Key Takeaways
EPA has tightened reporting requirements on oil and gas companies for monitoring and analysis of methane emissions, which will be used to determine whether companies will need to pay methane fees mandated in the Inflation Reduction Act.
Other rules on the release of methane emissions are coming from the Interior Department and the Departments of Transportation, Treasury, State, and Energy.
These rules will Increase the costs of producing energy and will increase inflation, as energy is a major input to the economy.
The Environmental Protection Agency (EPA) tightened greenhouse gas reporting requirements, adding more options for methane emissions monitoring and analysis by the oil and gas producers. It announced the final revision to its greenhouse gas reporting guidelines for petroleum three weeks after the rule completed White House review. It is one of the last EPA rules to be complete before new Biden administration regulations could become vulnerable to being overturned via a Congressional Review Act (CRA) resolution. The CRA allows Congress to review and potentially reject recently issued regulations.
According to EPA, the goal is to fill in what are often large gaps in methane emissions monitoring, and promote more accurate emissions data from oil and natural gas operations, including by facilitating the use of satellite data to identify super-emitters and quantify large emission events, requiring direct monitoring of key emission sources, and updating the methods for calculation. The tightened standards for oil and gas sector methane reporting could make more petroleum companies liable to pay fees by 2026 if they meet certain thresholds. Congress directed EPA to revise reporting guidelines for oil and gas facilities in 2022 as part of the Inflation Reduction Act (IRA). The newly finalized subpart W rule updates the Greenhouse Gas Reporting Program, by allowing the use of “advanced measurement technologies” and beefing up methodologies to analyze resulting data.
The final subpart W rule has provisions that clarify the quantification of methane emissions, incorporate advances in methane emissions measurement technology, and streamline compliance with other EPA regulations. EPA is allowing for the use of advanced technologies such as satellites to help quantify emissions. In addition, EPA is finalizing new methodologies that allow for the use of empirical data for quantifying emissions, including options added in response to public comments on the proposed rule. The final rule also allows for the optional earlier use of empirical data calculation methodologies for facilities that prefer to use them to quantify 2024 emissions.
In October 2023, the American Petroleum Institute urged the Biden administration to revise the proposed Subpart W greenhouse gas reporting rule so that it reflects the progress the oil and gas industry has made to reduce emissions, increases reporting transparency and accuracy, and incentivizes empirical data innovations and cost-effective methane detection technologies. The agency raised concerns about several aspects of the proposed EPA Subpart W rule, including flawed methodologies that could lead to inaccurate reporting of higher greenhouse gas emissions and increased taxes on American energy and it is reviewing the final rule for incorporation.
The IRA Fee on and Reporting Requirements on Methane
The IRA imposes a fee on energy producers that exceed a certain level of methane emissions. That fee is set to rise from $900 per metric ton in 2024 to $1,500 per metric ton of methane emissions by 2026. The IRA also ordered EPA to overhaul its guidelines for estimating and reporting methane from oil and gas operations, as Congressional Democrats believe that methane emissions are being undercounted from reports undertaken over the last decade. For example, a report by anti-fossil fuel advocacy group Rocky Mountain Institute estimates that gas has higher life-cycle climate emissions than coal when leak rates are fully considered. Many opponents of coal use have shifted their focus to opposing natural gas, including such luminaries as Michael Bloomberg, and this provision in law adds to their campaign against natural gas. The IRA methane fees will be based on the new reporting methodologies.
Biden has Numerous Rules on Methane
Federal agencies in the Biden administration are expected to finalize at least six rules affecting methane releases by the oil and gas sector. The rules include regulations for leaky pipelines; energy production on public and private lands; and infrastructure related to processing, transporting and storing natural gas. Even liquefied natural gas (LNG) terminals and offshore petroleum production facilities, which are not covered by EPA’s methane rules, could be paying for methane leaks beginning in 2025. These actions stem from the UN agreement to reduce methane emissions from COP28.
In March, the Bureau of Land Management (BLM) finalized a rule to cut gas leakage from oil and gas production on federal lands, replacing an Obama administration standard that was rescinded by the Trump administration after objections from energy-producing states. BLM’s proposal will tighten limits on gas flaring on federal land and require energy companies to better detect methane leaks. The rule will impose monthly limits on flaring and charge fees for flaring that exceeds those limits. Flaring occurs when there is insufficient pipeline capacity to take natural gas to market, and the Biden administration has slowed pipeline construction.
The BLM action follows a more comprehensive methane-reduction plan announced by the Environmental Protection Agency, which targets emissions from existing oil and gas wells nationwide, rather than focusing only on new wells, as previous EPA regulations have done. It also regulates smaller wells, which emit less than 3 tons of methane per year, that are now required to find and plug methane leaks.
The Department of Transportation is writing a rule for pipeline leak detection and repair under 2020 legislation. The draft rule — from the Pipeline and Hazardous Materials Safety Administration — would update leak detection and repair rules for 2.7 million miles of pipelines under federal jurisdiction. It also would cover the nation’s 400 underground natural gas storage facilities and 165 liquefied natural gas facilities, requiring companies to use commercially available technologies to find and fix methane leaks from pipelines and other facilities.
The Treasury Department has written guidelines for how “green” hydrogen will qualify for IRA tax credits and in it, EPA is assuming that an average of 0.9 percent of the methane used to make hydrogen has leaked when calculating hydrogen emissions. Treasury issued the guidance at the end of last year, and has since received numerous comments – over 30,000—on its draft.
The Energy and State departments are working with the European Union — the world’s largest gas importer — and with other countries on international standards that will give low-methane gas preferential access to the EU market. The United States, the European Commission and others launched a working group to build a framework to measure and report greenhouse gas emissions from gas. In November 2023, the EU reached a provisional agreement on methane legislation and finalized its first standards for methane from fossil fuels that include import requirements. It is setting “maximum methane intensity values” as an import standard and its imported fossil fuels must adhere to measurement, reporting, and verification (MRV) rules equivalent to EU standards.
The United States and China agreed to include methane reduction in all future climate commitments made under the U.N. Paris Accord. The agreement came after China unveiled a methane plan that they say would strengthen procedures for tracking, reporting and verifying leakage from oil, gas and coal production.
On top of these efforts, the Energy and State departments are creating guidelines to distinguish relatively climate-friendly fuel producers and exporters from more high-emitting competitors. In March, the Securities and Exchange Commission provided rules that would require publicly traded companies to report on greenhouse gas emissions, including methane, from their supply chains.
Conclusion
EPA has finalized greenhouse gas reporting rules under the Inflation Reduction Act that will be the basis for determining liability for the methane fee set in the Democrat-passed bill. That fee is set to rise from $900 per metric ton in 2024 to $1,500 per metric ton of methane emissions by 2026. EPA has tightened its greenhouse gas reporting requirements, adding more options for methane emissions monitoring and analysis. This is just one of numerous rules that the Biden administration has regarding methane emissions and leakage with which it is bombarding the oil and gas industry. These rules will Increase the costs of producing energy and will increase inflation, as energy is a major input to the economy.
