The Environmental Protection Agency (“EPA”) announced in January 2024 its intention to implement a new regulation which would set a new, stricter methane emission rate under the Clean Air Act (“CAA”). Following a required public comment period, the proposed rate under the Waste Emissions Charge (“WEC”) was issued in March 2024, and subsequently enacted on May 6, 2024. The WEC aims to cut methane emissions by nearly 80%. Unsurprisingly, the proposed goal has garnered ample concern and attention by all those intertwined in the oil and gas industry, considering the energy sector is one of the largest methane producers globally. More specifically, with the large contribution that the industry affords the state, Oklahoma is amongst those troubled with the levels set by the updated WEC. Following the enactment of the regulation in May, Oklahoma Attorney General Genter Drummond filed a lawsuit, joined by at least 22 other states, against the EPA claiming the new methane emission rate is an arbitrary regulation.
The goal of the Clean Air Act is to “protect public health and welfare from different types of air pollution caused by a diverse array of pollution sources.” Under the CAA, pollutants are divided into two categories: criteria pollutants and noncriteria pollutants. Criteria and noncriteria pollutants are regulated by different standards. Because there are only six criteria pollutants (nitrogen oxide, carbon monoxide, lead, particulate matter, sulfur dioxide, ozone), the strong majority of pollutants are subjected to noncriteria emission standards, such as New Source Performance Standards (“NSPS”). NSPS are emission standards set by the EPA for noncriteria pollutants emitted from new or modified stationary sources. While NSPS allows for the grandfathering of old units due to the high cost to retrofit equipment and technology, any modification would subject the source to the NSPS.
The NSPS standards which are applicable to the oil and gas industry are found in 40 C.F.R. § 60 and colloquially known as “Quad O,” “Quad Oa,” “Quad Ob,” and “Quad Oc.” Quad O established NSPS for emissions of greenhouse gases, in the form of limitations on methane, and volatile organic compounds (“VOC”) from the oil and gas sector. As stated, because methane falls under the noncriteria pollutant category, methane emitters are subject to Quad O standards.
Not only is methane a main component in natural gas, but it is also a greenhouse gas, meaning it traps heat in the Earth’s atmosphere. Because of the purported detrimental effects of the release of high methane levels, it is unsurprising that the Clean Air Act aims to limit these emissions. However, the differential between prior emission rates and the one set under the new WEC is what garners concern from the oil and gas industry, especially from those states whose economies hinge on oil and gas production, such as Oklahoma.
The WEC comes in under President Biden’s Inflation Reduction Act. Regardless of any political views, the reality of politics is that the tension between a bipartisan government has kept the EPA in a constant limbo of changing regulations. For example, the prior Trump administration attempted to roll back methane emission requirements, whereas the Biden administration has been leaning in the opposite direction and implementing stricter methane requirements. It is not wholly relevant which side of this discourse is the most valuable. These ever-changing political agendas and goals leave EPA regulators, and those subjected to EPA regulations, in a constant state of suspension. By the time new regulations are set and implemented the cycle will recommence and the same regulations will be revisited for revision.
Prior to June 28, 2024, a lawsuit by Oklahoma and other states against the EPA would have been an uphill battle against Plaintiffs under the Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. ruling, as agency decisions were given utmost deference. However, following the overturn of Chevron, it will be interesting to observe how a case brought by Oklahoma challenging an EPA standard is treated by the courts.
Despite the pendulum of ever-changing regulations due to politics or pending litigation, the oil and gas industry cannot sit back and wait to see if the methane emission rate will be reverted back to lower emission rates under the possibility of new political leadership or a prevailing judgment in favor of Oklahoma, et. al. Consideration and implementation for meeting the new WEC methane emission rates must begin in order to meet compliance. States such as Oklahoma, where oil and gas production historically have been a major component of their economy, must decide what actions to take under the new regulation standards which will not leave a detrimental dent in the state’s economy. Stricter methane emission rates have the potential to force Oklahoma to produce less oil and gas, which would have a direct effect on sales, energy costs, and employment rate.
Kuiper Law Firm, PLLC specializes in all aspects of oil and gas operations including oil, gas, & mineral leases. Additionally, we will continue to monitor any updates on this matter. If you have any questions about how the information in this article may apply to you or your operations, do not hesitate to contact us.