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EPA Issues Proposed Rule Adding Oil and Gas Facilities to Mandatory GHG Reporting

April 16, 2010

On April 12, EPA published in the Federal Register its proposed rule to require reporting of fugitive and vented methane (CH4) and carbon dioxide (CO2) emissions from the petroleum and natural gas industry, including CO2, CH4 and nitrous oxide (N2O) combustion emissions from flares. The proposed rule is an amendment to EPA’s GHG Mandatory Reporting Rule issued on October 30, 2009, requiring GHG reporting from large emissions sources in the United States. EPA will hold a public hearing on this proposal on April 19, 2010; the proposal will be open for public comment until June 11, 2010.

The initial GHG Mandatory Reporting Rule intentionally omitted standards for “onshore oil and gas production,” which EPA attributed to the difficulty in defining a “facility.” However, according to EPA, the complex infrastructure, operational, commercial and ownership arrangements of the onshore oil and gas sector — which involve thousands of small operators with limited resources — pose additional difficulties in implementing reporting requirements for this sector. In response to industry comments, EPA instituted this separate rulemaking process specifically targeting Subpart W of the Mandatory Reporting Rule, dealing with reporting from oil and natural gas systems.

This proposed amendment generally requires that petroleum and natural gas facilities emitting 25,000 metric tons of CO2 equivalent (metric tons CO2e) or more report their GHG emissions to EPA. The proposed amendment modifies the existing rule, expanding it to cover the following facilities:

  • onshore petroleum and natural gas production
  • offshore petroleum and natural gas production
  • onshore natural gas processing
  • natural gas transmission
  • underground natural gas storage
  • liquefied natural gas (LNG) storage
  • LNG import and export facilities
  • natural gas distribution facilities

EPA estimates that the proposal would cover 85 percent of the total GHG emissions from the U.S. petroleum and natural gas industry with approximately 3,000 facilities reporting. Approximately 1,200 of these facilities would already be required to report under another subpart of the final reporting rule.

Significantly, the proposed definition of “facility” for onshore and offshore petroleum and natural gas production, and for natural gas distribution, differ from the definition of “facility” applied in the remainder of the Mandatory Reporting Rule. In these cases, EPA has expanded the definition of “facility” to include all equipment associated with production and distribution under common ownership or control and located in a single hydrocarbon basin.

EPA provides component-specific emissions factors to be used in calculating and reporting GHG emissions for certain devices, such as gathering pipelines and low-bleed pneumatic devices. The proposed rule allows for emissions from these devices to be reported on an annual basis using a population count and the provided emissions factors, rather than component-by-component testing procedures outlined in the remainder of the rule.  

However, reporters are required to submit annual leak data for fugitive emissions associated with:

  • onshore processing
  • onshore compression
  • underground gas storage
  • LNG storage
  • LNG import and export equipment
  • natural gas distribution

Data for these emissions must be gathered on a component-by-component basis, requiring reporters to test each individual piece of equipment as a basis for reporting emissions.  

Under the proposed rule, reporting will be at the facility level with data collection beginning on January 1, 2011. Thereafter, reports would be submitted to EPA annually, with the first report due by March 31, 2012, covering 2011 emissions. EPA would verify the submitted data rather than requiring third-party verification; reporters would be required to self-certify the data they submit to EPA. Retesting is required in the event that submitted data proves to be inefficient, but no stated penalties are set by the proposal for insufficient or incorrect data.

EPA estimates the total cost of reporting to the private sector would be around $60 million for the first year and $25 million in subsequent years. This would translate to an estimated average cost of $18,000 per facility for the first year and $8,000 in following years.

The text of the proposed rule can be found at: http://www.epa.gov/climatechange/.

For more information on this alert, please contact the lawyers listed below:

Rick R. Rothman, Partner
rick.rothman@bingham.com, 213.680.6590

Circular 230 Disclosure: Internal Revenue Service regulations provide that, for the purpose of avoiding certain penalties under the Internal Revenue Code, taxpayers may rely only on opinions of counsel that meet specific requirements set forth in the regulations, including a requirement that such opinions contain extensive factual and legal discussion and analysis. Any tax advice that may be contained herein does not constitute an opinion that meets the requirements of the regulations. Any such tax advice therefore cannot be used, and was not intended or written to be used, for the purpose of avoiding any federal tax penalties that the Internal Revenue Service may attempt to impose.

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