EPA Offers a Methane "Carrot" in Advance of its Regulatory "Stick"

On July 23, 2015, the United States Environmental Protection Agency (EPA) issued its proposed framework for the Natural Gas STAR Methane Challenge Program.¹ Intended to encourage voluntary "beyond (current) compliance" methane emission reductions, the program will provide a mechanism for oil and gas companies to make and track methane emission reduction commitments.

Background

In January 2015, the Obama Administration announced significant goals for reducing methane emissions from the oil and gas sector – 40-45% reduction from 2012 levels, to be achieved no later than 2025. The announcement indicated that both voluntary and mandated reductions would factor into the action plan for achieving the goal. The Methane Challenge Program proposes to deliver on the first half - voluntary reductions. EPA proposes to expand on the existing Natural Gas STAR program by using Subpart W of the Greenhouse Gas Reporting Program (GHGRP) data, plus supplemental voluntary submissions to track performance at a company level, not just program level.

The Proposal

The Methane Challenge Program seeks voluntary commitments from companies engaged in onshore oil production and the entire natural gas value chain (from production through distribution). Sources targeted by the program include pneumatic controllers, leaks/fugitives, liquids unloading, compressors, storage tanks, pneumatic pumps, and other emissions sources. The proposal offers two options – the Best Management Practices (BMP) Option and the One Future Option.

Proposed BMP Option Requirements:

Companies that select the BMP Option would:

• Commit to reductions from at least one source
• Set a target compliance date no later than 5 years
• Utilize the BMPs outlined for each type of source

EPA is considering some flexibility mechanisms in the implementation of this option. One mechanism would allow companies in some segments to define "company-wide" as a division or business unit. The Agency also intends to allow for additional BMPs from time to time.

Proposed One Future Option Requirements:

In the proposal, EPA offers an alternate track for companies that make a commitment through One Future, Inc., an industry organization that requires members to commit to and achieve 1% or less "leakage rate" along the natural gas value chain by 2025. Like the BMP Option, One Future offers a menu of tools to achieve the organization's objective.

Elements Common to Both Options:

EPA intends the options to operate in parallel, with similar administrative requirements. Companies would sign a memorandum of understanding with their chosen organization (EPA or One Future) and their commitments would be announced by the organization. Participants would submit their implementation plans within six months after signup, and make annual submissions of voluntary supplemental data for online progress tracking.² Companies can elect both options if it better fits their structure, although the One Future option is better suited for companies concentrated in subsegments of the natural gas value chain.

Opportunities for Stakeholder Feedback

The Agency is seeking general feedback on the program, but there are certain issues that provide opportunity for strategic input:

• How should EPA incentivize companies to participate in the voluntary program? Particularly, how should participation in the Methane Challenge Program be recognized and rewarded in the regulatory program?³
• For the BMP option, are there additional BMPs that should be included on the initial list?
• Are there low-emission sources that should be exempted from a "company-wide" definition because BMP implementation is impracticable?
• For BMPs related to leaks and fugitive emissions, how could the program align frequency of monitoring and repair with existing practice?

Stakeholder feedback on these and other issues is due September 1, 2015, either online or through meeting with EPA. The Agency intends to finalize the program, seek charter partners, and launch the program by the end of 2015.
____________________
1 EPA, Natural Gas STAR Methane Challenge Program: Proposed Framework, Proposal for Stakeholder Feedback (July 23, 2015) (hereinafter "Methane Challenge Proposal").
2 "Supplemental data" includes information from companies not subject to GHGRP reporting because their emissions are less than 25,000 MTCO2e or sources not covered by GHGRP.
3 EPA intends to issue its proposed regulatory program in the next months.

Cynthia Stroman
Washington, DC
+1 202 626 2381
cstroman@kslaw.com