The Inflation Reduction Act (IRA), passed by Congress on August 12, 2022, created important incentives for clean energy and equity-centered environmental investments. As part of IRA, the Methane Emission Reduction Action Plan (Action Plan) focuses on cutting methane emissions from the largest sources in the US, through regulatory actions, financial incentives, public and private partnerships, and transparency of actionable data.
On January 31, 2023, the Biden Administration announced new actions in line with the objectives of the Action Plan to tackle methane emissions and support a clean energy economy. Many of these actions also include addressing Environmental Justice (EJ) issues, which has been a cornerstone of regulatory actions by this Administration.
So, what is in the Action Plan and how will it impact the industry?
Proposed Provisions:
For the Oil & Gas sector, the Action Plan builds on the Global Methane Pledge Energy Pathway, which encourages all nations to: (i) capture the maximum potential of cost-effective methane mitigation in the Oil & Gas sector; and (ii) eliminate routine flaring as soon as possible, and no later than 2030. The Action Plan provides several incentives to meet these objectives, such as:
- Providing $4.2 billion for plugging methane leaks from orphaned oil and gas wells by funding agencies and states through the Orphaned Wells Grant Program;
- Providing $1.55 billion in financial and technical assistance under the IRA to monitor and reduce methane emissions from operations. Out of this, $700 million is earmarked for pollution reduction activities at marginal conventional wells; and
- Providing $32 million for improving monitoring and measurement by funding research and development on related technologies.
In addition, several measures in the Action Plan use regulatory leverage in reducing methane emissions, such as:
- Stricter standards on methane, as outlined in the proposal of the USEPA to amend the Clean Air Act (CAA) by adding a new “Section 136”;
- “Methane Emission Charge” for affected Oil & Gas facilities that exceed defined thresholds; and
- New safety and modernization program requirements.
Currently, USEPA is focused on identifying near-term, high priority activities for financial and technical assistance, which will provide the maximum benefit for methane reduction. These include but are not limited to:
- Methane mitigation technologies and practices to achieve near-term methane emission reductions;
- Emerging monitoring and mitigation technologies to support innovation and encourage methane emissions reduction efforts;
- Methane mitigation from marginal conventional wells; and
- Best means to mitigate the health effects of methane and other greenhouse gas emissions in low-income and disadvantaged communities.
In early May, USEPA held a series of national listening sessions for the public to share their comments on the design of the financial and technical assistance provisions of the Action Plan. EPA was accepting written feedback until June 2.
Methane Emission Charge:
One of the near-term impacts of the Action Plan to the industry will be the imposition of the Methane Emission Charge. This could start as early as 2024. This charge will apply to the following facilities:
- Offshore petroleum and natural gas production;
- Onshore petroleum and natural gas production;
- Onshore natural gas processing;
- Onshore natural gas transmission compression;
- Underground natural gas storage;
- Liquefied natural gas storage;
- Liquefied natural gas import and export equipment;
- Onshore petroleum and natural gas gathering and boosting; and
- Onshore natural gas transmission pipelines.
There are two facility categories that report emissions under 40 CFR 98 Subpart W that are not subject to the methane charge: (1) natural gas distribution facilities and (2) facilities USEPA describes as “other oil and gas combustion facilities.” USEPA states these “other oil and gas combustion facilities” are “stationary fuel combustion emissions from facilities that are associated with the petroleum and natural gas industry, but that do not report process emissions from any of the above source categories.”
The methane emissions charge in the IRA only applies to facilities that emit 25,000 mtCO2e or more per year. Additionally, the IRA does allow for the “netting” of emissions among all facilities under common ownership or control such that no charge will be required as long as all reported emissions for all facilities owned or operated by the same entity are under the aggregate threshold for all of those facilities, even if reported emissions at some individual facilities exceed the applicable threshold.
In the IRA, the scope of emissions subject to the charge is based on (1) the facility’s reported emissions under USEPA’s GHGRP, and (2) an emissions threshold that varies by facility type as follows:
- For petroleum and natural gas production facilities, the charge applies only to the number of reported tons of methane that exceed 0.2% of the natural gas sent to sale from such facilities;
- For nonproduction facilities, such as gathering and boosting facilities, the charge applies to methane emissions that exceed 0.05% of the natural gas sent for sale from the facilities; and
- For natural gas transmission facilities, the charge applies to methane emissions that exceed 0.11% of the natural gas sent for sale from the facilities.
The methane emissions charge in the IRA will be imposed and collected beginning with emissions reported in calendar year 2024. The fee starts at $900 per metric ton of methane, increases to $1,200 in 2025, and to $1,500 in 2026-on.
It may be noted that the methane emission charge may ultimately be waived if USEPA adopts its proposed rule for Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review, 86 Fed. Reg. 63110 (Nov. 15, 2021) and such regulations (1) are in effect in all states, and (2) would “result in equivalent or greater emissions reductions as would be achieved” by the November 2021 proposed rule. However, to date, USEPA has not published the final version of this rule, though the proposed rule has cleared OMB review.
There is also “Natural Gas Tax Repeal Act,” H.R. 1141, that could strip out the methane fee included in the IRA. It has 41 co-sponsors right now. This bill eliminates a program administered by the USEPA that provides incentives for petroleum and natural gas systems to reduce their emissions of methane and other greenhouse gases. It also repeals a charge on methane emissions from specific types of facilities that are required to report their greenhouse gas emissions to the USEPA’s Greenhouse Gas Emissions Reporting Program.
Planning:
Affected facilities will have limited time before being impacted by the methane emission charges. Planning is essential to develop and implement a “Best Possible Scenario” for the facilities to avoid significant emission charges and minimizing business interruptions. How can you prepare? Here are some tips from our experienced professionals.
- Get a robust GHG/Methane inventory in place. Use actual monitoring data and as few assumptions as possible.
- Reduce methane venting to the atmosphere anywhere and everywhere feasible and safe to do so. Various options may include but are not limited to: (i) compressor blowdowns vented to control devices; (ii) tank controls; (iii) liquids sent offsite via pipeline instead of loading into trucks; and (iv) investing in pig receivers/catchers that can hold more than one pig at a time therefore reducing the number of openings.
- Develop a “netting” framework to basin-wide facilities to develop “aggregate thresholds.” This may help in equalizing emissions between facilities and avoiding the charges.
How EDGE Can Assist:
EDGE can develop a roadmap for the incentives and compliance with the provisions of the Action Plan and minimize the impact of the methane emission charges for your facilities.
EDGE has extensive experience supporting Oil & Gas industry in navigating regulations, strategic planning to maintain continuous compliance and minimize business interruptions. Since the early stages of the GHGRP, we have completed numerous GHG inventories and advised our clients in the US and internationally on best practices in monitoring, mitigating, and permitting of emissions. EDGE has also developed robust management systems for facilities to continue compliance with the new requirements.