far the Administration will ultimately go will not be clear until at least this Summer, when it has promised proposed NSPS for new and modified methane sources. The Agency has expressed a wait and see attitude toward existing sources; however, it faces a tight regulatory schedule already dominated by other key proposals such as the GHG NSPS for new and existing power plants. That is a lot to accomplish in the remaining two years of the Administration, especially in the face of relentless opposition and pressure from all sides. Hence, EPA may not even have the chance to finalize or implement its strategy toward new sources, let alone extend any programs to existing sources.
James Rubin serves as counsel for Dentons’ Environment and Natural Resources practice