EPA Proposes Oil and Gas Sector Methane Fee

Key Takeaways

The WEC is a key part of the IRA’s Methane Emissions Reduction Program and is designed to work in tandem with the recently finalized Clean Air Act New Source Performance Standards (NSPS) OOOOb and Emission Guidelines (EG) OOOOc for the oil and gas sector. EPA’s interpretations of its new Clean Air Act authority flowing from the IRA in the proposed rule demonstrate the Biden Administration is doubling down on efforts to drive extensive near-term methane emission reductions and pressure states to submit plans implementing EG OOOOc as soon as possible.

The rule also includes proposed confidentiality determinations for certain data elements proposed for inclusion in WEC filings.

• Who Is Impacted? The proposed rule would apply to facility owners/operators in the following petroleum and natural gas industry segments who report more than 25,000 metric tons of CO₂e under Subpart W:
  • Offshore petroleum and natural gas production;
  • Onshore petroleum and natural gas production;
  • Onshore natural gas processing;
  • Onshore gas transmission compression;
  • Underground natural gas storage;
  • Liquified natural gas storage;
  • Liquified natural gas import and export equipment;
  • Onshore petroleum and natural gas boosting; and
  • Onshore natural gas transmission pipeline.
• What Should I Do? Owners/operators that report more than 25,000 metric tons of CO₂e under Subpart W should carefully review the proposed rule. The rule has three exemptions that may reduce a facility’s WEC or exempt the facility: the first exempts methane emissions caused by unreasonable delays in environmental permitting of gathering or transmission infrastructure; the second exempts facilities that are subject to and complying with Clean Air Act Section 111(b) and (d) methane requirements (NSPS OOOOb / EG OOOOc); and the third exempts emissions from wells that are permanently shut in and plugged. Notably, the proposed requirements for the unreasonable permitting delay and regulatory compliance exemptions are extensive and stringent, so these exemptions may not be as widely available or as soon as EPA anticipates.

Owners/operators affected by the proposed rule should strongly consider submitting comments to the docket (Docket ID No. EPA-HQ-OAR-2023-0434). EPA published the proposed rule in the Federal Register on January 26, 2024, and affected parties must send comments by March 26, 2024. EPA notes that commenters who would like the Agency to further consider comments relevant to this proposed rule that were previously submitted to EPA in the context of other rulemakings or requests for information (e.g., August 2023 proposed revisions to Subpart W, NSPS OOOOb / EG OOOOc proposal and supplemental proposal) must submit those comments to EPA during this proposed rule’s comment period.

EPA is holding a virtual public hearing on the proposed rule from 9:00 am – 6:00 pm EST on February 12, 2024. Owners/operators affected by the proposed rule should register to attend and/or speak by February 7, 2024.

Owners/operators who report under Subpart W and anticipate being subject to the WEC should also carefully review the proposed confidentiality determinations as this will be the only opportunity to substantiate a confidentiality claim for data elements that EPA is proposing not be entitled to confidential treatment.

Owners/operators should continue monitoring developments with this proposed rule and the proposed revisions to Subpart W of the GHG Reporting Program since the WEC relates to emissions reported under Subpart W. EPA’s Science Advisory Board (SAB), which recently expressed some concern over EPA’s proposed revisions to Subpart W, found that the proposed approach for reporting GHG emissions from large emission events would, among other things, potentially over-estimate of the magnitude of these events.

Analysis and Notable Elements of the Proposed Rule

IRA Section 60113 amended the Clean Air Act by adding Section 136 (Methane Emissions and Waste Reduction Incentive Program for Petroleum and Natural Gas Systems). Clean Air Act Section 136(c) requires the EPA Administrator to impose and collect a charge on methane emissions that exceed the applicable waste emissions thresholds under Section 136(f). Facilities with methane emissions below the thresholds would not be required to pay the WEC, and facilities with emissions above the thresholds would pay. Section 136(e) specifies the WEC is $900 per metric ton of methane above the threshold in 2024; $1,200 per metric ton of methane above the threshold in 2025; and $1,500 per metric ton of methane above the threshold in 2026 and beyond.

Key WEC program elements are:

1. Waste emissions thresholds;
2. Netting emissions across different facilities; and
3. Exemptions for certain emissions and facilities.

• Waste Emissions Thresholds. Industry-specific methane intensity thresholds are specified in Section 136(f) and Table 2 of the proposed rule’s preamble. The thresholds are generally defined in terms of facility throughput. Facilities with methane emissions exceeding the following thresholds would be subject to the WEC.
  • Onshore and offshore petroleum and natural gas production segments: The threshold is .2 percent of natural gas sent to sale from the facility; or 10 metric tons of methane per million barrels of oil sent to sale from the facility, if the facility sends no gas to sale.
  • Onshore petroleum and natural gas gathering and boosting, onshore natural gas processing, LNG import and export equipment, and LNG storage segments: The threshold is .05 percent of natural gas sent to sale from or through the facility.
  • Onshore natural gas transmission compression, onshore natural gas transmission pipeline, and underground natural gas storage segments: The threshold is .11 percent of natural gas sent to sale from or through the facility.
• Netting Emissions Across Different Facilities. Section 136(f)(4) allows facilities under common ownership or control to net emissions across facilities. (The facility owner or operator—as opposed to the parent company of a facility owner or operator—would be used for establishing common ownership or control.) In the proposed rule, only WEC applicable facilities under common ownership or control may net WEC applicable emissions.
  • Applicable facility means a facility within one or more of the nine industry segments subject to the WEC.
  • WEC applicable facility means an applicable facility, as defined in the proposed rule, for which the owner or operator of the Part 98 reporting facility reports GHG emissions under Part 98, Subpart W of more than 25,000 metric tons CO₂e.
  • WEC applicable emissions mean the annual methane emissions, as calculated in the proposed 40 C.F.R. § 99.21, associated with a WEC applicable facility that are either equal to, below, or exceeding the waste emissions threshold for the WEC applicable facility after consideration of any applicable exemptions.

So, owners/operators may reduce their total WEC obligations by accounting for WEC applicable emissions below the waste emissions thresholds detailed above. It is important to note that owners/operators cannot offset emissions from WEC applicable facilities with emissions from oil and gas facilities that emit less than 25,000 metric tons CO₂e.

EPA notes that emissions associated with the exemptions detailed below would be excluded from any emissions exceeding the waste emissions thresholds prior to any netting calculations.

• Exemptions for Certain Emissions and Facilities. The proposed rule would implement three exemptions specified in Section 136.

1. Permitting Delay Exemption. Subpart C of the proposed rule would implement Section 136(f)(5) by exempting certain emissions at facilities in the onshore and offshore production segments due to unreasonable permitting delays for gathering or transmission infrastructure from the WEC. For this exemption, EPA proposed four implementing criteria:

i. Facility emissions must exceed the waste emissions threshold;

ii. The entity seeking the exemption and the entity seeking the permit cannot have contributed to the delay;

iii. The exempted emissions are only from flaring gas that would have been mitigated without the permit delay, and flaring must comply with federal, state, and local regulations; and

iv. A set period of months must have passed from when the permitting authority deemed a submitted permit application complete.

EPA notes that these criteria only apply for determining eligible emission exemptions for implementing Section 136(f)(5) and the proposed rule—they do not apply to determining an unreasonable delay for purposes of any other law involved in the permitting processes or other agency actions. Exempted emissions would be subtracted from facility emissions exceeding the waste emissions threshold. The unreasonable delay timeframe will be set in the final rule, and EPA thinks it will end up being set somewhere between 30 and 42 months.

It is important for owners/operators that would be affected by the proposed rule to consider commenting on this exemption. In addition to the timeframe used as part of the proposed four-factor exemption eligibility test, EPA seeks comment on whether delays due to litigation related to pipeline development should be ineligible for this exemption. EPA also seeks comment on an alternate, case-specific approach where the Agency would evaluate documentation provided by a WEC-obligated party to determine if there was an unreasonable delay, and the WEC-obligated party would only be able to utilize the exemption if EPA then determined that an unreasonable delay had occurred. EPA considered this alternate approach but chose not to propose it due to perceived time and resource burdens for both the Agency and owners/operators.

2. Regulatory Compliance Exemption. Subpart D of the proposed rule would implement Section 136(f)(6) by providing an exemption from the WEC for WEC-applicable facilities that remain above the waste emissions thresholds even when their constituent Section 111(b) and (d) facilities (i.e., emissions sources such as tank batteries, etc.) are fully complying with applicable methane emission requirements. There are two important prerequisites for this exemption.

i. First, the Section 111 standards (NSPS OOOOb / EG OOOOc) must be approved and in effect. This significant requirement means state plans implementing EG OOOOc (or a federal plan in the absence of a state plan) must be approved by EPA and in effect in all states with WEC applicable facilities before this exemption will become available.

ii. Second, a WEC applicable facility can only qualify for this exemption if all of its emission sources regulated under Section 111 are in compliance with the methane emission requirements. This is another significant requirement, as one deviation or violation at an emissions source would prevent a WEC applicable facility from utilizing this exemption.

EPA believes that making the regulatory compliance exemption available on a state-by-state basis would be inconsistent with the text of Section 136(f)(6)(A), and that this proposed approach is more equitable and will provide industry with more regulatory certainty. Nonetheless, the Agency requests comment on making this exemption available on state-by-state basis based on finalization of individual state plans.

3. Plugged Well Exemption. Subpart E of the proposed rule would implement Section 137(f)(7) by providing an exemption from the WEC for wells in the onshore and offshore petroleum and natural gas production segments that have been permanently shut in and plugged. To be eligible for this exemption, the facility must have emissions that exceed the waste emissions threshold, and the well must be permanently shut in and plugged. A well would be considered permanently shut in if the owner/operator met all applicable federal, state, and local closure requirements in the jurisdiction where the well is located.

• Proposed Confidentiality Determinations for Data Reporting Elements. EPA believes that nearly all data reported under the WEC would be either emissions data or otherwise ineligible for confidential treatment. Similar to the approach it took with the GHG Reporting Program, EPA proposes to make advanced categorical emission data and confidentiality determinations through this rule. EPA has proposed that methane emissions, the calculation methodology used, and facility and unit identifier information would be emissions data and not subject to confidential treatment. Information in supporting documentation could potentially be considered confidential on a case-by-case basis.

EPA is also proposing changes to determinations for certain Subpart W data elements that were previously treated as confidential. EPA has also proposed to amend 40 C.F.R. § 2.301 (Special rules governing certain information obtained under the Clean Air Act) by specifying that special rules applicable to data submitted under Part 98 would also apply to Part 99 (the proposed WEC rule).

It is important to note that the proposed rule’s comment period will be WEC reporters’ only opportunity to substantiate confidentiality claims before EPA finalizes the proposed confidentiality determinations.

Beveridge & Diamond’s Air and Climate Change practice group helps private and municipal clients navigate all aspects of compliance with Clean Air Act regulations for criteria pollutants, hazardous air pollutants, and greenhouse gases, rulemakings, and permitting processes. For more information, please contact the authors.