Ahead of Methane Emission Fees, EPA Proposes New Reporting Rules for Petroleum and Natural Gas Industry

In Short 

The Situation: The Inflation Reduction Act ("IRA") requires the U.S Environmental Protection Agency ("EPA") to finalize new greenhouse gas reporting rules for the petroleum and natural gas industry based on "empirical emission data." Reported emissions will be subject to a methane fee effective January 1, 2025. 

The Result: Proposed rules drew sharp criticism for requiring reporting of "large emission events" that potentially include relatively small releases and releases detected by third parties. 

Looking Ahead: EPA will finalize reporting rules by August 26, 2024 that will become effective January 1, 2025.

The comment period closed on October 2, 2023, for regulations EPA published on August 1, 2023, proposing to amend the existing regulations requiring reporting of greenhouse gases (including methane) by the petroleum and natural gas industry. In addition to technical critiques, the proposed rule drew sharp criticism for requiring reporting of "other large release events" and not utilizing "top-down" monitoring as acceptable data for calculating emissions. 

The proposed rule is required by the IRA, which directs EPA to impose and collect a charge on methane emitted in excess of designated thresholds. In connection with such fees, the IRA requires EPA to finalize reporting regulations by August 26, 2024, to ensure that such reporting is based on "empirical emission data." 

A key provision of the proposed rules requires reporting a newly defined category of "other large release events." The definition in the proposed regulations includes: (i) planned or unplanned uncontrolled releases to the atmosphere of methane in the form of gas, liquids, or a mixture thereof for which there is no designated method of calculating emissions; and (ii) emissions that exceed thresholds calculated using methods designated for specific equipment. In the proposal, EPA provided that emissions from discrete events above 100 kg/hour or in excess of 250 million tons of carbon dioxide equivalents must be reported as other large release events. In addition, if monitored process parameters do not establish the start of the release event, it must be assumed to be six months (182 days). 

The large release event must be reported if there is "credible evidence" that it occurred. Evidence used to calculate the large release event emissions include measurement data and, if measurement data is not available, engineering estimates, process knowledge, and best available data. 

Significant concerns were expressed in comments on the proposed rule regarding the reporting thresholds and duration assumptions. For example, reporting requirements could be triggered by a release lasting only a few minutes if the calculated hourly rate exceeded the threshold, even if only a few pounds of methane were actually released. States commenting on the rule observed that the reporting requirement could impose a significant burden to investigate relatively small releases. 

Concerns were also expressed regarding the relationship between large release events and the "super-emitter" response program proposed by EPA in December 2022. Pursuant to this program, EPA or EPA-approved third parties would notify an emitter if a methane release of more than 100 kg/hour was detected, and the emitter would be obligated to promptly investigate and stop the release. The August 2022 proposal would require that emission reports include any "super-emitter" event notifications along with either inclusion of such emissions in the report or an explanation of why the emissions were not included. 

Another issue that drew many comments is the use of "top-down" emission measurement that utilizes technology such as satellite, aerial, and other remote monitoring methods to measure methane releases. EPA has proposed that such top-down technology could be used to detect other large release events but cannot be the sole source of information to support annual emissions data because it is difficult to discern emissions from specific emitters and processes. Some argued that barring most use of top-down measurement disincentivized improvements to the technology that would allow it to be a cost-effective and accurate way to measure emissions. 

Finally, the proposed rules include new provisions addressing responsibility for submitting and amending emission reports in the event of the transfer of facilities that have previously submitted emission reports. Apparently trying to discourage breaking up existing facilities among multiple purchasers with each surviving facility below the applicable reporting threshold, EPA has proposed to require the surviving facilities to separately report emissions for three to five years after the transaction, even if the surviving facilities remain below emission reporting thresholds. In addition, EPA has proposed to require sellers and purchasers to inform EPA of a "historic reporting representative" with responsibility for amending previous emission reports. An open question is whether the representative would be obligated to pay any additional emission fees required by amended reports. 

The proposed rule also includes technical provisions detailing how emissions from specific equipment should be calculated. In initial comments, many regulated parties and states requested an extension of the comment deadline to review these provisions along with the 200 technical support documents EPA provided for the proposed rule. EPA has not yet proposed implementation regulations for the actual methane fee, which will provide further detail on how the fees imposed by the IRA will be calculated. 

EPA has indicated that the proposed rule will be finalized by August 26, 2024, which is the statutory deadline for the regulations in the IRA. The effective date of the new reporting regulations will be January 1, 2025, and the new regulations will apply to greenhouse gas emission reports due on March 31, 2026.

Three Key Takeaways  

  1. The proposed rules expand emissions subject to reporting, including a catch-all category of "other large release events" that could potentially include relatively small releases.
  2. EPA was generally skeptical of remote emission-sensing technology to measure reported emissions.
  3. The statutory deadline for finalizing the proposed rule is August 26, 2024, and the emission fee will apply to methane emissions after January 1, 2025.
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