O’Melveny Worldwide

EPA Proposes to Rescind Methane Emission Limits for the Oil and Natural Gas Industry

September 3, 2019

On August 29, 2019, the US Environmental Protection Agency (the “EPA”) proposed two options to rescind federal emission limits for methane set forth in the 2012 and 2016 New Source Performance Standards (NSPS) for the Oil and Natural Gas Industry codified at 40 C.F.R. part 60, subpart OOOO and OOOOa, respectively (the “Proposed Rule”).1 In 2012 and 2016, the EPA put the current regulations in place, noting that emissions in the upstream oil and gas sector represented a significant portion of US greenhouse gas emissions with methane having an atmospheric impact 25 times greater than that of carbon dioxide.

Under the EPA’s preferred alternative, the Proposed Rule would rescind the methane limits for new, reconstructed, and modified oil and natural gas production sources (leaving in place the general emission limits for volatile organic compounds (VOCs)) and relieve the EPA from its obligation to develop guidelines for methane emissions from existing sources. In addition, the Proposed Rule would remove from the oil and natural gas category the natural gas transmission and storage segment, which includes underground storage vessels, compressors, and pneumatic controllers, thereby rescinding the emission limits for both methane and other VOCs for those sources.

The EPA proposal also provides an alternative approach: to rescind the methane requirements of the NSPS applicable to all oil and natural gas sources without removing any sources from that source category (still requiring control of VOCs in general). EPA is also seeking comment on its overall authority to regulate the upstream oil and gas industry under Clean Air Act Section 111, the same issue that is at the core of the EPA’s current proposal to roll back rules applicable to the energy sector.

EPA is issuing the proposed rule in response to President Trump’s 2017 Executive Order on Promoting Energy Independence and Economic Growth, which directs agencies to review, and to rescind or suspend if appropriate, regulatory requirements that potentially “burden the development or use of domestically produced energy resources.” (For more information regarding the Order, see our April 3, 2017, alert.) The Proposed Rule has not yet been published in the Federal Register, but a prepublication version is available here.

The EPA estimates that the proposed amendments to the NSPS would save the oil and natural gas industry $17 million to $19 million a year, for a total of $97 million to $123 million from 2019 through 2025. The EPA further asserts that there will be no emission impacts from rescinding the methane requirement because the methane control options are redundant with control options for VOCs, which would not be affected by the proposed rule. Instead, the EPA anticipates that the only emission impacts would come from removing sources in the transmission and storage segment from the oil and natural gas source category, which the EPA estimates would result in additional emissions from 2019 through 2025 of 370,000 short tons of methane (8.4 million metric tons of carbon dioxide equivalent), 10,000 short tons of VOC, and 300 short tons of hazardous air pollutants.

However, due to other factors affecting emissions from the oil and natural gas sector, it is unclear what the impact of the Proposed Rule, if finalized, would be. As recognized by the EPA, the natural gas industry has profit incentives to capture and sell natural gas (methane) rather than vent or flare it, and multiple states have programs requiring control of methane emissions. States with robust emission limits include key oil and natural gas producing states such as Texas, Oklahoma, and North Dakota (which has rules in place to limit flaring and venting of natural gas).

In addition, news reports indicate that more than 40 oil and natural gas companies have made voluntary commitments to limit methane emissions, with many affected companies publicly supporting the current regulatory regime. BP America Inc., for example, has stated that the industry must reduce methane emissions in order for natural gas to realize its full potential in the energy mix and has warned that rescinding the existing limits on methane emissions threatens to weaken the industry’s position that natural gas is cleaner than coal. Some oil and natural gas companies also are under pressure from investors and financing sources to maintain existing controls and, in some cases, to publicly oppose the EPA’s new proposal. At the same time, many smaller oil and natural gas companies, and the American Petroleum Institute, which represents a broad spectrum of oil and natural gas companies, have voiced support for the EPA’s roll back of the methane emission regulations.

Commentators have noted that the upstream sector is free to implement more stringent methane controls even if the Proposed Rule is finalized. Finally, some new research shows that hydraulic fracturing (fracking) to extract natural gas from shale deposits may be a more significant methane source (as compared with the livestock sector) than originally thought when standards were first framed in 2012, suggesting more extensive controls are in order.

Comments on the Proposed Rule will be due 60 days after publication in the Federal Register. Environmental groups and some states already have indicated that they would challenge any final rule based on the EPA’s current proposal. We will provide further updates as the proposal advances.

1 The 2002 and 2016 NSPS rules were challenged by a number of parties, and the US Court of Appeals for the DC Circuit issued an order on November 18, 2017, granting a motion by the EPA to hold in abeyance the litigation regarding these rules. In addition, EPA has granted reconsideration of certain aspects of the NSPS rules and has stayed certain aspects of the rules.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Eric Rothenberg, an O’Melveny partner licensed to practice law in Missouri and New York, Hugh E. Hilliard, an O’Melveny senior counsel licensed to practice law in the District of Columbia and Maryland, and John D. Renneisen, an O’Melveny senior counsel licensed to practice law in the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2019 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.