EPA Finalizes Methane Emission Regulations | Jones Day

In Short

The Situation: The Environmental Protection Agency (“EPA”) finalized regulations designed to reduce methane emissions from the oil and gas industry by 80% in coming years at both new and existing facilities. The regulations include a “super emitter” program allowing third parties to remotely detect significant methane releases that facilities will be required to promptly investigate and report.

The Result: New sources as of December 6, 2022, will need to comply with new standards for preventing and detecting methane releases. Existing sources will need to comply with state-issued regulations to be approved by EPA in the next five years.

Looking Ahead: The finalized regulations were announced at the United Nations COP 28 climate summit and were met with support from environmental groups but received a mixed reaction from the industry. As part of the same summit, a coalition of 50 oil and gas companies announced a significant, but voluntary, plan to reduce methane emissions by 80% to 90% by the end of this decade.

The EPA has finalized regulations that will sharply limit emissions of methane from both new and existing oil and natural gas facilities. Any facility that is constructed, reconstructed, or modified after December 6, 2022, will need to comply with the new standards. Existing facilities will have a longer compliance period; delegated states must submit proposed regulations compliant with EPA emission guidelines for EPA approval within two years; and existing facilities must comply with those regulations no more than three years after submission of the emission guidelines.

EPA claims that the rule will reduce the emission of methane, a greenhouse gas (“GHG”), by almost 80% between 2024 and 2038 by eventually eliminating routine flaring and imposing specific standards for covered equipment, including routine monitoring and repair of leaks.

“Super Emitting” Sources

A controversial provision of the final regulation relates to EPA’s December 2022 supplemental proposal allowing third parties to detect “super emitting” events and requiring that the owner or operator of the facility investigate and provide a publicly available report to EPA. “Super emitting” is defined as events releasing methane at a rate of 100 kilograms or more per hour. In response to comments, EPA made several changes and clarifications to the provisions, including requiring that the third parties be certified, requiring that EPA-approved remote sensing technologies be used, providing a process to decertify parties, and requiring that the third party submit data directly to EPA.

EPA will review the third party data and, if EPA finds the information is “complete” and “does not contain information EPA finds to be erroneous or inaccurate to a reasonable degree of certainty,” provide notice to the relevant owner or operator. The owner or operator will then have five days to begin an investigation of the super emitting event and 15 days to submit a report of the investigation to EPA. To the extent the investigation shows noncompliance with the applicable regulations, the owner or operator is obligated to make corrections, although super emitter events involving non-regulated equipment must still be investigated and reported.

The comments challenged the proposed provisions arguing that EPA was impermissibly delegating its enforcement authority in a manner not authorized by the Clean Air Act (“CAA”). EPA responded by clarifying in the final rule that EPA’s legal authority for the provisions was the information gathering authority of EPA pursuant to CAA Section 114(a). This novel interpretation of EPA’s authority to create the super emitter program may serve as a basis for challenging these provisions.

Cost-Benefit Analysis

To justify the final rule, EPA calculated the Social Cost of Carbon (“SCC”) to be $190 per ton, a sharp increase of the SCC used by previous administrations. Under the Obama administration, the cost was calculated at $42 per ton, and the Trump administration lowered the calculation to $5 per ton. The Biden administration estimates were previously set at $51 per ton, a calculation that survived a legal challenge on the basis that the state attorneys general lacked standing. The new SCC is likely to face judicial scrutiny but potentially could be used to justify future climate change regulation.

While EPA appears confident that the new SCC will survive a legal challenge, some commentators are more skeptical. EPA justified the calculation with a November 2023 EPA study which EPA claims “incorporates recent scientific advances.” The report, however, relies, for example, upon a model that assumes temperatures will increase by 4.3° C from pre-industrial levels by 2100. Scientists are currently debating the plausibility of this assumption given current trends.

Is This a “Major Question”?

In West Virginia v. EPA, the Supreme Court determined that EPA did not have authority to use a generation-shifting requirement for GHGs emitted from existing power plants. According to the Court, Congress can be presumed to desire making “major policy decisions itself, and not leave those decisions to agencies.”

For authority to regulate GHGs, particularly methane, EPA relies on the Congressional Review Act and CAA Section 111, which lists Crude Oil and Natural Gas as a source category susceptible to regulation. EPA asserted that human-produced GHGs are “threaten[ing] human health, society, and the natural environment[,]” and that “methane [is] the second most important human warming agent after carbon dioxide.” By making such an acknowledgement and determining that CAA Section 111 authorizes EPA to regulate air pollutants listed in a source category, EPA contends it is well within “its power to treat greenhouse gases as air pollutants[.]” Massachusetts v. EPA, 549 U.S. 497, 529 (2007).

Three Key Takeaways

  1. Final regulations will require equipment to detect and prevent methane emissions at both new and existing facilities.
  2. The super emitter program creates a template for third parties to remote detect large methane emissions that facilities must investigate and publicly report.
  3. The sharply increased social cost of carbon will face scrutiny and could help justify costly steps to limit GHG emissions in future regulations.

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