Last November, the U.S. Environmental Protection Agency (EPA) published a regulatory preamble describing its plans for proposed standards to reduce methane emissions and other air pollutants from affected sources within the oil and gas sector. A year later, the EPA has now proposed the actual rules to implement those previously announced expectations. The proposed rules would impose compliance obligations that are even more strict in important respects than those described in 2021. Among other changes, the November 2022 proposal would:

  • Require oil and gas companies to undertake routine leak monitoring at all well sites for the life of the site, until the wells are plugged and a final monitoring survey demonstrates there are no emissions;
  • Create a “super-emitter response program” requiring owners and operators to conduct root cause analysis and complete corrective actions when an EPA-approved third party identifies a “super-emitter event”; and
  • Allow flaring of associated gas only if a professional engineer or other qualified individual certifies that a sales line is not available and other beneficial uses are not feasible.

The complex proposal is over 1,100 pages, including proposed regulatory text, and not including the over 500 pages of preamble published in November 2021. If finalized, the proposal would (1) revise the New Source Performance Standards (NSPS) Subparts OOOO and OOOOa (Quad O and Quad Oa) for sources constructed or modified after August 2011 and September 2015, respectively (i.e., sources already governed by Quad O or Quad Oa), (2) create a new Subpart OOOOb (Quad Ob) for sources constructed or modified after November 2021, and (3) create a new Subpart OOOOc (Quad Oc), which would impose on each state the obligation to adopt conforming emission standards for existing sources. Comments on the proposal must be submitted by February 13, 2023.

This publication summarizes: (1) the background to the EPA’s proposal, (2) what the EPA is proposing, (3) key differences from the rules as described in the November 2021 preamble, and (4) what to expect next.

Background

As detailed in our earlier update, the EPA’s November 15, 2021 preamble described three separate actions under the Clean Air Act targeting new and existing air emission sources at oil and natural gas well sites, natural gas gathering and boosting compressor stations, natural gas processing plants, and transmission and storage facilities. That 2021 publication, however, included no actual rules or proposed regulatory text. The first action described expected Emissions Guidelines (EG) under a new Subpart OOOOc (Quad Oc), which would create first-time requirements to reduce methane emissions from almost 1 million existing oil and gas wells to almost 2,000 existing interstate natural gas compressor stations, and over 500 existing natural gas processing plants. The second action would be the proposal of New Source Performance Standards (NSPS) under a new Subpart OOOOb (Quad Ob) for new, reconstructed, and modified sources in the oil and gas sector, which would be more stringent than earlier Obama administration EPA rules. The third described action would be to resolve inconsistencies between two Obama-era NSPS rules (Quad O and Quad Oa) created by Congress’s partial disapproval of a series of the Trump administration EPA rules. Because you might hear these proposed regulations referred to by a few different names, we provide the table below as a reference.

What has the EPA actually proposed?

For Quad Ob (sources constructed or modified after November 2021), the EPA’s supplemental proposal would:

  • Tighten the previously described emission standards for equipment leaks (fugitive emissions) from well sites and pneumatic pumps by requiring fugitive emissions monitoring at all well sites and imposing a zero-emissions standard for pneumatic pumps;
  • Generally leave unchanged the previously described standards for sweetening units, well completions, gas well liquids unloading operations, associated gas from oil wells, wet seal centrifugal compressors, reciprocating compressors, pneumatic controllers, storage vessels, fugitive emissions from compressor stations, and equipment leaks at natural gas processing plants; and
  • Create standards for dry seal centrifugal compressors previously not regulated under NSPS and not described in the November 2021 preamble.

For Quad Oc (the guidelines governing future state rulemakings to regulate existing sources), the EPA’s proposal would generally conform to the obligations described in the November 2021 preamble for the standards to govern associated gas from oil wells, reciprocating compressors, storage vessels, fugitive emissions from compressor stations, and equipment leaks at natural gas processing plants. But the November 2022 proposed rule also differs in some respects from the expectations described in the November 2021 preamble in that it:

  • Tightens the previously described presumptive standards for well sites, pneumatic controllers, pneumatic pumps, and wet seal centrifugal compressors by imposing zero-emission standards for pneumatic controllers and pneumatic pumps and imposing a numerical emission limit of 3 standard cubic feet per minute for wet seal centrifugal compressors, among other requirements; and
  • Creates new presumptive standards for well liquids unloading operations and dry seal centrifugal compressors not previously proposed to be regulated.

The EPA has provided a summary table of emission sources subject to the supplemental proposal.

Key Developments in the Proposed Rule

1. Applicability dates

NSPS regulations such as Quad Ob apply only to sources that are new, modified, or reconstructed after the trigger date (i.e., the publication date of the proposed regulation). Any sources that are not new, modified, or reconstructed after the trigger date are deemed “existing” and would fall instead under Quad Oc and become regulated under the EPA-approved state programs several years after this proposal is finalized.

The November 2021 publication included preamble text that described the regulations that the EPA intended to propose, but it failed to include the regulations themselves. Even so, the EPA continues to rely on the November 15, 2021 publication date of the Subpart OOOOb preamble to define new sources for purposes of Quad Ob.1

This use of the preamble publication date is controversial and almost certain to be litigated because the Clean Air Act specifies that the applicability date of an NSPS is the date of the “proposed regulation.”2 The EPA departed from over 30 years of NSPS rulemaking practice by not publishing proposed regulatory text with the November 2021 “proposed rule.”

Why it matters: Until this issue is resolved, the rule’s applicability to facilities added or changed during the November 2021 to November 2022 timeframe will be subject to uncertainty and compliance risk and may need to comply with Quad Ob, which will go into effect years before Quad Oc.

2. Well monitoring

Well sites of all sizes will be subject to fugitive emissions monitoring requirements that vary by the amount and types of equipment at a site. This differs from the expectations announced in the November 2021 preamble that would have tied monitoring requirements to estimated emissions at the well site. Separately, the EPA also is proposing to expand the types of equipment subject to fugitive emissions monitoring to include any and all equipment “that has the potential to emit fugitive emissions of methane and [volatile organic compounds (VOCs)].” Control devices will not be considered “fugitive emissions components,” but will be subject to continuous monitoring and regular inspection to ensure continuous operation.

Why it matters: Depending on a particular company’s operations, this expansion could significantly increase compliance costs by both increasing the number of well sites that require monitoring and the amount of monitoring necessary at each site. The new definition covering all equipment “that has the potential to emit fugitive emissions of methane and VOCs” is broader and vaguer than other definitions of covered equipment and could create compliance and enforcement risks.

3. Abandoned and unplugged wells

In the November 2021 preamble, the EPA requested comment regarding idled and unplugged wells, noting that many may be in disrepair and have the potential for large emissions. The EPA now proposes that well site fugitive emissions monitoring must continue until all wells have been plugged, equipment removed, and a final optical gas imaging (OGI) survey confirms there are no emissions. The EPA also seeks to require well site operators or owners to submit well closure plans, which would include plugging procedures and documentation of the financial assurance often required under existing state and federal drilling regulations.

Why it matters: These new requirements will increase the end-of-life costs for wells, and may have a particularly big impact on owners and operators whose business models focus on acquiring and operating older wells that already produce less and, therefore, have lower margins.

4. “Super-Emitter Response Program”

Under the EPA’s proposed Super Emitter Response Program, local regulatory agencies and certain EPA-certified third parties would be authorized to issue notices to owners and operators of regulated facilities when they detect “super-emitting events,” defined as emissions of 100 kilograms of methane per hour or larger. The EPA will approve “notifiers” that demonstrate “technical expertise” in any of three remote detection technologies: (i) satellite detection of methane emissions, (ii) remote-sensing equipment on aircraft, or (iii) mobile monitoring platforms. Such notification would trigger the requirement for the facility to undertake an accelerated root cause analysis and corrective action to remedy the cause of the event. For any corrective action that takes longer than ten days, a corrective action plan must be submitted to the EPA. The super-emitting event notices and any resulting corrective actions will be posted on a public website. Owners and operators of facilities may appeal to the EPA to revoke a notifier’s certification upon demonstration of repeated, verifiable errors in notices received.

Why it matters: The combination of short timelines to correct super-emitter events and the requirement to publicly disclose such events could create both compliance and public relations challenges for owners and operators. This is particularly true in situations in which the source of an emissions event is unclear, ownership of a relevant site has changed hands multiple times, or a company’s contacts have moved into other roles or left altogether. This proposal represents an unprecedented attempt under the Clean Air Act to vest in private parties the opportunity to impose an enforceable legal obligation on another private party.

5. Restrictions on flaring of associated gas

The EPA proposes that before associated gas can be flared, the owner or operator must submit a demonstration, certified by a professional engineer or other qualified individual, that a sales line is unavailable and other beneficial uses are not feasible for technical or safety reasons. The EPA seeks comment on what information should be required for that demonstration and on steps that could be considered to disallow the indefinite continuation of routine flaring. The EPA also proposes additional compliance and continuous monitoring requirements for flares, such as continuous monitoring for pilot light flames, to ensure compliance with the requirements for good flare performance at 40 C.F.R. § 60.18.

Why it matters: Upstream operators who have been relying on flares will need to find a professional engineer or other qualified individual to assess their well sites and determine whether operational changes and upgrades are necessary or whether they can meet the certification requirements. This proposal thus puts the EPA and state environmental agencies (and private parties through citizen enforcement) in the position of addressing production issues historically managed by state oil and gas regulatory agencies.

6. Advanced methane detection technologies

The EPA proposes to revamp its alternative screening option to support the use of advanced emissions monitoring and detection technologies as an alternative to OGI and EPA Method 21-based leak detection and repair programs. The proposal would establish a matrix approach that would tie required monitoring and screening frequencies to the minimum detection ranges and corrective action windows for different detection techniques and technologies, including continuous monitoring technologies.

Why it matters: The EPA reports near-universal support from commenters for this provision, which may open up opportunities to use new and more cost-effective technologies for monitoring.

7. Pneumatic controllers

The EPA proposes to require pneumatic controllers to have zero methane and VOC emissions, with exceptions for sites in Alaska, where onsite power is unavailable. Unlike in the November 2021 preamble, the EPA now defines “pneumatic controller affected facility” to encompass all natural gas-driven controllers at a particular site, recognizing that many emission elimination measures are site-wide. Further, the EPA now specifies two types of controllers excluded from the zero-emission rule: controllers where emissions are routed to a sales line or used for a beneficial purpose and self-contained natural gas controllers.

Why it matters: Depending on a company’s operations, this requirement could necessitate equipment upgrades at many facilities.

8. Pneumatic pumps

As with pneumatic controllers, the EPA proposes a zero methane and VOC emissions standard for pneumatic pumps, a departure from the November 2021 plan to require 95 percent control. The EPA also proposes to define a “pneumatic pump affected facility” as the collection of all natural gas-driven pneumatic pumps at a site. For those sites without access to electricity, the EPA may permit natural gas-driven pumps so long as the owner or operator shows that it is infeasible to use pumps not driven by natural gas and routes pneumatic pump emissions to a process.

Why it matters: Depending on a company’s operations, this requirement could necessitate equipment upgrades at many facilities.

9. Storage vessels

In the November 2021 preamble, the EPA indicated plans to propose a rule that would compare battery-wide potential emissions instead of single storage vessel potential emissions against the 6 ton per year applicability threshold for VOCs under current regulations. This would dramatically expand the number of storage tank batteries that will trigger the applicability threshold. The EPA then planned to impose an emissions limit requiring 95 percent VOC and methane emission reduction. The proposal generally conforms to the plans described in the November 2021 preamble, but the EPA now seeks comment on whether it should increase the control requirement to 98 percent and whether it should require additional control device monitoring. The EPA also seeks comment on whether it should require equipping thief hatches with alarms, automated systems to monitor for pressure changes, or use of automatically closing thief hatches.

Why it matters: This would dramatically expand the number of storage tank batteries that will trigger the applicability threshold. Storage vessels have been a key focus of the EPA’s recent NSPS enforcement efforts.

10. Definition of “legally and practically enforceable”

Many states have emission limits that apply to facilities in the oil and gas sector. The EPA has recognized that those limits can reduce the potential to emit VOCs from storage vessels to below the 6 tpy applicability threshold if they are “legally and practically enforceable.” The EPA’s proposal, consistent with the November 2021 preamble, includes a definition of “legally and practically enforceable” that would be more stringent than the standard the EPA uses to approve state implementation plan provisions.

Why it matters: The EPA’s proposed definition threatens to disregard “legally and practically enforceable” state emission limits that keep emissions from many storage vessels below the 6 tpy threshold. If the EPA deems applicable state standards not “legally and practically enforceable,” it would disregard the state limits and treat the storage vessels as uncontrolled for purposes of federal regulation. This proposal thus has the potential to create substantial friction between the EPA and the states, and could result in many more facilities becoming subject to federal emission standards.

11. State and tribal plans

Quad Oc does not directly impose requirements on existing sources. Rather, states must submit plans for the EPA’s approval that are at least as effective as the presumptive standards in Quad Oc. Because many states already have oil and gas emission control programs in place, the EPA has outlined criteria to assist those states in determining whether those existing programs are equivalent to Quad Oc. States with existing regimes will need to consider, among other aspects, the types of facilities encompassed by their plan, the capacity of their plan to meet necessary emissions reduction, and the sufficiency of their monitoring and recordkeeping requirements. The EPA also clarifies that states will need to engage in “meaningful public engagement,” requiring consultation with stakeholders such as industry, small businesses, communities, and tribal nations. The EPA proposes to require states to submit their methane plans for review within 18 months of publication of the final Emissions Guidelines and to require compliance by existing sources within 36 months after the state plan is due to the EPA.

Why it matters: Because the body of “existing sources” covered by the EPA’s proposals is far larger than new, modified, and reconstructed sources, the specifics of state and tribal plans will have a major impact on operations once they take effect.

12. Inflation Reduction Act methane fee nexus

The Inflation Reduction Act of 2022 (IRA) includes a methane fee that would start in calendar year 2024 at $900 per ton of methane, increase to $1,200 in 2025, and be set at $1,500 for 2026 and each year after. However, the IRA provides that the methane fee will not take effect if (i) the EPA finalizes standards that would result in “equivalent or greater emissions reductions as would be achieved by” the EPA’s November 2021 preamble, and (ii) such NSPS and EG standards are in effect in all states. The EPA states that implementation of the methane fee is outside the scope of the current rulemaking and that it will undertake separate rulemaking action to implement the fee, including revisions to the EPA’s Greenhouse Gas Reporting Program Subpart W regulations. However, the EPA seeks comment on several issues related to the “IRA equivalence determination” that the EPA must undertake for purposes of the above exemption. For example, the EPA seeks comment on how it should weigh the fact that states have the ability to seek less stringent standards for existing sources based on remaining useful life and other factors.

Why it matters: The methane fee language in the IRA has led to much confusion in the regulated community. The EPA’s determination could impact whether operators are subject to the fee or are able to meet an exemption and avoid paying the fee based on the EPA’s final rule and the action taken by states and tribes in their respective plans.

13. Social cost of greenhouse gases metric

To satisfy the cost-benefit analysis requirements of Executive Order 12866, the EPA relied on the Interagency Working Group on the Social Cost of Greenhouse Gases’ social cost of greenhouse gases (SC-GHG) metric to estimate the proposal’s climate benefits. By calculating a benefit of the rule based on the SC-GHG, the EPA is able to determine that the proposal has a net benefit despite high compliance costs for the oil and gas industry. Additionally, the EPA’s proposal relies on SC‑GHG discount rates between 3% and 5%, whereas the Trump administration used a 7% discount rate. The SC‑GHG is ten times lower at 7% than at 3%, such that use of a 7% discount rate would show compliance costs exceeding the climate benefits of the proposal.

Why it matters: States and the industry have brought legal challenges against this controversial metric, but such challenges have been largely unsuccessful, in part because courts have found that challengers lacked standing to challenge the SC-GHG itself and needed to wait to challenge it when applied in a regulation directly imposing costs and other obligations on challengers. The EPA’s significant rule here likely provides an appropriate basis for a challenge to the SC‑GHG.

Next Steps

Those interested in commenting on the EPA’s supplemental proposal will have until February 13, 2023. Public comments play an important role in shaping the final rule and also serve as the key part of the administrative record, which forms the basis for any future court challenges to the final rule. The EPA has provided a table compiling the specific issues on which it seeks comment. The EPA states that it is not necessary to resubmit comments submitted in response to the November 2021 preamble. The EPA expects to issue a final rule in 2023.