Looking Ahead — Implementation of EPA’s New Methane Rule

On March 8, 2024, the Environmental Protection Agency (EPA) published landmark final new rules under Clean Air Act section 111 to regulate methane emissions from the oil and gas industry (the OOOO rules). The OOOO rules set new standards for new or modified sources and emissions guidelines for states to implement similar standards for existing sources. The rule covers sources across the onshore production and processing sector, as well as the natural gas transmission and storage sector. Among other things, the rule limits routine flaring, implements stringent standards for process controllers, creates a new program for addressing large emissions events (i.e., super-emitters), and has major implications for the way fugitive emissions are addressed through leak monitoring, detection, and repair. The rule goes into effect on May 7, 2024. From then on, new and modified sources are required to comply with the federal requirements. States have up to two years from publication of the final rule to submit for EPA approval State Implementation Plans satisfying EPA’s guidelines.

Stakeholders should keep an eye on three issues as implementation of the OOOO rules unfolds: (1) third-party monitoring of facilities through the Super-Emitter Program (SEP), (2) the use of advanced methane monitoring and detection technologies to replace earlier generation technologies and approaches, and (3) the rule’s intersection with the new methane waste emissions charge (i.e., the methane fee) established under the Inflation Reduction Act (IRA). At the same time, a number of states have filed petitions for review in the D.C. Circuit.

Super-Emitter Program

The Super-Emitter Program, finalized by EPA, creates an official mechanism for third parties to monitor oil and gas facilities and notify EPA of potential “super-emitter” events. A super-emitter event is defined as any emissions with a mass rate of 100 kg/hr or greater of methane, which can be caused by a leak or by planned operations. If a third party provides EPA with data identifying such an event, and EPA is satisfied that the data are complete and accurate to a reasonable degree, EPA will notify the operator, who will then be required to conduct an investigation within a certain time window to determine the source of the emissions, determine whether any corrective action is needed (such as leak repair), and report the findings of the investigation to EPA. EPA states that it will publish the notifications and the investigation results on its website. Importantly, while the SEP is focused on providing information and requiring investigation of large emissions events (rather than itself establishing standards), it can serve to alert operators of possible compliance issues depending on the circumstances.

The rule establishes certain safeguards for the program’s reliance on third-party monitoring. For example, third parties must be certified by EPA as qualified to use the relevant monitoring technologies in order to participate. Third parties can also be de-certified if they provide flawed notifications. Moreover, when EPA receives an SEP notification from a third party, EPA will first review the data for completeness and accuracy before notifying the operator.

The “super-emitter” concept is also potentially relevant to reporting of methane emissions under Subpart W of EPA’s Greenhouse Gas Reporting Program, which applies to oil and gas facilities as well. EPA recently proposed changes to the Subpart W annual reporting requirement that would establish a category of “large emissions events” essentially mirroring the super-emitter category from the OOOO rules. If finalized as proposed, notifications from third parties of super-emitter events under the SEP could create an obligation under Subpart W to quantify and report those emissions.

It remains to be seen how many third parties participate in the SEP. Before doing so, they will need to await certification and the approval of the advanced methane monitoring technologies they intend to use to participate in the SEP. Under the regulatory process for EPA approval, the agency has 270 days for review from submission of the applications, which can begin once the OOOO rules go into effect.

Advanced Methane Monitoring Technology

The final OOOO rules allow for the use of innovative new technologies for methane monitoring and leak detection. Under the rules, these technologies serve as alternatives to traditional survey methods for conducting leak detection and repair (e.g., Optical Gas Imaging (OGI)). Such technologies range from satellites, drones, and overflights, which take snapshots of emissions across a facility, to inside-the-fenceline continuous monitoring systems, like cameras and sensor networks, that monitor a facility on a virtually constant basis.

EPA will need to approve each technology before operators can use them to comply with the provisions on leak detection under the OOOO rules. The application portal is expected to go live on EPA’s website by May 7, 2024, and EPA will take no more than 270 days to issue approvals. Applicants will be required to demonstrate that their technologies are capable of meeting the performance standards for alternative monitoring systems under the OOOO rules. The specific application requirements can be found at 40 C.F.R. § 60.5398b(d).

Intersection With the Inflation Reduction Act’s Waste Emissions Charge

The final OOOO rules will also play a critical role in the implementation of a separate methane emissions program — the IRA’s methane fee, known as the Waste Emissions Charge (WEC). The WEC applies to nearly all of the same facilities that report under Subpart W, except for natural gas distribution facilities. The WEC establishes facility-specific methane intensity thresholds and charges an annual fee for every ton of methane that exceeds the threshold. The fee starts at $900 per metric ton in 2024 and ratchets up each year until it reaches $1,500 per metric ton in 2026.

Congress provided an exemption from the WEC based on compliance with standards under the OOOO rules. Specifically, the IRA contains a “regulatory compliance” exemption that allows operators to avoid the WEC for facilities that are in compliance with standards established and in effect under the OOOO rules. See 42 U.S.C. § 7436(f)(6). It is yet to be seen how EPA’s rulemaking to implement the WEC will deal with the timing of State Implementation Plans adopted in accordance with the OOOO existing source guidelines, or how EPA will define “compliance” with the OOOO rules. These issues have been the subject of numerous comments on EPA’s January 26, 2024 WEC proposal and will be important to watch for in the final rule.

While the WEC is already in effect for the 2024 reporting year, more changes are ahead for 2025. Calculation of the WEC is based on emissions reports submitted under Subpart W. EPA proposed on August 1, 2023 significant changes to the Subpart W requirements governing how operators conduct such reporting, and is working on finalizing that rule, as well. As noted above, that proposal ties into the Super-Emitter Program by allowing third parties to monitor for large emissions events that could ultimately be subject to the WEC.

Conclusion

Each of these initiatives spells significant change for methane emissions controls, reporting, fees, and enforcement. They also have the potential to incentivize continued innovation in methane detection and monitoring technologies. The implications of these changes will become more clear as implementation of the final OOOO rules moves forward, new technologies begin to roll out, and EPA finalizes these interrelated rulemakings. Stay tuned as we continue to provide updates in this dynamic space.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.