On August 18th, the U.S. Environmental Protection Agency (EPA) issued a proposed rule governing methane and volatile organic compound (VOC) emissions from oil and gas operations. According to the EPA, oil and gas operations are the second largest emitter of greenhouse gases (which includes methane and VOC), after fossil fuel-fired power plants. If you recall, at the beginning of August 2015, the EPA issued its final rule on CO2 emissions (another greenhouse gas) from existing fossil fuel-fired electricity generators. By coming out with the proposed rule, the EPA has begun the process of eliciting comments from the public, with an eye to have the final rule published by 2016. With this latest rulemaking process seeking to limit greenhouse gas emissions, the Obama-era EPA appears to be making its final push to leave a lasting mark on US clean air/climate policy before the end of his term.
The proposed rule seeks to amend existing regulations on emissions from oil and gas operations (which are called “new source performance standards”). Specifically, the proposed rule adds several emissions sources currently not regulated under the existing oil and gas industry new source performance standards (e.g., hydraulically fractured oil well completion sites, compressor stations, and pneumatic pumps). For such sources, the EPA will mandate measures to reduce both methane and VOC emissions. At the same time, the rule will introduce methane regulations for certain sources that are already subject to VOC-emission oversight (e.g., hydraulically fractured gas well completion sites and certain equipment used across oil and gas operations sites).
In regulating methane and VOC emissions from certain oil and gas operations, the EPA is acting pursuant § 111(b) of the Clean Air Act, which tasks the EPA with creating new source performance standards for categories of sources that “cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.” In 1979, the EPA determined that oil and gas production is one of the “priority source categories” to be regulated under § 111(b). Since making such a designation, the EPA has promulgated performance standards to regulate SO2 and VOC from some oil and gas production-related sources. Although the EPA doesn’t believe a separate determination that the specific type of pollution endangers health and welfare is necessary, it nonetheless points to a 2009 endangerment finding that determined that greenhouse gas emissions endanger the public’s health and welfare by causing or contributing to climate change.
As the name “new source performance standards” suggests, the regulations will only apply to new production, storage and processing sites. That being said, the EPA is attempting to extend the reach of the rule to cover modified well sites too, which includes ones that are fracked or refracked after the final rule’s effective date. As was the case with CO2 emission standards, once the EPA regulates new sources under § 111(b), existing sources must also be regulated under § 111(d). With that in mind, the EPA is likely to come out with a proposed rule for existing sources in the coming months as well.
While the EPA has been fond of framing the regulations as good for producers’ bottoms lines (because captured methane is the principal component of natural gas and generally can be added to natural gas pipelines without special processing/treatment), I doubt many companies will view the new regulations as anything more than another expense. With that in mind, and as is almost always the case with any new environmental regulation, the proposed rule is likely to receive some pushback and/or legal challenges. However, as the In re Murray Energy Corp. litigants learned earlier this summer, the Court of Appeals for the D.C. Circuit won’t review a Clean Air Act rule until it becomes final.