Proposed Rule Revising NSPS for Oil and Gas Sector

The Policy

What it does

Proposes to revise the recently issued Clean Air Act (CAA) New Source Performance Standards (NSPS) for the oil and natural gas sector, to ease requirements for monitoring and dealing with methane leaks and other air emissions from oil and natural gas production sites.

Synopsis

On September 11, 2018, the Environmental Protection Agency (EPA) proposed revisions to the Obama EPA’s 2016 final rule setting New Source Performance Standards for the oil and natural gas sector (“Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources,” or “2016 Rule”). The 2016 Rule sought to reduce fugitive emissions, or leaks, of methane from oil and natural gas production sites by setting clear requirements for the frequency and methodology of leak monitoring, and by requiring that detected leaks be repaired within 30 days. The 2016 Rule applied to the following specific sources:

  • Centrifugal compressors
  • Reciprocating compressors
  • Pneumatic controllers
  • Pneumatic pumps
  • Well completions
  • Well sites and compressor stations
  • Natural gas processing plants
  • Liquids unloading operations

The Trump EPA’s proposed rule (“2018 Proposed Rule”) would amend, clarify, and generally scale back the 2016 Rule by reducing monitoring frequency for equipment leaks, allowing more time for repairs, and allowing owners and operators to employ alternative methods for detecting and limiting emissions. 

In 2016, in accordance with CAA Section 111, the Obama EPA established new source performance standards for methane and VOC emissions from point sources in oil and gas production sites (e.g.wells, compressor stations, pneumatic pumps), requiring oil and gas production site owners and operators to establish monitoring and repair schedules for leaks. The 2016 Rule singled out methane, a gas which traps 84 to 87 times more heat than carbon dioxide, because oil and gas production sources comprise nearly one-third of all U.S. methane emissions.

The proposed amendments to the 2016 Rule contained in the 2018 Proposed Rule include: 

  • Decreasing the required frequency of fugitive emission monitoring from semi-annual to annual monitoring at low-production well sites, and from quarterly to semi-annual or annual monitoring at compressor stations;
  • Extending the allowable duration of leak repair attempts from 30 days to 60 days;
  • Allowing key certifications of closed-vent systems to be done by an in-house engineer without a Professional Engineer (PE) certificate;
  • Allowing source operators to more easily abide by “alternative means of emissions limitations” (AMEL), by complying with local or state programs instead of the “best system of emissions reductions” (BSER) identified in the 2016 Rule; and
  • Streamlining the process by which oil and gas owners and operators can request that an emerging technology be approved as an AMEL.

EPA Acting Administrator Andrew Wheeler referred to the changes included in the 2018 Proposed Rule as “common-sense reforms [that] will alleviate unnecessary and duplicative red tape.” Indeed, the EPA impact analysis released with the proposal predicts that the rule would save the oil and gas sector $75 million a year over six years. At the same time, EPA conceded that the proposed changes are the “least stringent” of all regulatory options considered and are “expected to lead to an increase in emissions” of 380,000 tons of methane and 100,000 tons of VOCs from 2019 to 2025, along with associated “climate related dis-benefits” of approximately $13.5 million over six years due to the social cost of uncaptured methane.

Context

Section 111 of the Clean Air Act requires the U.S. EPA to identify and categorize point sources of air pollution that cause or significantly contribute to poor air quality that endangers public health or welfare. Once those categories are “listed,” the EPA must establish emissions standards for each source category. Although EPA listed crude oil and natural gas production facilities as a major source category of air pollution subject to regulation under Section 111 in 1979, it was not until 2016 that the EPA, under President Obama, issued performance standards for emissions of methane from those sources.  

After the 2016 Rule issued, several organizations representing oil and natural gas industry owners and operators, as well as states including North DakotaTexas, and West Virginia, filed petitions for reconsideration of the rule with the EPA. EPA denied the petitions for reconsideration on the grounds that the agency had already received and considered each issue raised. Concurrently, the same coalition of states and oil and gas organizations launched a court challenge to the rule. 

Under President Trump, the EPA has reversed course and is now revising the 2016 Rule, as part of broader efforts to deregulate the U.S. energy industry.

The Trump EPA initially tried to reverse the impact of the 2016 Rule outside of the formal notice and comment rulemaking process. In April 2017, then-EPA Administrator Scott Pruitt sent a letter to the oil and gas industry signatories to the petition for reconsideration indicating the agency’s intent to stay the 2016 Rule temporarily while it reconsidered the fugitive emissions monitoring requirements. Pruitt issued a “notice of reconsideration and partial stay” purporting to “stay the effectiveness” of certain provisions of the 2016 Rule on June 5, 2017—three days after the 2016 Rule had gone into effect—delaying the compliance date for three months. Then, on June 16, 2017, the EPA published a notice of proposed rulemaking announcing its intention to extend the stay “for two years” and to “look broadly at the entire 2016 Rule” during “the reconsideration proceeding.” But in July 2017, the Court of Appeals for the D.C. Circuit overturned EPA’s stay because it was undertaken for reasons not authorized under the Clean Air Act. The court affirmed that the oil and natural gas producers would be required to comply with the 2016 Rule until such time that the EPA went through a formal Administrative Procedure Act (APA) rulemaking to revise the Obama-era rule, leading to the 2018 Proposed Rule.

The Science

Science Synopsis

Methane: Known by the chemical formula CH4, methane is the principal component of natural gas (~90% CH4, varying by source). While the burning of natural gas for energy is generally a less-polluting process than the combustion of coal or oil derivatives (which contain harmful trace elements like sulfur and mercury), the leaking of methane from oil and natural gas drilling operations presents significant environmental harm. Methane is a greenhouse gas with significant short-term potency; over a 20-year time horizon, methane exhibits a global warming potential 84–87 times that of CO2, and emissions of methane are estimated to contribute to approximately 25% of near-term global warming. The potential for natural gas as a less harmful alternative to coal or oil from the climate change perspective therefore depends on how much methane leaks during natural gas drilling and extraction. 

 

Fugitive Emissions from the Oil and Gas Sector:Gases or vapors can potentially leak from wells, equipment, and pipelines during the drilling, extraction, processing, and transportation of oil and natural gas resources; these leaks are referred to as fugitive emissions, and they may include greenhouse gases (GHGs, such as methane) and volatile organic compounds (VOC, e.g.benzene). Fugitive emissions can escape at many points in the oil and gas supply chain, making monitoring efforts difficult and leading to underestimates in the frequency and magnitude of the leaks. The EPA has identified many types of fugitive emissions sources throughout the production process, several of which (e.g.well sites, pneumatic pumps, compressing stations) feature prominently in the proposed revisions to the 2016 Rule.

Scientific Assumptions

EPA made several scientific assumptions in issuing the revised 2018 Proposed Rule, including:

  • Methane emissions from the oil and gas sector are of lower magnitude than academic and NGO estimates. A 2018 cross-sector study coordinated by EDF and incorporating other studies by scientists from academia, government, and NGOs estimated that out of all methane produced in U.S. oil and natural gas operations, 2.3% is leaked to the atmosphere. This figure is 60% greater than the leakage estimated by EPA in its 2018 Proposed Rule. The study authors explain the difference by noting that the EPA inventory did not adequately consider emissions events resulting from “abnormal operational conditions.”
  • Decreasing the monitoring frequency for fugitive emissions will not affect the levels of emissions reductions achieved via leak detection and repair. In the 2018 Proposed Rule, the EPA indicated that when the 2016 Rule selected semiannual monitoring for larger oil and gas production sites, the agency may have overestimatedthe achievable emissions reductions as compared to annual monitoring and therefore the benefits to be gained by requiring higher monitoring frequency. In the 2018 Proposed Rule, the EPA assumes that occurrence of leaks is independent of monitoring frequency. This assumption counters the 1995 Protocol, an EPA protocol for estimating leaks from equipment, which postulates that the occurrence rate of fugitive emissions decreases with increasing monitoring frequency (i.e., potential leaks are found and fixed). The 1995 Protocol contains examples validating this assumption. 

 

  • Compliance with state programs will achieve equivalent emissions reductions as compliance with the 2016 Rule.The 2018 Proposed Rule treats the technology requirements of state programs from California, Colorado, Ohio, Pennsylvania, Texas and Utah as equivalent to those of the federal 2016 Rule. Optical gas imaging (OGI) or, alternatively, Method 21instruments, had been identified as the best system of emissions reduction (BSER) in the 2016 Rule, and the Obama EPA did not identify the technologies required by any local or state programs to be as effective as the BSER in achieving emissions reductions.

 

 

The 100-year Global Warming Potential is an appropriate standard to use in calculating the environmental impacts of increased fugitive methane emissions.  Scientists assess the negative impacts of releasing heat-trapping GHGsby measuring its global warming potential (GWP), or how much energy a single ton of those gases will absorb over a certain time period compared to a ton of CO2.  For methane, a gas with a short residence time in the atmosphere, the 20-year GWP value is significantly higher than the 100-year GWP. In assessing the additional harm caused by increased methane emissions resulting from the 2018 Proposed Rule, EPA used the 100-year GWP for methane of approximately 25 to 28, while environmental organizations tend to use the 20-year GWP value (approximately 84 to 87).


The Debate

Scientific Controversies / Uncertainties

There is controversy surrounding how to calculate the cost impact of increasing methane emissions, which in turn determines whether it is cost-benefit positive to revise the 2016 Rule to allow for the release of an additional 380,000 tons of methane over the next six years. The “social cost of methane” is used to quantify the near-term environmental and public health effects of emissions in US dollars per ton of methane emitted. Estimates for the social cost of methane were developed by an interagency working group during the Obama Administration, but the group was disbanded and its estimates eschewed by the Trump Administration in Executive Order 13783 as being “no longer representative of government policy.” In carrying out its regulatory impact analysis for the 2018 Proposed Rule, the EPA resorted to social cost of methane values based on Bush-era practices, along with recommendations from the National Academies regarding social costs, saying that this was an acceptable interim practice until improved estimates were available “based on the best available science and economics.” 

Economists and law professors have criticized the Trump Administration’s decision to disband the interagency working group and abandon its work, pointing out that its cost estimates “already are” the product of best available scientific and economic data. Critics have dismissed the new Trump estimates as unreliable numbers based on “faculty economics.”

 

Endorsements & Opposition

Endorsements:

  • Craig Butler (Director of Ohio EPA), statement, September 11, 2018: “Today’s technical amendments recognize successful infrastructure already in place in states like Ohio to protect public health and the environment. EPA’s commonsense proposal supports state leadership through cooperative federalism and removes unnecessary red tape and burdensome duplication that only serve as roadblocks to responsible energy development in Ohio.”

 

  • Howard Feldman (Senior Director of Regulatory and Scientific Affairs, American Petroleum Institute), press release, September 11, 2018: “We welcome EPA’s efforts to get this right and the proposed changes could ensure that the rule is based on best engineering practices and cost-effective. … U.S. air quality continues to improve as the natural gas and oil industry remains committed to reaching our shared goals of protecting public health and the environment while meeting the nation’s energy needs.”

 

  • Kathleen Sgamma (President of Western Energy Alliance), statement, September 11, 2018: “Western Energy Alliance is pleased that EPA is fixing a rule that was purposefully designed by the Obama Administration to tie up the American oil and natural gas industry in red tape. … This new rule encapsulates the energy dominance agenda that is leading to huge increases in American energy production and jobs with dramatically lower levels of imports from overseas, all while delivering environmental protection.”

 

Opposition:

  • Michael Brune (Executive Director of Sierra Club), press release, September 11, 2018: “The EPA itself acknowledged that delaying these protections would harm our children. To try and gut them anyway makes it clear that, like Scott Pruitt before him, Acting EPA Administrator Wheeler is interested in lining the pockets of fossil fuel executives, no matter the cost.”

 

  • Sen. Tom Udall (D-NM), press release, September 11, 2018: “Methane gas is a super-pollutant for climate change and today’s EPA action is wasteful and outrageous. Actions by EPA to weaken these commonsense, cost-effective oil and gas emission limits will increase pollution and endanger the health and well-being of surrounding communities.”

 

  • Matt Watson (Associate Vice President for Energy, Environmental Defense Fund), press release, September 11, 2018: “It’s unfortunate that the Trump Administration is once again ignoring facts and common sense only to put the interests of the nation’s worst-run oil and gas companies ahead of the health and welfare of all Americans.”

Potential Impacts

  • Economic impacts. The EPA expects the 2018 Proposed Rule to save the oil and gas industry $484 million between 2019 and 2025, or approximately $75 million per year, but at the cost associated with an increase in methane emissions over the same period of 380,000 tons. To show that the 2018 Proposed Rule is cost-benefit positive, EPA used interim estimates for the social cost of methane of $53 per ton, which yielded a cost of only $54 million from 2019 to 2025. According to EPA, this would mean a net economic benefit of $431 million over six years. Had the EPA used the estimates used by the Obama EPA of approximately $1400 a ton, the increased methane emissions under the 2018 Proposed Rule would yield a net cost of  $532 million, meaning the rule costs more than it saves.

 

  • Environmental impacts. The EPA acknowledges that the relaxed standards for fugitive emissions monitoring and repair schedules in the 2018 Proposed Rule would lead to a “greater increase in total emissions” of methane, as well as “increases in VOC and HAP [hazardous air pollutants] under the proposal.” Compared to the 2016 Rule, the EPA anticipated that the 2018 Proposed Rule will allow the release of at least 380,000 more tons of methane and 100,000 more tons of VOCs between 2019 and 2025. These estimates increase to 480,000 tons of methane and 120,000 tons of VOCs if the annual monitoring requirement is adopted. The agency also expects the increased emissions to “degrade air quality and adversely affect health and welfare.”