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Courts and Election Mean the Future of EPA’s Methane Regulations for the Oil and Gas Industry is Still Up in the Air

Courts and Election Mean the Future of EPA’s Methane Regulations for the Oil and Gas Industry is Still Up in the Air Background Decorative Image

As discussed in this previous post, the federal government’s regulation of methane for the oil and gas industry — both from the Department of Interior on public land, and from EPA — continues to swing back and forth due to shifting agency positions in different administrations and lawsuits challenging those shifts.

On August 13, 2020, EPA released two rules changing the volatile organic compound (“VOC”) and methane emissions requirements for new sources in the oil and gas sector, which alter or roll back some of the requirements put in place under the Obama administration. As with a number of other environmental regulations from the last administration, one of the Obama-era methane rules (known as “Quad Oa” for where they appear in the EPA regulations at 40 C.F.R. Part 60), did not spend much time on the books before it was challenged in court, and then reconsidered by the Trump administration EPA. Like many of these other rules, decisions around Quad Oa have ping-ponged back and forth between multiple courts and the agency, leaving industry in limbo for the last few years.

Brief History of EPA’s Methane Regulations for the Oil and Gas Industry

On June 3, 2016, EPA finalized Quad Oa — more formally known as the “New Source Performance Standards (NSPS) for VOC and methane emissions from the oil and gas sector.” This was the first time EPA regulated methane from the oil and gas sector, and the rule applied to upstream, midstream, and downstream operations. Before then, EPA had only regulated VOCs from the sector, and since VOCs and methane both come from natural gas leaks, the previous regulations (“Quad O”) had the effect of also limiting methane emissions.

So why separately mention methane in the 2016 rule? Climate change. And, more specifically, a stepping stone to additional methane regulations in the future. As EPA has previously explained, the oil and gas industry is a “significant source of emissions of methane, a potent greenhouse gas with a global warming potential more than 25 times that of carbon dioxide.”1 EPA estimates that the oil and natural gas production, natural gas processing, and natural gas transmission and storage sectors emit 25% of U.S. anthropogenic methane.

While Quad Oa only applied to new or modified sources after the rule’s effective date, releasing the rule triggered an obligation to regulate methane from existing wells and equipment.2 In November 2016, EPA followed up on that intention by sending an Information Collection Request to operators, asking them to identify ways to control methane from existing oil and gas sources. In March 2017, the Trump administration’s EPA canceled the Information Collection Request, and in April, EPA announced its intention to review Quad Oa.

Meanwhile, industry and 30 states had challenged Quad Oa, and the cases were consolidated in the federal appellate court in D.C., the D.C. Circuit, before the end of the Obama administration. After announcing that it would review Quad Oa, the Trump administration EPA asked the D.C. Circuit to pause the case. EPA also proposed to delay certain provisions in Quad Oa while reconsidering the rule. These proposals were challenged by states and environmental groups in the summer of 2017, and the D.C. Circuit determined that EPA had to enforce Quad Oa. On August 13, 2020, EPA finally completed its review and issued a final Methane Rule, which made changes to both Quad O and Quad Oa.

Why Does This Roll-Back Matter? Existing Sources and Future Methane Regulation

On the surface, EPA’s Methane Rule removes some of the regulatory requirements that industry considered burdensome, including leak monitoring and repair and recordkeeping and reporting requirements. Among the biggest changes was removing transportation and storage sectors (including midstream or pipeline companies) of the oil and gas industry from VOC and methane regulation entirely. As EPA explained, the “Clean Air Act requires EPA to make a formal finding that a pollutant contributes significantly to air pollution before setting NSPS requirements. Since the Obama EPA did not make this finding, the addition of the transmission and storage segment to the oil and gas category and the additional methane control requirements in the 2016 rule were inconsistent with the law.”

Courts and Election Mean the Future of EPA’s Methane Regulations for the Oil and Gas Industry is Still Up in the Air Background Decorative Photo

But remember, Quad O and Quad Oa only applied to sources that were new or modified after the rule’s effective date, so, at least in the beginning, it would have had a limited impact on the industry. The bigger long-term impact would come if EPA and the states had regulated methane from all existing sources in the oil and gas sector — a much larger pool of sources and potential emissions. The importance of regulating these existing sources can be seen through the court challenges. In April 2018, fourteen states, the District of Columbia, and the City of Chicago sued EPA in the federal court for the District of Columbia, arguing that it had an obligation to regulate emissions from existing oil and gas operations, and that it was taking too long to do so.

small set of wells/tanks with words

EPA’s Position in the Court and What it Means for the Future of Methane Regulations

In a brief filed just after the release of the new Methane Rule, EPA asked the court to dismiss the lawsuit asking that EPA be required to regulate existing sources. EPA admitted that it had a mandatory duty to issue guidelines for states to regulate methane emissions from existing sources in the oil and natural gas sector until the Quad Oa was rescinded on August 13, 2020. Now that Quad Oa has been rescinded, however, EPA told that court that it no longer has either the authority or a duty to issue methane guidelines for existing sources, and that the case is therefore moot. This is different from the argument that the Bureau of Land Management (“BLM”) recently made to a court in Wyoming, where it said that it could no longer defend an Obama-era rule to regulate methane on public lands because it had determined that the BLM methane rule was legally wrong. Here, EPA is arguing that because the only thing triggering a requirement that it regulate existing sources was the fact that it was regulating new sources, and now that it has rolled back its regulation of new sources, the duty to regulate existing sources has disappeared.

If the court agrees with EPA, then EPA will not be required to propose guidelines by which the states would regulate existing sources of methane in the oil and gas sector. However, even if EPA secures a victory in this legal challenge, there is likely to be a separate suit challenging EPA’s new Methane Rule. Environmental groups and/or states are likely to ask the D.C. Circuit to overturn the Methane Rule, in which case industry may once again find itself complying with Quad O and Quad Oa, and EPA might once again be under an obligation to create guidelines for existing sources. Creating those guidelines would take time, however, so industry should not expect any changes for existing sources to take place overnight.

What Will the Election Mean for Methane Regulation?

The Biden campaign has already said that “[o]n day one, Biden will use the full authority of the executive branch to make progress and significantly reduce emissions” including by “[r]equiring aggressive methane pollution limits for new and existing oil and gas operations.” As a result, we can expect that a Biden administration would likely reverse course and work to publish new methane regulations for the oil and gas sector, but doing so will take time and agency resources now that the Methane Rule has been finalized.

While a president doesn’t have the power to snap his fingers and remove regulations on day one, he can instruct agencies through executive orders to review and consider rescinding regulations through the long, slow process for legally doing so. For example, EPA’s decision to review Quad O and Quad Oa was the result of an executive order from President Trump instructing agencies to review regulations that may “unduly burden the development of domestic energy resources beyond the degree necessary to protect the public interest or otherwise comply with the law.” But it still took EPA years to complete the process after the executive order was issued. If elected, Biden would likely issue his own executive order asking EPA to review the Methane Rule and consider once again regulating methane from both new and existing sources.

EPA made two other important changes that could impact the ability of future administrations to regulate methane. First, EPA concluded that, as a prerequisite for newly regulating any air pollutant (including methane), EPA must make a finding that emissions of that air pollutant from the source category cause or contribute significantly to air pollution which may reasonably be anticipated to endanger public health or welfare (what EPA calls a “significant contribution finding”). The Methane Rule states that the significant contribution finding that EPA made for Quad Oa was invalid and did not meet this statutory standard, for two reasons:

(1) The EPA made that finding on the basis of methane emissions from the production, processing, and transmission and storage segments, instead of just the production and processing segments; and

(2) The EPA failed to support that finding with either established criteria or some type of reasonably explained and intelligible standard or threshold for determining when an air pollutant contributes significantly to dangerous air pollution.

EPA acknowledged that in the past it has not created pollutant-specific significant contribution findings, and instead has taken the position that it may promulgate a standard of performance for a pollutant not previously regulated under Clean Air Act Section 111 as long as it simply has a rational basis for doing so. In the Methane Rule, EPA explained that this previous “approach is flawed because it is vague and not guided by any statutory criteria, and that as a result, it could result in the Agency promulgating standards for air pollutants that are emitted in relatively minor amounts” and that it is now interpreting Clean Air Act section 111 to require pollutant-specific significant contribution findings before regulating the pollutant to guard against this possibility.

Second, EPA stated in the Methane Rule that the Obama administration’s EPA was incorrect in adding the transportation and storage segment of the oil and gas sector to methane and VOC regulations because EPA never made a “significant contribution finding” specifically for this sector. The Methane Rule indicates that the transportation and storage segment only accounts for a little less than 21% of the methane emissions from the entire oil and gas sector.

As a result, the EPA under a new administration would either have to make a significant contribution finding for methane emissions from these sectors before regulating them, or would need to explain (and likely justify to a court) why they are not required to do so under the Clean Air Act. Setting this criteria for a pollutant based on its climate change impacts will involve both agency discretion and court scrutiny, in part due to the uniquely global nature of climate change, and EPA did not attempt to set those criteria in the Methane Rule. As EPA previously explained, the collective GHG emissions from the oil and natural gas source category account for 32% of United States methane and 3.4% of total United States emissions of all GHGs, but only 0.5% of all global GHG emissions, and no single GHG source category dominates on the global scale.

32% over a picture of the U.S. vs. .05% over a picture of the globe

Regardless of who is elected in November, EPA is likely to see a lawsuit challenging the Methane Rule in the next two months, because the Clean Air Act only gives parties 60 days from the time a final rule is published to petition the D.C. Circuit to review that rule. But the position that EPA takes on a number of legal questions is likely to be impacted by who wins this fall.

Conclusion

EPA’s regulation of methane for the oil and gas sector is another example of how regulatory requirements have seesawed back and forth over the past few years, and largely remained in limbo due to court challenges and changes in administrations. The EPA’s Methane Rule is yet another instance where an agency has said that it was changing course, not just because of a difference in policy views, but because its previous position was legally wrong. The ultimate fate of these regulations and many others will depend on the election and the courts.

1 “The Global Warming Potential (GWP) was developed to allow comparisons of the global warming impacts of different gases. Specifically, it is a measure of how much energy the emissions of 1 ton of a gas will absorb over a given period of time, relative to the emissions of 1 ton of carbon dioxide (CO2).” According to EPA, methane has a GWP of 28–36 years, and lasts, on average, about a decade in the atmosphere, while carbon dioxide lasts in the atmosphere for about 100 years.

2 Under the Clean Air Act, EPA first promulgates standards of performance for new sources (“NSPS”). EPA does not promulgate performance standards for existing sources. Instead, the Clean Air Act requires EPA to prescribe regulations to establish procedures under which States submit plans to establish, implement, and enforce standards of performance for existing sources “for any air pollutant . . . to which a [federal NSPS] would apply if such existing source were a new source….”

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.