April 2024 Vol. 79 No. 4


Washington watch: Pipelines concerned about Biden EPA methane fee proposal

by Steven Barlas, Washington D.C. Editor

Natural Gas industry groups are asking Congress to cancel the methane emissions fee, which goes into effect in March 2025, based on emissions in 2024. The Methane Emissions Reduction Program was enacted as part of the Inflation Reduction Act (IRA). The Environmental Protection Agency (EPA) issued the Part 99 (citing the section of the Clean Air Act) proposed rule on Jan. 26, 2024, laying out how the agency would determine the “excess emissions” subject to the fee.  

The proposal divides the natural gas industry into three separate baskets, each with a different equation for determining the fee. Natural gas compression facilities and gas transmission pipelines are in the same category and the fee would be assessed when emissions exceed 0.11 percent of the natural gas sent to sale “from or through” the facility.  

For each ton of methane above the “waste emissions threshold,” the applicable facility must pay $900 in 2025 for its excess 2024 emissions, with the charge increasing to $1,200 in 2026 for 2025 excess emissions and to $1,500 in 2027, and each year beyond for the preceding year’s excess emissions. 

A hypothetical example is based on emissions from an onshore oil or gas production facility, in a different basket than the pipelines, which reports emissions of 3,000 metric tons of methane. The EPA figured it would exceed its threshold by 696 tons, subjecting it to a $626,400 charge due by March 31, 2025.  

Some of the angst about this proposal is caused by the uncertainty of a different EPA proposed rule – on greenhouse gas emissions reporting – issued in August 2023 and not yet finalized.  It would determine the methane reporting requirements for various natural gas sectors. Those reports will be used by the EPA to determine the emissions overage fee.  

Last October, Micheal Dunn, executive vice president of the Williams Companies, sent a letter to the EPA applauding some of the improvements in the reporting rule it was planning to make. But he also submitted suggestions on how to “improve the proposed rule’s integrity, both technically and legally.” 

He particularly objected to the use of the “Natural Gas Sent to Sale” reporting measure the EPA wants to use – and has proposed, in the Part 99 program – and argued it should be limited to the quantity of gas transferred to third parties. He explained that using the quantity of gas transported through the transmission compressor station to represent gas “sent to sale from or through such facility” can lead to double counting of “Natural Gas Sent to Sale.”  

The EPA apparently ignored Dunn’s plea, based on the Part 99 proposed rule the agency issued in late January. Industry comments on the Part 99 proposal were not yet due at publication time. 

But in a press release, American Petroleum Institute Senior Vice President of Policy, Economics and Regulatory Affairs Dustin Meyer said, “This punitive tax increase is a serious misstep that undermines America’s energy advantage.  

“While we support smart federal methane regulation, this proposal creates an incoherent, confusing regulatory regime that will only stifle innovation and undermine our ability to meet rising energy demand. We look forward to working with Congress to repeal the IRA’s misguided new tax on American energy.” 

The EPA does set up two excess-fee exemption categories. The first is a “Compliance Exemption” available to companies whose emissions comply with the Jan. 2024 final rule, which set standards of compliance for various pieces of equipment. In the case of the transmission industry, that means wet and dry seal compressors, controllers and rod packing. Those so-called Part W regulations do not apply to pipelines, so they do not have access to the compliance exemption.  

The second is the “Unreasonable Delay Exemption,” which exempts a source for methane emission overages “caused by unreasonable delay, as determined by EPA in environmental permitting of gathering or transmission infrastructure.” Any company wanting to take advantage of this exemption would have to meet four criteria:  

(1) it exceeds the waste emission threshold 

(2) the exempted emissions are from flaring due to delays in permitting gathering or transmission lines, or compressor stations necessary to off-take associated gas 

(3) a certain amount of time must have passed between submitting the permit application and claiming unreasonable delay 

(4) the owner or operator seeking the permit cannot have contributed to the delay 

The law firm Sidley points out the congressional language underlining the methane fee requirements allows companies to net emissions “for facilities under common ownership or control” by “account[ing] for facility emissions levels that are below the applicable threshold within and across all applicable segments.”  

Properly applied, states Sidley, this could provide a significant source of relief for large companies with multiple facilities. However, there is also language in the law that may make “netting” more difficult to apply to a facility. 

DOE, FERC take different positions on LNG

Environmentalists hailed the announcement at the end of January 2024 by the Biden administration that halted further approval of liquid natural gas (LNG) exports, calling it a big victory in their fight against climate change and the natural gas industry’s alleged contribution to greenhouse gas emissions.  

The export ban will be imposed by the Department of Energy. But apparently, the left hand of the Biden administration doesn’t know what the right hand – the Federal Energy Regulatory Commission (FERC) – is doing. In January, FERC rejected an effort by the Sierra Club to stop the Driftwood LNG project being constructed by Tellurian Inc., in Lake Charles, La. It was given a certificate by the FERC in 2019. But the project, to include five liquification plants and a new interstate natural gas pipeline system providing up to 3,954,000 dekatherms per day of firm natural gas transportation, has been delayed due to COVID and an extended, delayed review of the project’s Clean Water Act permit by the Army Corps of Engineers. 

In October 2023, Driftwood asked FERC to extend its construction deadline for three years up to 2029. The Sierra Club objected, arguing delays associated with the COVID pandemic are not the primary cause for Driftwood’s delay and, instead, pointed to Driftwood’s alleged mismanagement. The Sierra Club also complained that the FERC’s initial GHG emissions estimates were now inaccurate due to: (1) the federal government’s newly adopted emissions targets, (2) the federal re-adoption of the social cost of carbon, and (3) information regarding climate change and the lifecycle GHG emissions from LNG exports.   

FERC rejected all of Sierra’s arguments. FERC agreed that it is possible its initial GHG estimates are now inaccurate, but Sierra did not prove that to be true: “However, Sierra Club has not identified any specific change of fact or law that would require the Commission to reconsider our prior findings that construction and operation of the projects, as conditioned, is an environmentally acceptable action…” 

FERC, now with only three members – a bare quorum - continues to buck environmentalist demands. One of the three, Allison Clements, has announced she will not seek a second term following the expiration of her first term in June of this year. She has consistently argued that FERC should, and legally can, do a better job totaling GHG emissions for new construction projects.  

Even if the Biden administration wanted to appoint a pro-GHG regulator to replace Clements, that person would undoubtedly not be approved by the Senate prior to this November’s presidential election. If Donald Trump is elected, Clements’ replacement will most likely be an energy industry advocate. 

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