Concern Raised Over New Social Cost of Methane Figure

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By Anthony Adragna and Andrew Childers

Dec. 7 — The Environmental Protection Agency's newly created social cost of methane figure has not been adequately reviewed and should not be used to justify regulating methane emissions from new oil and gas operations, industry groups said.

That figure, meant to capture the monetary impacts of methane emissions, has not undergone scientific review and scrutiny, the groups and Sen. James Inhofe (R-Okla.) said. The concerns about the social cost of methane come as they warn the proposed methane rules should be withdrawn for additional industry input.

“Clearly, this metric is yet another attempt by the Obama administration to advance an unpopular climate agenda—by inventing a dollar amount for the price of a ton of methane to justify onerous regulations,” Inhofe, chairman of the Senate Environment and Public Works Committee, wrote in a Dec. 4 letter. “It is critical the EPA immediately halt the use of the [social cost of methane] in regulations.”

The EPA announced a package of proposals, including new source performance standards (80 Fed. Reg. 56,593; RIN 2060-AS30), in August under Section 111(b) of the Clean Air Act to reduce methane emissions from future oil and gas operations. Public comments on the proposed methane rules, which update the performance standards for oil and gas systems at 40 C.F.R. Part 60 Subpart OOOO, were due Dec. 4.

Environmental and health advocates have praised the proposals as a necessary first step to curb emissions of the highly potent greenhouse gas but have urged the Obama administration to extend regulatory efforts to existing oil and gas infrastructure. Industry groups say they have already reduced emissions through voluntary actions and call the new efforts unnecessary.

As part of the rule, the EPA proposed using a social cost of methane in a range between $580 per metric ton and $3,500 per ton for the year 2020 as calculated in 2012 dollars depending on the discount value used as way to determine the performance standards' benefits. The figures for 2025 would be between $700 per metric ton and $4,000 per ton. The figures are based on a 2014 analysis by members of the EPA's National Center for Environmental Economics that was subsequently peer reviewed by the agency.

Methane is between 28 and 36 times more potent a greenhouse gas than carbon dioxide when measured over a 100-year period, according to the EPA. The social cost of methane figure is intended to account for those significant climate impacts, the agency said.

The EPA estimates its proposal will cost the oil and natural gas industry between $170 million and $180 million in 2020 while providing up to $120 million in public health and environmental benefits. The agency estimates the industry costs will grow to between $280 million and $330 million in 2025 with between $460 million and $550 million in benefits provided.

Industry: Figure Inadequately Reviewed 

But industry groups argued the EPA should have proposed its social cost of methane figure separately, so it could be subject to its own public notice and comment period.

“Otherwise, EPA can arbitrarily use one value of [the social cost of methane] to justify controls on methane emissions from one industrial sector source and then turn around later and use some other arbitrary value for another industrial sector source, all presumably justified by taking comment on the arbitrary value already used to justify the proposed regulations,” the Independent Petroleum Association of America and American Exploration & Production Council said in joint comments.

The EPA's development of a social cost of methane builds on prior efforts to account for the social cost of carbon dioxide pollution. A federal interagency working group has set the social cost of carbon at $36 per ton. That figure has come under fire from congressional Republicans due to what they say is the lack of transparency in its development.

Energy Industry: Estimates ‘Likely Overstated.'

Various groups from the oil and gas industries criticized the EPA for a lack of transparency in developing the new figure and said many estimated benefits stemming from the regulation probably were exaggerated.

“EPA's social cost of methane does not reflect the standards of scientific review and technical maturity that should be required before utilized to· inform major federal rulemakings,” the North Dakota Petroleum Council wrote in comments. “EPA's social cost of methane estimates are likely overstated, resulting in skewed effects.”

NERA Economic Consulting in a Dec. 3 analysis also had argued the EPA had overstated the rule's benefits.

The American Petroleum Institute said in its comments that the EPA's proposal is unnecessary because methane emissions from hydraulically fractured wells already have declined by nearly 79 percent since 2005, according to the agency's own greenhouse gas emissions inventory. Total methane emissions from the natural gas sector are down 11 percent during the same period.

The industry group also argued that the EPA should refrain from using its social cost of methane figure because it has not disclosed the assumptions and uncertainties that went into it.

“In addition, the EPA has failed to disclose and quantify key uncertainties to inform decision makers and the public about the effects and uncertainties of alternative regulatory actions as required by” the White House Office of Management and Budget, the American Petroleum Institute said.

‘Indispensable' Tool in Climate Fight 

Meanwhile, environmental advocates said the new regulations would be an “indispensable” tool for the U.S. to meet President Barack Obama's goal of cutting greenhouse gas emissions 26 percent to 28 percent by 2025 from 2005 levels. They also said the rules should be strengthened and expanded.

“Substantial reductions from existing oil and gas infrastructure are achievable by 2020 and can help protect public health, while catalyzing global leadership to address harmful methane pollution,” the groups, including the Clean Air Task Force, Earthjustice, Environmental Defense Fund, Natural Resources Defense Council and Sierra Club, wrote.

Among the potential improvements to the proposed rules, according to the environmental groups, would be increasing the frequency of infrastructure inspections to detect leaks and expanding the scope of the regulations to additional types of equipment responsible for emissions.

More than 125 environmental groups as well as 18 organizations representing the Latino community have written the EPA urging it to set the most protective standards possible.

Existing Source Rules Feared 

Although the EPA has not yet committed to issuing similar standards for existing oil and gas wells under Section 111(d) of the Clean Air Act, industry groups voiced concerns that the current proposal is only a prelude to additional regulation.

“EPA is silent as to its ‘beliefs' on whether the industry can ‘survive' the cost and burden of regulation of existing sources under Section 111(d),” the Independent Petroleum Association of America and American Exploration & Production Council said. “This silence is notable and troubling. Clearly, since EPA demonstrates that the technologies used to regulate methane emissions are identical to those for [volatile organic compound] emissions, EPA’s choice to expand its regulations to directly regulate methane can only be interpreted as opening a potential pathway to Section 111(d) regulations as the anti-fossil energy organizations demanded. And, while EPA fails to even mention Section 111(d), it must certainly know—based on the demand that existing methane sources must be regulated—that it will face efforts to force such regulation.”

The EPA has previously argued that it was required to regulate carbon dioxide from existing power plants under Section 111(d), known as the Clean Power Plan, after it had proposed performance standards for the pollutant under Section 111(b).

“As is plainly evident from the Clean Power Plan, regulation of existing sources under section 111(d) can and likely would have far greater potential impacts than the proposed standard for new sources,” the American Petroleum Institute said. “As a result, the agency should have estimated the costs of regulating existing oil and natural gas sources in the proposed rule given its interpretation of the act. EPA’s utter failure to consider this important aspect of the decision to implement a [new source performance standard] renders the decision arbitrary and capricious.”

The final rule is expected in June 2016.

To contact the reporters on this story: Anthony Adragna in Washington at aadragna@bna.com and Andrew Childers in Washington at achilders@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com