EPA Proposes Methane Emission Regulation for Existing Oil and Gas Production

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In Short

The Situation: On November 2, 2021, the U.S. Environmental Protection Agency ("EPA") released its New Source Performance Standards ("NSPS") proposal as part of an administration-wide effort to combat climate change.

The Result: The proposed rules aim to limit methane emissions from existing oil and gas extraction activities for the first time. The proposal imposes stringent standards on old wells, requires heightened leak monitoring, and instructs operators to capture natural gas that would otherwise be flared off or released into the atmosphere.

Looking Ahead: The proposed regulations would impact hundreds of thousands of new and existing oil and gas wells in the United States, signaling the administration's commitment to cut domestic emissions in half by 2030. Businesses will likely be required to implement comprehensive compliance measures to meet the heightened emissions standards detailed by the NSPS. However, EPA's authority to regulate existing oil and gas wells is currently the subject of U.S. Supreme Court review.

After years of attempts with varying success to regulate methane emissions from new oil and gas wells, the Biden administration has shifted strategy in proposing a regulatory program covering both new and existing oil and natural production activities as part of its overall plan to address climate change.

EPA identifies methane as a particularly destructive gas and estimates that one ton of methane has the warming impact of 80 tons of carbon dioxide. EPA believes that natural gas and oil systems are the largest source of methane emissions in the United States, resulting in about 30% of such emissions annually.

In its 2021 proposal, EPA for the first time expresses an intention to regulate emissions from existing oil and gas extraction activities by requiring authorized states to submit plans to regulate these sources based on best system of emission reduction ("BSER") determinations made by EPA.

Based on these BSER determinations, the states and tribal authorities are tasked with developing regulations for EPA's review and approval. EPA has tentatively proposed that these regulations include specified numerical standards for certain emissions as identified in Table 20 in the proposal and non-numerical standards for other sources identified in Table 21. Depending on the level of methane emissions at the site, its location, and the type of equipment, the BSER determinations range from periodic optical gas imaging monitoring and repair to 95% control of methane emissions.

EPA claims authority to regulate the existing sources pursuant to Clean Air Act ("CAA") Section 111(d). The scope of EPA's authority to regulate greenhouse gas emissions from existing power plants is the subject of a case recently granted review by the U.S. Supreme Court. If the Court ultimately limits EPA's authority pursuant to Section 111(d), it could call into question EPA's authority to finalize regulations regarding methane emissions from existing facilities. Jones Day represents The North American Coal Corporation in the Supreme Court case. A decision is expected in mid-2022.

EPA's 2021 proposal is a part of an administration-wide effort to reduce methane emissions announced in November 2021. In addition to EPA's actions, the Bureau of Land Management ("BLM") will aim to reduce methane emissions from oil and gas production activities and well closures on federal lands. Further, the Department of Transportation's Pipeline and Hazardous Materials Safety Administration will seek to reduce methane leaks from pipelines. As outlined on page 9 of the White House proposal, the administration proposes to cover almost all aspects of the oil and gas production, processing, transmission, storage, and distribution industry. The proposals would also address methane emissions from landfills, abandoned coal mines, and agriculture.

Comments on EPA's 2021 proposal are due by January 14, 2022. A virtual public hearing will be held on November 30, 2021, and December 1, 2021.

In the past, EPA has held mixed views on regulating methane emissions. In 2012, EPA spearheaded efforts to reduce methane emissions by requiring owners and operators to use "green completions," which are systems that reduce methane losses by capturing gas at the well head rather than releasing it or flaring it off. Later in 2016, EPA adopted a set of NSPS that aimed to control methane emissions from oil and natural gas production, processing, transmission, and storage facilities constructed or modified after September 18, 2015.

The 2016 NSPS mandated restrictions on gas venting and flaring at new oil wells and imposed more stringent leak detection and repair requirements at new gas wells, gathering and processing facilities, and transmission compressor stations. While the 2016 NSPS applied to new oil and gas sources only, EPA sought to collect data from oil and gas producers that would inform the development of emissions guidelines for existing sources—something that had never been done before. Further details regarding the 2016 NSPS rules can be found in our Commentary, "EPA Proposes New Methane Emission Regulations for the Oil and Gas Industry."

Leading another key federal effort to reduce methane emissions, the BLM adopted the Methane Waste Prevention Rule ("MWPR") in 2016, which limited methane emissions from both new and existing facilities on public land. Under the rule, BLM required 95 to 98% of gas produced from oil wells to be captured, in addition to requiring oil and gas facilities to meet heightened leak detection and repair standards.

Pursuant to Executive Order 13783, EPA reviewed both the 2016 NSPS and MWPR in 2017, concluding that the federal regulations were largely redundant of state efforts. On the basis of this conclusion, EPA rescinded many of the 2016 NSPS and MWRP methane emissions requirements related to production and processing, including gas capture targets, certain emission sources at well sites, and leak detection and repair requirements.

A Congressional Review Act joint resolution of Congress passed in 2020 and signed into law by President Biden in June 2021 rescinded the Trump-era rollback. Further, a federal court in the Northern District of California has vacated BLM's rescission of key MWPR provisions on the grounds that the rollback "ignored its statutory mandate under the Mineral Leasing Act," among other justifications. EPA has since reinstated the 2016 NSPS for oil and natural gas facilities constructed or modified after September 18, 2015, renewing federal commitments to reduce methane emissions in effort to combat climate change.

Four Key Takeaways

  1. EPA's proposal would increase regulation on methane emissions from new oil and gas wells, and for the first time regulate emissions from existing wells.
  2. In addition, BLM's proposed regulations target the reduction of methane emissions from oil and gas activities on federal lands, and the Department of Transportation has proposed standards aimed at reducing methane leaks from pipelines.
  3. Depending on the nature of the oil and gas activity, the proposed rules would require businesses to implement a range of compliance measures ranging from periodic optical gas imaging monitoring and repair to 95% control of methane emissions.
  4. The scope of EPA's authority to regulate greenhouse gas emissions from existing power plants is currently under review by the U.S. Supreme Court. A decision is expected mid-2022.

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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