Obama Administration Announces Planned Rules to Control Methane from Oil and Gas Production Sources

On January 14, 2015, the Obama administration and the Environmental Protection Agency ("EPA") announced plans to propose new standards to control methane emissions from new and modified—but not existing—oil and natural gas production sources. The future regulation is projected to reduce methane emissions by up to 45 percent by 2025, as compared to 2012 levels, and is modeled on a series of peer-reviewed white papers that EPA released last year. EPA is scheduled to issue the proposed regulation in the summer of 2015, with the rule to be finalized by 2016.

After proposing the Clean Power Plan to limit carbon emissions from existing electric generating units ("EGUs"), EPA's proposed methane standard will serve as the Agency's next step in reducing overall greenhouse gas ("GHG") emissions. EPA estimates that methane emissions accounted for nearly 10 percent of GHG emissions in the United States in 2012, while noting that methane possesses 25 times the heat-trapping potential of carbon dioxide over a 100-year period. Without new measures to control methane emissions, it is projected that methane emissions will increase by more than 25 percent by 2025. EPA projects this increase in methane emissions despite the fact that methane emissions within the oil and natural gas sector have dropped by 16 percent since 1990, during which time natural gas production has risen by 37 percent.

The proposed rule will add to the existing portfolio of regulatory measures that comprise the administration's Climate Action Plan Strategy to Reduce Methane Emissions. The Climate Action Plan includes a variety of strategies that are or will be carried out by various agencies and departments, including EPA, the Departments of Energy and Transportation, and the Bureau of Land Management. Such reforms focus on implementing requirements in areas deemed to have poor air quality, as well as repairing and improving upon different facets of the oil and natural gas production, processing, and transmission infrastructure.

EPA intends to propose its future methane standards under § 111(b) of the Clean Air Act ("CAA")—a section under which methane emissions from oil and natural gas wells have not previously been regulated. Notably, CAA § 111(d) requires states to establish standards of performance for any source for which EPA has adopted New Source Performance Standards ("NSPS") under § 111(b). EPA relied on § 111(d) to justify its authority to regulate CO2 from existing EGUs when it promulgated the Clean Power Plan. Thus, it appears that a methane regulation for new and modified sources could lead to EPA proposing a subsequent measure to address existing methane sources.

Update on California's Climate Change Programs and Litigation

Compliance Offset Credits. Under California's cap-and-trade program, the California Air Resource Board ("CARB") awards offset credits to operators of qualifying projects that generate greenhouse gas ("GHG") emission reductions. These credits can be sold to regulated entities to offset their GHG emissions. In Our Children's Earth Foundation v. CARB, the plaintiff environmental organizations allege that CARB's compliance offset protocols—which establish the eligibility criteria for offsets—fail to ensure that qualifying projects generate additional GHG emission reductions that otherwise would not have occurred, as required by statute. The California Court of Appeal heard arguments on December 9, 2014, and will decide whether to overturn the lower court's ruling that the protocols comply with the statute. 

While this challenge is pending, CARB continues developing the offset program to meet its long-term goals. In its First Update to the Climate Change Scoping Plan, CARB concluded that the compliance offset protocols will not authorize enough credits to meet maximum anticipated demand. CARB originally adopted four protocols—for forestry, urban forestry, manure digesters, and destruction of ozone depleting substances. In April of 2014, CARB adopted a fifth protocol for coal and trona mines. CARB currently is developing a protocol for rice cultivation projects but will need to further expand eligibility to meet its expected long-term demand. 

Low Carbon-Fuel Standard ("LCFS"). Rocky Mountain Farmers Union v. Goldstene, the Commerce Clause challenge to California's LCFS, continues on remand following the U.S. Supreme Court's denial of certiorari. The Ninth Circuit previously limited the plaintiffs' claims but permitted some to proceed. In December 2014, the plaintiffs filed an amended complaint, alleging that the LCFS burdens interstate commerce and discriminates against out-of-state fuels and fuel feedstocks, in part by assigning physically identical fuels different "carbon intensity scores" based in part upon their places of origin. Because the LCFS caps the carbon intensities of fuels used in California, the plaintiffs allege that this different treatment of physically identical fuels burdens and discriminates against interstate commerce. The plaintiffs also have asserted new claims challenging the 2012 amendments to the LCFS. The 2012 amendments allow California crude oil producers to calculate their fuels' carbon intensity scores using a "California average," which is the average of carbon emissions from California crude oils. This method could be beneficial to a fuel producer if its fuel's actual carbon intensity is higher than the statewide average. The plaintiffs allege that the LCFS amendments violate the Commerce Clause by making this averaging approach available only for California crude oil but not non-California crude oil. The Ninth Circuit did not consider the 2012 amendments, possibly opening the door to this new challenge.

On January 23, 2015, the defendants filed a motion to dismiss, arguing that the amended complaint does not allege new facts or raise new issues other than those already decided by the Ninth Circuit: namely, that the LCFS does not regulate extraterritorially or discriminate against interstate commerce. The defendants also argue that they are entitled to judgment on the plaintiffs' claims, based on the Ninth Circuit's decision and the lower court's obligation to execute it. The court now will need to decide the exact scope of the Ninth Circuit's decision, and whether the plaintiffs' amended complaint is consistent with that decision. 

Council on Environmental Quality Proposes Draft Guidance on GHG and Climate Change Consideration in NEPA Disclosures

On December 18, 2014, the Council on Environmental Quality ("CEQ") released a new draft guidance on when and how federal agencies should consider the effects of GHG emissions and climate change in their reviews under the National Environmental Policy Act ("NEPA"). This likely will expand the scope and complexity of a project's NEPA analyses.

NEPA requires that federal departments and agencies consider and disclose potential environmental effects caused by major federal actions. The proposed guidance now requires that this disclosure include analysis of both the potential effects of a proposed action on climate change—with projected GHG emissions used as a proxy for climate change impacts—and the implications of climate change on the environmental effects over the proposed action's lifespan. 

For the GHG emissions analysis, the CEQ notes that many previous NEPA analyses conclude merely that the GHG emissions from the individual action are inconsequential to global climate change effects. The CEQ now explicitly states that this is not an appropriate basis to consider the climate impacts and cautions against relying on such "boilerplate texts to avoid meaningful analysis" of GHG and climate change effects. Instead, the depth of the agency’s emissions analysis should be proportional to the projected level of GHG emissions and climate impacts. The proposed guidance recommends that projects with estimated GHG emissions over 25,000 annual metric tons likely warrant a quantitative assessment of emissions and sequestration.

To analyze the effect of future climate change on the project, agencies should compare the current and future state of the environment without the proposed action to the anticipated state of the environment over the lifespan of the proposed action. This analysis should focus on the aspects of the affected environment that will be affected by both climate change and the proposed action. Consequently, the CEQ recommends that the agency consider alternatives that are more resilient or adaptive to the effects of a changing climate. A cost–benefit analysis may be relevant to choosing among such alternatives. 

Other notable changes in the draft guidance are its application to federal land and resource management actions—previously understood to be excluded under NEPA—and the requirement that the NEPA analysis consider activities that have a reasonably close causal relationship to the federal action, encompassing both upstream and downstream emissions. 

The public comment period for the draft guidance closes on February 23, 2015.