EPA Methane Regulations Back In A Holding Pattern After Court Issue Stay

Vinson & Elkins LLP

Vinson & Elkins LLP

As discussed in these two previous posts, EPA recently released two rules changing the volatile organic compound (“VOC”) and methane emissions requirements for new sources in the oil and gas sector, which alter or roll back some of the requirements put in place under the Obama administration (“Methane Rule”). The predecessor to EPA’s most recent methane regulations spent significant time bouncing back and forth between the agency and several federal courts in Washington D.C., and it’s already clear the Methane Rule is likely to share a similar fate. Two lawsuits were filed to block the rule within days of its official release. And as with many other environmental regulations and roll-backs over the past few years, the Methane Rule spent very little time on the books before being put on hold by a court.

On September 14, 2020, EPA’s final Methane Rule was officially published in the Federal Register, making the rollback effective. On the very same day, a group of states filed a new lawsuit in the D.C. Circuit asking the court to review EPA’s new methane regulations. A number of environmental groups followed suit the next day, asking the court to put an emergency halt to the rule.

On September 17, 2020, the D.C. Circuit administratively stayed the Rule, meaning that it can’t go into effect until the court has time to consider the requests filed by the environmental groups.

Industry members, trade groups, and environmental organizations will have until October 14, 2020, to ask the court to intervene in the states’ law suit, and until October 15, 2020, to ask to join the environmental group’s lawsuit, although it is possible the court may have already reached a decision on whether to grant a longer-term stay of the Methane Rule by that time.

Brief History of EPA’s Methane Regulations for the Oil and Gas Industry

On June 3, 2016, EPA finalized Quad Oa — more formally known as the “New Source Performance Standards (NSPS) for VOC and methane emissions from the oil and gas sector.” This was the first time EPA specifically regulated methane from the oil and gas sector, and the rule applied to upstream, midstream, and downstream operations. Before then, EPA had only regulated VOCs from the sector, and since VOCs and methane both come from natural gas leaks, the previous regulations (“Quad O”) had the effect of also limiting methane emissions.

Methane was regulated as an air pollutant based on its contribution to climate change. As EPA has previously explained, the oil and gas industry is a “significant source of emissions of methane, a potent greenhouse gas with a global warming potential more than 25 times that of carbon dioxide.” EPA estimates that the oil and natural gas production, natural gas processing, and natural gas transmission and storage sectors emit 25% of U.S. anthropogenic methane.

By explicitly regulating methane as a separate air pollutant, Quad Oa acted as a stepping stone to additional methane regulations in the future. While Quad Oa only applied to new or modified sources after the rule’s effective date, releasing the rule triggered an obligation to regulate methane from existing wells and equipment, as well. In November 2016, EPA followed up on that intention by sending an Information Collection Request to operators, asking them to identify ways to control methane from existing oil and gas sources. In March 2017, the Trump administration’s EPA canceled the Information Collection Request, and in April 2017, EPA announced its intention to review Quad Oa. As a result, existing sources of methane emissions in the oil and gas industry are not currently regulated by EPA.

Why Does This Roll-Back Matter? Existing Sources and Future Methane Regulation

On the surface, EPA’s Methane Rule removes some of the regulatory requirements that industry considered burdensome, including leak monitoring and repair and recordkeeping and reporting requirements. Among the biggest changes was removing transportation and storage sectors (including midstream or pipeline companies) of the oil and gas industry from VOC and methane regulation entirely. As EPA explained, the “Clean Air Act requires EPA to make a formal finding that a pollutant contributes significantly to air pollution before setting NSPS requirements. Since the Obama EPA did not make this finding, the addition of the transmission and storage segment to the oil and gas category and the additional methane control requirements in the 2016 rule were inconsistent with the law.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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