Liberals and conservatives can agree on one idea: Building the energy future is going to require a lot of new stuff.
And all that new stuff presents unexpected opportunities for states to play a leadership role while the political class dithers in old conflict. Whether red, blue, or purple, states will be the front lines for the energy future. How they participate will determine their influence.
Enter an unexpected antagonist (or is it protagonist?): EPA’s draft methane rule.
The debate over methane rules and regulations is now a bit antiquated. Way back in 2019 (remember life before COVID?), I wrote about the rollback of EPA’s methane rules and the implications for oil and gas companies. It turned about to be much ado about nothing, because forward-thinking oil and gas companies complied with the prior rule, ignoring its rollback.
In November, EPA announced the Supplemental Methane Proposal, which updates and strengthens rules to reduce methane emissions from oil and gas facilities. The proposal interacts in interesting ways with the recently passed Inflation Reduction Act (IRA), which contains a suite of low-carbon tax incentives and funding for methane abatement technologies — aka, lots of carrots for compliance.
The IRA also has one notable stick: a methane fee. Yet even this fee comes with a carrot: Companies will qualify for an exemption to it, dependent on the implementation of EPA’s methane rule by the states. Hello antagonist! Or is it protagonist?!
How your company should respond depends on how the states you operate in decide to act. Yet you can always foreground your commitment to reducing emissions, even when state politicians might think they’re helping you by opposing the rule. (Spoiler alert: They are not.)
Both of these things are true:
- Old-school political lines would seem to create a headwind for EPA’s methane rule adoption by oil- and gas-producing states.
- It is in oil and gas companies’ best interest for the states within which they operate to adopt EPA’s methane rules.
The situation
There are so many reasons for the oil and gas industry to continue to get its methane emissions house in order:
- Build confidence that the U.S. is producing the cleanest molecules on earth for global export.
- Get ahead of opposition to future decarbonization opportunities, such as moving hydrogen and CO2.
- Ensure that natural gas is one of the decarbonization tools in the toolbox, for purposes ranging from displacing coal-fired generation to heating buildings in cold climates.
States will be the newest front lines both politically and pragmatically. Meanwhile, federal political divisions are (predictably) on full display. Democratic U.S. senators such as Tom Carper of Delaware believe that the 2022 Supplemental Methane Proposal will aid the United States, putting our nation in a better position environmentally and socially. Meanwhile, in December Kentucky Republican U.S. Representative James Comer, then the ranking member of the House Committee on Oversight and Reform, submitted a letter to EPA stating that the committee would be conducting oversight of the agency’s new methane rule. The letter said the rule was an example of the Biden administration’s “war on domestic energy production.”
Here’s what you need to know.
- The rule: EPA’s 2021 proposed Methane Rule specifically targets the oil and gas industry emissions. The 2022 Supplemental Methane Proposal builds off the 2021 proposal to strengthen its mission. Notably, the updated rule would implement a new “Super Emitter Response Program,” institute a zero-emissions standard for pneumatic pumps at select facilities, require methane leak monitoring at all well sites and compressor stations, and tighten flaring requirements, among other provisions. Comments will be accepted by EPA until February 13th, 2023.
- IRA methane fee exemption and incentives: Starting in 2024, select oil and gas facilities that are already required to report their GHG emissions to EPA’s GHG Reporting Program will be subject to the IRA’s federal methane fee — the first of its kind. Companies can take advantage of an exemption to the fee under two conditions: (1) EPA regulations being in effect in all states and (2) equivalent or greater emission reduction to EPA standards being achieved. The IRA will appropriate millions in funding to EPA to ease the cost of transforming infrastructure to reduce methane.
- Ahead of the game: Oil and gas companies are well down the path of addressing methane emissions. The American Petroleum Institute states that the oil and gas sector is already on top of its game, because “methane emissions relative to production fell 60% from 2011 to 2020.” Other initiatives, such as OGMP 2.0 and GTI Energy’s Veritas assemble company and stakeholder collaborations to accelerate actions that minimize methane leaks.
Seize the day
The stakes of methane emissions mitigation are high. We must continually earn public confidence in our industry’s ability to deliver on our potential to lead into the energy future. Engaging proactively and constructively to address EPA’s methane rule is the new table stakes.
You can play to win by engaging state leaders where you operate. Well-meaning industry supporters in state government may equate opposing EPA with helping our industry. In fact, that opposition doubles down on the perception that oil and gas companies are unwilling to address their emissions. So work with your states’ policymakers to narrate our shared commitment to reducing emissions; doing so will create a win-win approach, ensuring that the IRA sticks don’t fall on good operators.
A special thank you to Laura Horowitz of Team Adamantine for her help in writing this piece. Was this Both True forwarded to you? You can subscribe here. Want to craft your own winning decarbonization strategy? Reach out and let’s talk.
To unlocking the unconventional win-wins,
Tisha
