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Home | BakerHostetler

James Sherer Presents at LITFORWARD Innovation Summit

BakerHostetler Represents Verve Services, LLC in Investment by Bishop Street Underwriters

Justin Murphy, Margaret Butler, Steven Goldberg, Matt Schock Author Article for Westlaw Today

Jonathan Barr Speaks on Insider Trading during Securities Enforcement Forum DC

<h5>What’s Next in the Regulation of Methane Emissions? [see Slide 1]</h5>
<em>This article is a transcription of a presentation given by L. Poe Leggette on August 3, 2022, and should be read with its accompanying slides available <a href="/wp-content/uploads/2023/07/Client-Alert-Aug-3_-2022-Presentation-1.pdf">here</a>.</em>
<h5>Introduction<a title="" href="#_ftn1" name="_ftnref1">[1]</a></h5>
Previously in our sessions, I have discussed carbon dioxide and what policymakers <strong>should </strong>do about it. Last month I explained it in full in a speech to the Independent Petroleum Association of America. If you’d like a copy and slides, let me know.

Today we’ll spend about 16 minutes on the current state of methane regulation of oil and gas in the U.S. I won’t discuss what we <strong>should </strong>do, just what government is trying to do.

I’ll explain methane’s flow in and out of the atmosphere, its sources, and what removes it.

I’ll turn to recent trends in methane emissions in the American oil and gas industry. Then it’s on to the Global Methane Pledge adopted at Glasgow, Scotland, at last year’s 26th Conference of the Parties (COP-26).

After that, we’ll look at the Environmental Protection Agency’s methane regulations under the Clean Air Act.

Finally, we’ll look at Senator Joe Manchin’s new compromise bill, the “Inflation Reduction Act of 2022.”
<h5>The Global Methane Budget</h5>
[see Slide 2] Methane is the second most emitted industrial greenhouse gas. The California Air Resources Board claims its release accounts for 20 percent of the current warming of the atmosphere.<a title="" href="#_edn1" name="_ednref1">[i]</a>  The International Energy Agency has upped that claim to 30 percent.<a title="" href="#_edn2" name="_ednref2">[ii]</a>

[see Slide 3] Methane is more effective at trapping heat than CO2 is. Over a 100-year span, scientists <strong>used to</strong> estimate it holds 25 times more heat in the air than CO2. Now they say it’s somewhere between 28 and 34 times, though EPA sometimes still uses 25.

Methane is a short-lived climate pollutant, because on average a molecule of it only lasts eight years in the air before breaking down.<a title="" href="#_edn3" name="_ednref3">[iii]</a>  More recently, therefore, its heat-trapping ability has become measured on a 20-year span. The new number is 80 times.<a title="" href="#_edn4" name="_ednref4">[iv]</a>  So some value the emission of one ton of methane as 80 tons of carbon dioxide equivalent.

In prior sessions, I have talked about the global carbon cycle and how nature removes more CO2 from the air than it emits. Methane has a similar cycle.

[see Slide 4] The most recent quantification of global methane is the July 2020 “Global Methane Budget.”  The methane budget is even more uncertain than the carbon budget. For us, the big uncertainty is that the budget calculates emissions two ways, and they are about 28 percent apart.

The higher method is called the “bottom up” method. The bottom-up method uses data gathered “down here.”  It relies on two types of sources. One is estimates from ground-level measurements of human releases of methane. The other is from ground-level <strong>sample </strong>measurements of emissions from <strong>natural </strong>sources, such as wetlands, geological fissures, and termites.

[see Slide 5] The bottom-up method estimates human emissions to be 366 million metric tons (MT)<a title="" href="#_edn5" name="_ednref5">[v]</a> per year in the decade ending in 2017. 371 million MT are from natural sources, slightly more than half. Total emissions are 737 million MT.<a title="" href="#_edn6" name="_ednref6">[vi]</a>

[see Slide 6] The top-down method uses data gathered “up there.”  It relies on atmospheric samples and satellite observations. Those data are run through a computer model of how sunlight changes chemicals in the air. The top-down method estimates annual emissions at 576 million MT, ending 2017. In sum, 737 million from bottom-up, 576 million from top down.

[see Slide 7] Both methods also estimate how much methane <strong>nature </strong>currently removes from the air. The top-down method estimates 518 million MT per year. Bottom-up estimates 15 percent more: 595 million tons.

More important for us are the sources of emissions, but I’ll first discuss what the “sinks” are: that is, what takes methane from the air.

[see Slide 8] First is atmospheric chemistry. Methane is a “reactive” gas. In the troposphere layer of our atmosphere, it reacts with a molecule in the air called the “hydroxyl radical.”  Hydroxyl breaks it down, “oxidizing” the methane. Up to 90 percent of methane is removed by the hydroxyl radical.<a title="" href="#_edn7" name="_ednref7">[vii]</a>

Other sinks are from other chemical reactions in the troposphere and stratosphere from chlorine and other chemicals. And one is from removal into the soil. Methane can be pulled into the soil through plant roots, then consumed by bacteria which use the methane for energy. Soil removal appears to be a smaller sink,<a title="" href="#_edn8" name="_ednref8">[viii]</a> about 8 percent. But the studies on soil removal are few. Soil may be more effective as a methane sink.

[see Slide 9] Engineers are also at work on direct air capture for methane. See the slide. For now, it seems years away.

[see Slide 10] Now the sources. These are measured bottom-up. Annually, agriculture and waste emit 206 million MT, oil and gas operations emit 80 million MT, coal 42 million MT,<a title="" href="#_edn9" name="_ednref9">[ix]</a> burning of biomass and biofuel 30 million MT, and miscellaneous sources 8 million MT.<a title="" href="#_edn10" name="_ednref10">[x]</a>

[see Slide 11] To sum up, nature emits 371 million MT per year, and removes 595 million MT per year (bottom-up). That means nature removes 224 million MT more than it emits. Humans emit 366 million tons per year, but only 142 million tons remain in the air. Sixty-one percent of current human emissions are removed by nature.
<h5>U.S. Oil and Gas Methane Emissions</h5>
[see Slide 12] This chart is EPA’s breakdown for U.S. emissions. I have converted it to millions of metric tons of methane, using EPA’s 25-times conversion factor.

At the top, “enteric fermentation” is from livestock. It’s cows burping. Cows do something else too. Scientists call it anaerobic digestion. Polite society calls it posterior burping. There is a methane control for this.

[see Slide 13] EPA has not adopted this. This is 1980s technology. How can EPA claim to follow the science?

[see Slide 14] U.S. methane emissions are 11 percent of all U.S.-emitted carbon dioxide <strong>equivalents</strong>.

[see Slide 15] Since 1990, American oil and gas emissions have dropped by 1.4 <strong>million </strong>tpy, from 9.8 to 8.4 million tpy, despite dramatic increases in oil and gas production.<a title="" href="#_edn11" name="_ednref11">[xi]</a>
<h5>COP-26 Global Methane Pledge</h5>
[see Slide 16] At last year’s 26th United Nations Climate Change Conference of the Parties, the U.S. and the EU advanced the Global Methane Pledge:
<ul>
 	<li>Reduce global methane emissions by 30 percent from 2020 levels by 2030</li>
 	<li>The reduction is claimed to “reduce warming by at least 0.2 degrees C by 2050”</li>
</ul>
Over 100 nations have signed the pledge. What exactly have they agreed to?  The White House and United Nations websites do not say what 2020 methane emissions were. The 173-page 2021 Global Methane Assessment, a joint effort of the U.N. Environment Programme and the Climate &amp; Clean Air Coalition, claimed 375 million tpy. But the assessment’s data are from the 2020 Global Methane Budget, which estimated 366 million tpy.

[see Slide 17] For 2021, the IEA estimated total human emissions were lower than either of these: just 356 million MT. Only 8.8 percent (31 million MT) were from the U.S.<a title="" href="#_edn12" name="_ednref12">[xii]</a>

If 360 million MT is the 2020 global number, a 30 percent reduction is 108 million MT per year. Even if the world ended all methane emissions from oil and gas—all 80 million tpy—it could not achieve this goal. I have found no plan to meet the Pledge.

[see Slide 18] While we guess about emissions, at least we can measure atmospheric concentrations. The 2020 methane concentration was 1,892 parts per billion. A University of Colorado analysis says the likely chief drivers of recent increases are wetlands or livestock rather than oil and gas.<a title="" href="#_edn13" name="_ednref13">[xiii]</a>
<h5>Federal Regulation</h5>
Whether it’s wetlands or livestock does not matter to policymakers. The IEA and the U.S. EPA agree the most important step in fighting climate change is stopping methane emissions from oil and gas. Let’s turn to the EPA.

[see Slide 19] If we’re following the 30 percent Global Methane Pledge, what’s the goal?  Oil and gas’s share would be a 2.7 million tpy reduction. The math is on the slide. To put that in perspective, that reduction is <strong>double</strong>—in eight years—the 1.4 million tpy reduction we achieved between 1990 and 2020.

Currently, EPA is the federal regulator of methane emissions. Under section 111(b) of the Clean Air Act, EPA can issue so-called <strong>new source</strong> performance standards. Under section 111(d) EPA can also regulate emissions from <strong>existing </strong>sources.

[see Slide 20] In 2016, EPA adopted methane standards for new oil and gas sources, sources constructed after September 18, 2015. On screen is a schematic showing where in the system the rules apply: basically upstream of “city gate” of gas local distribution systems.

[see Slide 21] The 2016 rules, called the Quad O-a rules,<a title="" href="#_edn14" name="_ednref14">[xiv]</a> imposed controls on specified types of equipment. For example, they required 95 percent reductions in methane coming from wet-seal centrifugal compressors.<a title="" href="#_edn15" name="_ednref15">[xv]</a>

On November 15, 2021, EPA published a new proposed rule in the Federal Register.<a title="" href="#_edn16" name="_ednref16">[xvi]</a>  Here’s the state of play.

[see Slide 22] Handout 1 gives you a general idea of the current regulations. These are Quad Oa rules, governing sources built after September 18, 2015. The new proposal would make some adjustments to Quad O-a.

[see Slide 23] Handout 2 is Table 2 from the proposed rule’s preamble. It lists the new standards for oil and gas sources constructed after November 15, 2021. These rules will be called Quad O-b.

[see Slide 24] Handout 3 is Table 3 from the preamble. It lists new emissions guidelines requirements for <strong>existing </strong>oil and gas sources. These rules will be called Quad O-c.

Quad O-b and O-c will <strong>not </strong>become final until EPA issues a supplemental proposal with regulatory text and a supplemental regulatory impact analysis.<a title="" href="#_edn17" name="_ednref17">[xvii]</a>

On November 10, 2021, a Bloomberg News article—perhaps inaccurately—said EPA Administrator Michael Regan claimed the proposed rule would cut oil and gas methane emissions by 74 percent by <strong>2030</strong>.<a title="" href="#_edn18" name="_ednref18">[xviii]</a>

[see Slide 25] How much will EPA actually reduce?  An average of 2.8 million Tpy by <strong>2035</strong>.<a title="" href="#_edn19" name="_ednref19">[xix]</a>  Thirty percent, not 74. Five years <strong>after </strong>the pledged date of 2030. I have found no plan to cut 30 percent from any other methane source. EPA has “outreach programs” to agriculture, but no plan.

EPA’s next step is scheduled to be in the Federal Register in October, but I’d be stunned if the administration released it before the mid-term elections.
<h5>Inflation Reduction Act</h5>
Senator Manchin and the administration have agreed to a 725-page bill. It authorizes expenditures, appropriates money, establishes grant funds, modifies tax credits, and amends the Clean Air Act. Section 60113 of the bill would add section 136 to the Clean Air Act.

[see Slide 26] Among many other things, section 136 would require EPA to collect a charge on any facility reporting more than 25,000 metric tons of CO2 equivalent under the GHG reporting program.<a title="" href="#_edn20" name="_ednref20">[xx]</a>  The charge per ton starts at $900 in 2024 and rises to $1500 in 2026, with seven pages of further details I’ll spare you. The bill does not address the substantive regulation of methane emissions.

And now you know methane. As always, my remarks and slides are available upon request.

Note: Part II of this article will address new section 136 of the Clean Air Act, added by the Inflation Reduction Act of 2022.
<div>

<hr />

<div id="ftn1">

<a title="" href="#_ftnref1" name="_ftn1">[1]</a> The opinions expressed are those of the author alone.

</div>
</div>
<div>

<hr />

<div id="edn1">

<a title="" href="#_ednref1" name="_edn1">[i]</a> CARB, Short-Lived Climate Pollutants, <a href="https://ww2.arb.ca.gov/our-work/programs/slcp/about">https://ww2.arb.ca.gov/our-work/programs/slcp/about</a> (last accessed July 22, 2022).

</div>
<div id="edn2">

<a title="" href="#_ednref2" name="_edn2">[ii]</a> <a href="Https://www.iea.org/reports/global-methane-tracker-2022/overview">Https://www.iea.org/reports/global-methane-tracker-2022/overview</a> (last accessed July 8, 2022).

</div>
<div id="edn3">

<a title="" href="#_ednref3" name="_edn3">[iii]</a> Methane Budget § 3.3.5.

</div>
<div id="edn4">

<a title="" href="#_ednref4" name="_edn4">[iv]</a> https://www.epa.gov/ghgemissions/understanding-global-warming-potentials

</div>
<div id="edn5">

<a title="" href="#_ednref5" name="_edn5">[v]</a> The text uses MT for “metric tons,” to alert the reader that we are not using “short tons” of 2,000 lbs. The slides use MTpy for million [metric] tons per years, because “MMT” can confuse readers.

</div>
<div id="edn6">

<a title="" href="#_ednref6" name="_edn6">[vi]</a> Methane Budget §§ 3.1.2 &amp; 5.1.1.

</div>
<div id="edn7">

<a title="" href="#_ednref7" name="_edn7">[vii]</a> Methane Budget § 3.3.

</div>
<div id="edn8">

<a title="" href="#_ednref8" name="_edn8">[viii]</a> Methane Budget § 3.3.4 (estimated at 30 million MT per year).

</div>
<div id="edn9">

<a title="" href="#_ednref9" name="_edn9">[ix]</a> For 2021, IEA raised the annual level from 122 million MT to 135 million MT. <a href="Https://www.iea.org/reports/global-methane-tracker-2022/overview">Https://www.iea.org/reports/global-methane-tracker-2022/overview</a> (last accessed July 8, 2022).

</div>
<div id="edn10">

<a title="" href="#_ednref10" name="_edn10">[x]</a> Methane Budget §§ 3.1-3.1.6.

</div>
<div id="edn11">

<a title="" href="#_ednref11" name="_edn11">[xi]</a> https://www.epa.gov/natural-gas-star-program/estimates-methane-emissions-segment-united-states

</div>
<div id="edn12">

<a title="" href="#_ednref12" name="_edn12">[xii]</a> Iea.org/articles/methane-tracker-data-explorer (last visited July 29, 2022)

</div>
<div id="edn13">

<a title="" href="#_ednref13" name="_edn13">[xiii]</a> Research.noaa.gov/article/ArtMID/587/ArticleID/2742/Despite-pandemic-shutdowns-carbon-dioxide-and-methane-surged-in-2020#:-:text=NOAA’s%20preliminary%20analysis%20….

</div>
<div id="edn14">

<a title="" href="#_ednref14" name="_edn14">[xiv]</a> 40 C.F.R.Part 60, Subpart OOOOa, 40 C.F.R. §§ 5360a-5499a.

</div>
<div id="edn15">

<a title="" href="#_ednref15" name="_edn15">[xv]</a>   86 FR 63133R

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<div id="edn16">

<a title="" href="#_ednref16" name="_edn16">[xvi]</a> 87 Fed. Reg. 63110-63262 (Nov. 15, 2021).

</div>
<div id="edn17">

<a title="" href="#_ednref17" name="_edn17">[xvii]</a> 86 Fed. Reg. 63110, 63115R.

</div>
<div id="edn18">

<a title="" href="#_ednref18" name="_edn18">[xviii]</a> Bobby Magill, Regan Seeks Industry Backing for Methane Rule to Overcome GOP (Nov. 10, 2021) (Bloomberg Energy and Environment).

</div>
<div id="edn19">

<a title="" href="#_ednref19" name="_edn19">[xix]</a> EPA believes the rule will reduce methane emissions by 41 million short tons (2,000 lb.) over 13 years. 86 Fed. 63122 (Table 4). 41 million short tons is 37 million metric tons, which over 13 years averages 2.85 million MTpy.

</div>
<div id="edn20">

<a title="" href="#_ednref20" name="_edn20">[xx]</a> Bill § 60113, proposed § 136(c), PDF page 681 of 725.

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