On January 14, 2015, the Obama Administration issued its long-awaited “blueprint” outlining the policies it will adopt to address methane emissions from the oil and gas sector. The blueprint – which consists of a White House press release and an Environmental Protection Agency (EPA) fact sheet – announces an overall goal to cut methane emissions from the sector by 40-45 percent from 2012 levels by 2025. To achieve this goal, the blueprint outlines a roadmap of regulatory and voluntary initiatives that the Obama Administration will roll out over its last two years. Under this proposed approach, the Administration will address new and modified sources in the sector primarily through new regulations. For existing sources, the blueprint calls for an enhanced set of voluntary programs, at least in the near term. The Administration’s roadmap enlists multiple federal agencies in carrying out a variety of measures.

A Combination of Regulatory and Voluntary Measures

Many in industry have insisted that new regulations are not needed for the sector, and that the Administration should rely instead on an EPA regulation already on the books: the 2012 OOOO New Source Performance Standards for the Oil and Gas Sector. The 2012 rule limits emissions of Volatile Organic Compounds (VOCs), an ozone precursor, but also is achieving significant “co-benefit” methane reductions.

Environmental groups have countered that the 2012 rule only addresses new and modified sources, and omits segments of the natural gas value chain that emit substantial amounts of methane but not VOCs. For this reason, environmental groups have called for comprehensive methane-specific regulation of both new and existing sources.

The January 14 blueprint appears to split the difference. It directs the EPA to develop a new rule for the oil and gas sector that is specific to methane, but only for new and modified sources in the sector. This rule likely will be implemented under EPA’s authorities under Section 111(b) of the Clean Air Act. The blueprint provides that EPA will propose this rule in the summer of 2015 and finalize it in 2016. The blueprint states that the new rule will reach new and modified sources in the production, processing, and transmission segments; and it will cover well completions, pneumatic pumps, leaks from well sites, gathering and boosting stations, and compressor stations.

The blueprint does not call for methane-specific regulatory standards for existing sources in the sector. Some have argued that EPA cannot only rely on a voluntary program because promulgation of a Section 111(b) methane rule for new oil and gas sector sources would compel EPA to follow up with a Section 111(d) rule addressing existing sources in the same category. However, even if that is so, case law suggests that EPA has discretion as to the timing and prioritization of such a rule, at least in the near term.

The blueprint suggests that the Administration is expecting substantial voluntary industry efforts – and some state-initiated regulation – to obviate any near-term need for federal regulation for existing sources. The blueprint states that: “Achieving significant methane reductions from these voluntary industry programs and state actions could reduce the need for future regulations.”

The blueprint cites two recently-announced industry initiatives: the ONE Future Initiative and the Downstream Initiative. It also contemplates that EPA, the Department of Energy, and the Pipeline and Hazardous Materials Safety Administration will collaborate to “develop and verify robust [industry] commitments to reduce methane emissions,” which include “development of a regime for monitoring, reporting, and verification.” In addition, the EPA fact sheet says that the agency “plans to expand the successful Natural Gas STAR Program by launching a new partnership in collaboration with key stakeholders later in 2015.”

Industry will have much at stake in how the voluntary side of the blueprint is implemented. The blueprint leaves a number of implementation questions unanswered. These questions include: If the “stick” to promote participation in a voluntary program is potential imposition of Section 111(d) regulations, what amount of participation or reductions is necessary to avoid that stick? Further, since no individual company can ensure collective, multi-company performance, what additional “carrots” will there be to promote participation? Options could include assurances that participation in the voluntary programs will count as a means of compliance with any future methane regulations, or assurances of favorable treatment under other federal programs, such as future ozone regulations or the Council on Environmental Quality’s proposed climate-related NEPA requirements.

Other Measures

The blueprint also calls for the use of other tools in the federal toolbox, including:

Control Technique Guidelines for VOC Sources. Though, as discussed above, the blueprint largely spares existing oil and gas operations from regulation specific to methane, it does direct EPA to utilize a Clean Air Act measure that could reach some existing sources. The blueprint provides that EPA, as a strategy for achieving methane co-benefits, will issue VOC Control Technique Guidelines. These guidelines will include recommendations to state regulators on how to control existing oil and gas sector VOC sources, but only in current ozone nonattainment areas and states that are in the Ozone Transport Region. EPA will propose the CTGs in the summer of 2015, and finalize them in 2016. These CTGs might have limited reach under the current ozone standard, but eventually could play a more significant role if EPA finalizes its recently proposed, more stringent ozone standard, which would result in many more areas of the country falling into nonattainment status.

Enhanced Leak Detection and Emissions Reporting. In its Greenhouse Gas Reporting Program regulations, EPA will consider potential means of requiring remote sensing and other new approaches to emissions measurement.

In its Greenhouse Gas Reporting Program regulations, EPA will consider potential means of requiring remote sensing and other new approaches to emissions measurement. BLM Regulation. The Bureau of Land Management will finalize a new rule to address venting and flaring activities associated with oil and gas production on federal lands. The BLM has been working on this rule for some time.

The Bureau of Land Management will finalize a new rule to address venting and flaring activities associated with oil and gas production on federal lands. The BLM has been working on this rule for some time. PHMSA Regulation. The Pipeline and Hazardous Materials Safety Administration (PHMSA) will propose natural gas pipeline safety standards in 2015 that will achieve methane reduction co-benefits.

The Pipeline and Hazardous Materials Safety Administration (PHMSA) will propose natural gas pipeline safety standards in 2015 that will achieve methane reduction co-benefits. DOE Activities. In addition to the above, the blueprint calls on the Department of Energy to implement a number of measures, including: issuing energy efficiency standards for natural gas and air compressors; advancing research and development on leak detection; working with the Federal Energy Regulatory Commission to modernize natural gas infrastructure; partnering with the National Association of Regulatory Commission and local distribution companies to accelerate pipeline repair and replacement at the local level; and finalizing the Quadrennial Energy Review.

Conclusions

For companies in the oil and gas sector, the blueprint launches a busy two year process of rulemakings and development of voluntary programs. It is likely that additional details about the plans of the agencies will emerge in the next few months.





###

Van Ness Feldman closely monitors federal and state developments on climate change, air quality, and energy policy affecting the oil and gas sector, and is in a strong position to provide expert analysis and advice on emerging legislation and regulatory activity, the surrounding policy and political debate, and the implications for your organization. For more information, please contact Kyle Danish or any member of the firm’s Environment or Pipeline and LNG practices at (202) 298-1800.