On March 23, 2010, the US Environmental Protection Agency (EPA or the Agency) announced that it is proposing to add emission sources to its mandatory greenhouse gas (GHG) reporting system. As finalized in October 2009, those reporting rules cover approximately 30 source categories, including a “catch-all” for fuel combustion in boilers, turbines, engines, and other stationary equipment.1 Through four separate proposals, the Agency now is looking to add three sectors—petroleum and natural gas systems, underground carbon dioxide (CO2) injection, and fluorinated gases—and to require all reporting facilities to provide information on their corporate ownership.
These developments will be of particular interest to entities that operate petroleum and natural gas wells, engage in enhanced oil recovery, or distribute natural gas as well as to operators of electricity transmission and distribution systems with gas-insulated equipment.
EPA started down the path to mandatory GHG reporting with an April 2009 proposal.2 There, EPA had included petroleum and natural gas along with fluorinated gases. In response to the comments on that proposal, the Agency decided to pull those sectors from the final rule and to re-propose their reporting requirements.
As before, the latest proposal would require petroleum and natural gas facilities that emit greater than or equal to 25,000 metric tons of CO2 equivalent in a year to report. Covered facilities would include offshore petroleum and natural gas production, onshore natural gas processing, natural gas transmission, underground natural gas storage, liquefied natural gas (LNG) storage, and LNG import and export, plus, in a departure from the April 2009 proposal, natural gas distribution and on-shore petroleum and natural gas production. At present, however, the Agency is not proposing to include crude oil transportation in its reporting system.
For onshore production, offshore production, and natural gas distribution, EPA is proposing customized definitions of the term “facility.” Onshore, the term would include all petroleum or natural gas production equipment associated with wells under common ownership or control that are located in a single hydrocarbon basin as defined by the American Association of Petroleum Geologists. As an alternative, EPA is taking comments on field-level reporting. Offshore, a “facility” would include any platform structure (located in the United States, including the territorial seas, or on or under the Outer Continental Shelf) that houses equipment to extract and that transports hydrocarbons, along with connected secondary platform structures and floating storage tanks. For natural gas distribution, the term would include distribution pipelines, metering stations, and regulating stations operated by a local distribution company (LDC).
In a change from its April 2009 proposal, EPA would step back from comprehensive leak detection and direct emissions measurement for the oil and gas sector. The proposed monitoring methods are a combination of direct measurement, engineering estimation, leak detection, and population counts with population emission factors. For example, emissions from gas-well venting during well completions and workovers from hydraulic fracturing could be calculated by multiplying the cumulative venting time by a flow rate; flow rate would be determined either by use of a recording flow meter, or by recording pressures before and after the well choke, for one well completion and one workover in each field.
Sources required to measure emissions directly would include “storage tanks (transmission) when scrubber dump valves are detected leaking, centrifugal compressor wet seal oil degassing vents, large reciprocating compressor rod packing vents, large compressor blowdown vent valve leaks, and large compressor blowdown vent (unit isolation valve leaks), the latter two when leakage is detected.” Optical gas imaging would be used to detect leaks.
In a separate proposal, EPA would require facilities injecting CO2 for enhanced oil and gas recovery (EOR) or for long-term geologic sequestration to report their GHG emissions. All would record the amount of CO2 received from offsite, the amount injected, and the source of the CO2. Beyond that, full-scale geologic sequestration facilities would develop site-specific monitoring, reporting, and verification plans.
In another return to its April 2009 proposal, EPA also would require GHG emissions-reporting in the fluorinated gas sector. Covered source categories would include electronics manufacturing, fluorinated gas production, imports and exports of equipment pre-charged with fluorinated GHGs or containing fluorinated GHGs in closed-cell foams, use of electric transmission and distribution equipment, and manufacture of electric transmission and distribution equipment. As compared to its prior proposal, EPA added the pre-charged/closed cell foam and equipment manufacturing categories, and adjusted emission calculation methodologies. For equipment use, EPA is proposing to clarify the boundaries of a system by referencing the Energy Information Administration definition, which includes all equipment linked and operated as an integrated unit by one entity or by several entities with a single owner.
Finally, EPA would require all covered facilities, including those subject to the October 2009 final rule, to supply information on their ownership, their applicable NAICS codes, and whether or not reported emissions include those from a cogeneration unit. Two options for ownership are under consideration: (i) the legal name and address of the US parent company and (ii) the names and addresses of all US parent companies and their respective percentage of ownership.
Public comments on the proposed rules will be due 60 days after they appear in the Federal Register. These are new rulemakings, so the Agency will not be re-considering comments submitted on its April 2009 reporting proposal. Interested parties therefore should submit a new set of comments. In addition, the Agency will hold public hearings in the Washington, DC area on April 19 for the petroleum/natural gas systems and underground injection proposals and on April 20 for the fluorinated gas proposal.
Meanwhile, several parties did challenge EPA’s October 2009 final GHG reporting rule in the US Court of Appeals for the District of Columbia Circuit. The court granted EPA’s request to hold the cases in abeyance while the parties pursue settlement discussions.
For more information on the proposals, or any other matter raised in this Client Alert, please contact Roger W. Patrick at +1 202 263 3343, or your usual Mayer Brown lawyer.
1. See our Client Update, “US EPA Accelerates Pace of Climate Change Regulations.”
2. See our Client Alert, “US EPA Proposes Mandatory GHG Reporting.”