In yesterday’s Part 1, we discussed the Environmental Protection Agency’s (EPA) rules regulating emissions from existing and new stationary electricity generating units. In today’s post, we discuss EPA’s regulations regarding emissions of mercury and air toxics, and emissions of methane and other volatile organic compounds.

Mercury and Air Toxics Standards

On February 16, 2012, EPA published its Final Rule regarding air toxics standards for coal‐ and oil‐fired electricity generating units, also known as the Mercury Air Toxics Standards or “MATS” rule. The MATS rule regulates power plant emissions of mercury and other hazardous air pollutants.

Industry and state petitioners challenged the MATS rule asking the court to determine whether EPA erred when it concluded that the appropriate and necessary finding under Clean Air Act Section 112 could be made without consideration of cost.

  • On June 29, 2015, in Michigan v. EPA, 135 S. Ct. 2699 (2015), the Supreme Court ruled 5-4 that EPA had erred when the agency concluded that cost did not need to be considered in the appropriate and necessary finding supporting MATS. Despite the ruling, the MATS rule has remained in place while EPA considered the cost question.
  • On December 1, 2015, in response to the Supreme Court’s direction, EPA published a proposed supplemental finding that a consideration of cost does not alter its previous determination that it is appropriate and necessary to regulate air toxic emissions from coal‐ and oil‐fired electricity generating units. EPA solicited public comment on the proposal.
  • On April 25, EPA issued a Supplemental Finding that it is Appropriate and Necessary to Regulate Hazardous Air Pollutants from Coal- and Oil-Fired Electric Utility Steam Generating Units, 81 Fed. Reg. 24,420, and affirmed that the MATS rule was appropriate and necessary to regulate air toxics after including a consideration of costs.
  • On the same day, April 25, Murray Energy Corporation filed a petition in the U.S. Court of Appeals for the District of Columbia Circuit asking the court to review the supplemental finding. Murray Energy v. EPA, C.A. No. 16-1127. The window to file petitions for review is open until June 24, so other parties most likely will file challenges and the cases will be consolidated into a single action.

The Supreme Court is also considering a petition from a coalition of 20 states, led by Michigan, that argues the MATS rule should have been vacated entirely and that the lower appeals court’s decision to keep it in place while the agency addressed legal flaws was itself illegal. Michigan v. EPA, C.A. No. 15-1152. In briefs filed earlier this month, the U.S. Department of Justice argued that, amongst other arguments, the state coalition has no standing and can not show any injury resulting from the 2015 decision because the MATS rule imposes obligations on the power sector, not the states.

Finally, another litigation, ARIPPA v. EPA, C.A. No. 15-1180, which was put on hold while EPA reconsidered the cost issue, was moved back to the active docket on May 11 by the U.S. Court of Appeals for the District of Columbia Circuit. Petitioners, Utility Air Regulatory Group, and ARIPPA, are challenging EPA’s previous decision to deny administrative reconsideration requests on the MATS rule.

Future posts on the Energy Finance Report will provide updates as to the status of the MATS rule, so please check back.

Methane Emission Standards for New, Reconstructed, and Modified Sources

According to EPA, methane has a global warming potential more than 25 times greater than carbon dioxide. Thus, while the power sector is reducing its carbon dioxide emissions by shifting from coal to natural gas generation, EPA felt is necessary to limit the impact of emissions of methane and other ozone-causing volatile organic compounds from shale gas production.

EPA published its final rule, Emission Standards for New, Reconstructed, and Modified Sources, limiting emissions of methane and other ozone-causing volatile organic compounds (VOCs) from new and modified oil and gas infrastructure on May 12. Under the President’s Climate Action Plan: Strategy to Reduce Methane Emissions and the Clean Air Act, EPA also finalized rules clarifying air permitting rules as they apply to the oil and natural gas industry, and a rule that will limit emissions while streamlining the permitting process for the oil and natural gas production industry in Indian country. According to the agency, these rules will reduce methane emissions up to 45 percent from 2012 levels by 2025.

In general, the Emissions Standards rule updates the New Source Performance Standards associated with methane and other VOCs and requires oil and gas companies to prevent leaks, capture methane from hydraulic fractured wells, and limit emissions from various types of oil and gas extraction and transmission equipment, including pumps, compressors, and pneumatic controllers. Challenges to the final rule are expected to be filed by industry associations, states, and other stakeholders who have argued that the new requirements are costly and unnecessary.

EPA also released a proposed information collection request seeking a broad range of information on the oil and gas industry. This request is a precursor to the agency’s evaluation of potential regulatory requirements for methane emissions from existing oil and gas sources and, similar to the Clean Power Plan, could be the beginning of a much larger legal battle.

Future posts on the Energy Finance Report will provide updates as to the status of the methane regulations, so please check back.

Conclusion

With the time left in office for the Obama Administration, EPA is moving toward finalizing additional climate change and air pollution rules that reduce emissions from power plants, refineries, and the transportation sector. Operating, maintenance, and financing costs will undoubtedly increase for the oil and natural gas industries as companies come into compliance with these new emissions-reductions rules and regulations. There is a significant opportunity for zero-emission sources such as wind, hydro, and solar to step in and fill the gap left when the utility energy sector retires existing fossil-fuel sources and begins planning for future energy needs.