Washington Watch: EPA Tries to Turn Back Time

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Grappling With Regulatory Rollbacks

Once again, the Trump administration is attempting to roll back regulations developed by the prior administration and further unravel the remnants of President Barack Obama’s environmental legacy. Just before Labor Day weekend, the Environmental Protection Agency (EPA) proposed to remove Obama era regulations requiring oil and natural gas companies to install devices to detect and prevent methane leaks from wells, processing plants, pipelines and storage facilities. The EPA believes that its proposal would maintain environmental protection, yet save the industry between $17 million and $19 million annually in compliance costs. This column describes the regulations at issue, examines the rationale for their removal and discusses reactions to the EPA’s attempt to turn back time.

Background

Section 111 of the Clean Air Act requires the EPA to publish a list of categories of “stationary sources” whose emissions cause air pollution that “may reasonably be anticipated to endanger public health or welfare.” The EPA must make an “endangerment finding” to add a stationary source category. Once a source category is properly established, the EPA proposes standards of performance to reduce pollution from “new” sources (NSPS) and then, after those are in place, addresses standards for “existing” source emissions.

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Since 1979, “crude oil and natural gas production” has been a source category. Thus, during the 1980s, the EPA issued rules to regulate gas processors’ emissions of volatile organic compounds (VOCs) — carbon compounds that react with sunlight to produce tropospheric ozone, a greenhouse gas (GHG) and precursor to smog. The Obama administration, however, decided to cast a wider regulatory net. In a 2012 rule, the EPA “interpreted” the source category to include transmission and storage, which allowed the EPA to establish new VOC standards for the broader gas industry.

In 2016, when the Obama administration was rolling out myriad regulations to reduce GHG emissions and support the Paris Climate Accord, the EPA set its sights on methane emissions from the entire oil and gas industry. Pressed for time during the last year of the administration, the EPA took some procedural “short cuts.” Rather than make an endangerment finding to create a new source category for “natural gas transmission and storage,” the EPA instead revised the source category to include the two sectors and then, made a fait accompli finding that the combined category contributed significantly to air pollution. As a procedural safeguard, the EPA argued that methane is a GHG, and it had made an endangerment finding regarding GHG in a 2009 proceeding involving mobile source pollution. Some believe this to be a stretch: GHG emissions from cars involve carbon dioxide (not methane), and the finding applied to mobile sources, not stationary sources, such as transmission lines. Nevertheless, the EPA set new industry-wide standards for GHG (including methane) and VOC emissions.

President Donald Trump, soon after taking office, issued an executive order requiring federal agencies to revise or rescind regulations that “unduly burden the development of domestic energy resources beyond the degree necessary to protect the public interest.” In response, the EPA proposes to rescind some of the regulations applied to the transmission and storage sectors and eliminate the 2016 methane regulations because (according to the EPA) they are redundant, i.e., the VOC controls would limit methane emissions, rendering methane regulations redundant. The EPA is seeking public comment on these changes and the following: (1) an alternative proposal to rescind the methane requirements in the NSPS for oil and gas sources, without altering the source category and (2) its legal authority to regulate methane, given concerns with the 2016 rule.

Unnecessary or Redundant Regulation?

Unlike carbon dioxide, which stays in the atmosphere for hundreds of years or more, methane has a relatively short atmospheric life, but still plays a potent role in global warming. In 2017, the EPA reported that the major sources of atmospheric methane result from livestock, landfills, coal mining and fossil methane production and transportation. Unlike other methane sources, fossil methane is valuable, which provides producers and processors a financial incentive to capture the resource, limit leaks, and retain as much as possible for sale. Accordingly, some believe the EPA’s methane emission rules targeting production and processing facilities have limited environmental value. Indeed, since 1990, natural gas production has increased by more than 50 percent, but oil and gas system emissions have dropped by about 20 percent.

Aside from the EPA, other oil and gas industry regulations also reduce methane emissions. State regulations range from reporting requirements to venting and flaring regulations. The Bureau of Land Management has promulgated regulations to reduce waste of natural gas from flaring, venting, or leaks. And, the Pipeline and Hazardous Materials Administration’s safety focus, which governs the design, construction, operation and maintenance of natural gas pipelines, in turn reduces leaks.

Reaction

As expected, environmentalists and climate change activists oppose the EPA’s proposed rule. They have also have some unlikely allies — major producers, like ExxonMobil. For major producers, the cost to comply with the EPA’s existing regulations is insignificant. Instead, they fear that reducing environmental regulation could undercut the view of natural gas as a “clean fuel.” They may have a point. Since 2005, the United States has led the world in cutting carbon dioxide emissions, cutting more than 617 million metric tons — more than the UK, Ukraine, Italy, France and Germany combined! According to the Energy Information Administration, this reduction is due mainly to the United States generating electricity more from “clean” natural gas and less from coal.

However, broad-based trade associations like the American Petroleum Institute and Independent Petroleum Association of American (IPAA) support the proposed rule. According to IPAA, there are about one million oil and gas wells in the United States, but emissions from those wells account for only 1.2 percent of the country’s GHG inventory. More than 75 percent of all these wells are low production wells, which produce only 10 percent of the country’s oil and gas and account for only 10 percent of production related emissions. These low production wells, generally owned by small businesses, are very sensitive to even modest economic changes, especially when commodity prices are low. As for the other 25 percent of wells, more than half are already subject to federal regulation and/or voluntarily using new emission control technology. Cast in this light, by the time the EPA’s “existing” source regulation under the Obama era methane rules become effective, the lion’s share of the large-production wells would likely have the new source technology, leaving the economic impact to be borne by low production well owners.

Red and blue state politicians also disagree on the proposed rule. For example, Democratic presidential contender Sen. Elizabeth Warren (D-MA) tweeted: “Climate change is an existential crisis. We should be enforcing and strengthening our environmental regulations — not rolling them back.” Conversely, Sen. John Barrasso (R-WY) stated: “The state of Wyoming already regulates methane emissions from oil and gas production. There’s no need for Washington to pile on.” What do you think of the EPA’s attempt to turn back time?

Washington Watch is a regular report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Dorsey & Whitney LLC in Washington, D.C. Contact him at weiler.steve@dorsey.com.

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