When the Environmental Protection Agency (EPA) launched the Greenhouse Gas Reporting Program (GHGRP) in 2009, the objective was to collect and publicly report greenhouse gas emissions data across certain industries. Through the Inflation Reduction Act of 2022 (IRA), Congress expanded the GHGRP’s mandate for the oil and natural gas sector (generally known as “Subpart W”), requiring EPA to revise the program so that reported data could be used to assess a fee on “excess” methane emissions—known as the Methane Fee. EPA published its proposed Subpart W revisions in the Federal Register on Aug. 1, 2023 (comments are due by Oct. 2). Although directly related to the IRA’s Methane Emissions Reduction Program (MERP), EPA says little in its proposal about how the MERP will be structured.
This alert summarizes several of EPA’s proposed key changes, including reporting requirements for new sources and pieces of equipment, changes to the methods of data collection, modifications to certain calculation methodologies (most notably, pneumatic controllers), and changes to general reporting structure, including disaggregating midstream and E&P reporting.
KEY PROPOSED CHANGES TO SUBPART W
- New Sources: EPA seeks to add a new emissions category titled “large emission events,” which would require reporting for certain large emission events (aka “super-emitters”), dovetailing with EPA’s proposal in the November 2022 OOOOb and OOOOc rules focused on the same emissions events. For the first time, EPA proposes to require reporting on nitrogen removal units, produced water tanks, mud degassing, crankcase venting, and combustion slip in the E&P and midstream sectors.
- Move to Site-Specific Measurement: EPA is moving away from the use of default emission factors in favor of site-specific measurement (direct and parametric) and more refined and accurate calculation methodologies. Although this likely will result in more accurate emissions estimates, it will increase the resource burden on Subpart W reporters and carries tax consequences, since the reporting will be used to calculate the “excess” emissions and associated Methane Fee.
- Use of Parametric Monitoring, Satellites and Aerial Flyovers: The proposal incorporates direct measurement where possible. But EPA recognizes the importance of parametric monitoring and other engineering evaluations in estimating emissions from the E&P and midstream sectors—an implicit recognition that direct measurement is not possible or practical at every site in these two industry segments in particular, where the “facility” can encompass hundreds or thousands of individual sites. EPA’s proposal emphasizes new monitoring and measurement technologies like satellites and aerial flyovers, and underscores the focus on reconciling top-down and bottom-up inventories, reinforcing the need for every company to have a robust emissions inventory verification and reconciliation program in place.
- Revised Estimation Methodologies for Pneumatic Controllers and Pumps: EPA modified its estimation methodologies for pneumatic controllers and pumps based on more recent studies and data. The revisions should provide a more accurate reflection of emissions from these critical sources, but will also require more measurement and field effort.
- Comprehensive Engine Emissions Capture: EPA proposed important changes to estimating reciprocating internal combustion engines and gas turbine emissions to account for crankcase venting and methane/combustion “slip.” These changes, if finalized, will have important consequences for larger E&P companies and virtually all midstream companies.
Estimated Costs of Implementing the Proposal: EPA projects the implementation costs of the revised Subpart W program will be relatively low for reporters. Between capital investments and operation and maintenance costs, EPA estimates annual costs of $82,701/E&P reporter, $15,245/gathering and boosting reporter, $24,670/natural gas processing reporter, and $1,656/gas pipeline reporter. Given the magnitude of changes, increased number of sources and focus on direct measurement, it is possible implementation costs could be higher.
Proposed Effective Dates: EPA plans to review and finalize the Subpart W amendments by Aug. 16, 2024. Most of the changes will become effective on Jan. 1, 2025, and reporters will be required to implement the changes in their reports beginning with the 2025 reporting year (due March 31, 2026). Notably, these dates fall after the IRA requires EPA to begin assessing the Methane Fee, where the first fee will be due in 2025 based on 2024 emissions. The exception is the proposed reporting of the quantities of natural gas, crude oil and condensate produced sent to sale in the calendar year for each plugged and abandoned well; those provisions would become effective on Jan. 1, 2025, and reporters would include that information in their reports prepared for the 2024 reporting year (due March 31, 2025).
Next Steps: EPA published the proposed rule in the Federal Register on Aug. 1, 2023, kicking off a 60-day public comment period. The public comment period ends on Oct. 2, 2023.
The EPA’s proposal is long and very detailed. As noted above, it is especially important for companies to ensure they have a robust emissions inventory verification and reconciliation programs and are prepared to accommodate more measurement and field efforts. If you or your company have any additional questions on the implications of these proposed changes, please feel free to reach out to the authors of this alert.
This document is intended to provide you with general information regarding changes to oil and gas-related greenhouse gas reporting requirements. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.