The Environmental Protection Agency (“EPA”) released its most recent proposal for controlling greenhouse gas emissions produced by the oil and gas industry earlier this month. The supplemental proposal builds upon the comments received by EPA in response to its proposed emission-control rules issued under Section 111 of the Clean Air Act (“CAA”) on November 15, 2021. In particular, the supplemental proposal revises and expands the stringent emissions control program introduced one year ago for new and existing sources. The supplemental proposal, however, raises questions regarding the implementation of existing greenhouse gas reporting and fee requirements under the Inflation Reduction Act (“IRA”). 

Section 111 of the CAA authorizes EPA to set emissions performance standards for categories of major emitting sources like those in the crude oil and natural gas industry. Section 111(b) allows EPA to set standards for new, modified, and reconstructed sources, while Section 111(d) provides EPA authority to regulate existing sources.

EPA has used this authority and the comments it received on the November 2021 proposed rules, to revise its approach for several key areas of emission regulation:

1. Fugitive Emissions Monitoring at All Well Sites. The supplemental proposal establishes an obligation for all well sites, with no exclusion for low-emitting sites, to routinely monitor for fugitive emissions and repair leaks found. The monitoring requirements range from a quarterly audio, visual, and olfactory inspection for single wellhead-only sites to quarterly optical gas imaging inspections for any site with significant production equipment. This revision eliminates the original small well exemption in the November 15, 2021 proposal.
2. New Monitoring Technologies. The supplemental proposal encourages the use of emerging technologies by operators in monitoring methane emissions if the technologies meet certain requirements. Once one operator receives approval for a technology, others may also use that technology to monitor emissions.
3. Third-Party Monitoring. The supplemental proposal approves third-party scanning for super-emitter events where methane is escaping at a rate at or exceeding 100 kg/hr. If a super-emitter event is detected, the third-party then notifies the operator, EPA, and the relevant state about the event. This notification would automatically impose investigation and remediation requirements on the operator.
4. Environmental Justice Concerns. The supplemental proposal advises that states should engage with vulnerable communities with respect to localized pollution while also including new obligations to consult with Native American Tribes. Section 111 of the CAA has never been used to support environmental justice concerns in this way.
5. Flaring. The supplemental proposal requires that available gas must be rerouted for beneficial uses unless an operator can show that all beneficial uses outlined in the supplemental proposal are unsafe or infeasible.
6. Higher Equipment Performance Standards. The supplemental proposal establishes a zero-emissions standard for pneumatic pumps (excluding sites without electricity access), new standards for dry seal centrifugal compressors, and stricter standards for wet seal centrifugal compressors.

The EPA’s supplemental proposal also raises questions about how it will interact with the IRA’s methane fee provisions passed by Congress this summer. Beginning in 2025, the IRA requires certain facilities in the oil and gas industry to report their greenhouse gas emissions to the EPA’s Greenhouse Gas Emissions Reporting Program and pay a methane fee. While there is an exemption for covered facilities under EPA’s Section 111 methane regulations, the exemption is only available for facilities for which Section 111(b) standards and 111(d) state plans “have been approved and are in effect.” As a result, there seems to be a discrepancy between when the methane fee is supposed to go into effect and when compliance with a final EPA rule and any approved plan will be possible. This leaves oil and gas companies in a gap where they may qualify for a fee exemption, except the new rules have not yet been implemented. 

The supplemental proposal is currently in pre-publication form. EPA is seeking comments on the proposals to enable it to develop a final rule that, consistent with its responsibilities under Section 111 of the CAA, achieves the greatest possible reductions in methane and VOC emissions while remaining achievable, cost effective, and conducive to technological innovation. The prepublication proposal includes in-depth analysis of comments provided by diverse groups in the crude oil and natural gas industry on the November 2021 proposed rules. The public comment period is scheduled to end on February 13, 2023, and EPA will hold public hearings on January 10 and 11, 2023.

The public comment process provides an important opportunity for industry participants to help shape the future of the industry’s emission reduction efforts.  Through participation, an operator can help educate and guide the agency from its own unique perspective, develop relationships with the regulators, and build a record to support any subsequent legal challenges to the rule that are necessary to prevent the agency from exceeding its authority under Section 111 of the CAA.  Emission reductions will be necessary for the industry to maintain its role in the Nation’s energy landscape. Oil and gas companies should take this opportunity to ensure EPA seeks to reduce emission in a cost-effective, technologically forward way.

Contact Andrew Glenn, Miguel Suazo, or another member of Husch Blackwell’s Energy and Natural Resources team with any questions you have regarding compliance with or commentary on the EPA’s proposed methane and VOC regulations.