Waste Emissions Charge for Petroleum and Natural Gas Systems Rule

On January 26, 2024, the U.S. Environmental Protection Agency (U.S. EPA) proposed the “Waste Emissions Charge for Petroleum and Natural Gas Systems Rule,” otherwise known as the methane fee rule or “Waste Emissions Charge” rule (89 FR 5318). As part of the Inflation Reduction Act, Congress added Section 136 to the Clean Air Act (CAA), which directs U.S. EPA to collect a waste emissions charge (WEC) on excess methane emissions from petroleum and natural gas facilities. The program applies to facilities subject to the Greenhouse Gas Reporting Program (GHGRP) (40 CFR Part 98, Subpart W) that report emissions of more than 25,000 metric tons (mt) of carbon dioxide equivalents (CO₂e) per year.

All segments under Subpart W are subject to the WEC except for distribution. Facilities that emit methane over the facility-specific waste emissions threshold would be required to pay a fee for those excess emissions. Reporting would start next year (2025) and for reporting year 2024 the fee is $900 per mt of methane. The fee increases to $1,200 per mt in 2025 and $1,500 per mt in 2026 and thereafter. The WEC fees would be calculated and paid by March 31 of each year and any revisions to reporting would be due by November 1. Late payments would be subject to interest and facilities filing late would be assessed a daily penalty.

In conjunction with this proposal, U.S. EPA has either proposed or finalized changes to other related rules. These include 40 CFR Part 98, Subpart W, and the Standards of Performance for New Stationary Sources (NSPS) and Emissions Guidelines (EG) for the oil and natural gas source category. On August 1, 2023, U.S EPA proposed changes to Subpart W to add “other large release events” as a new reportable emissions source. U.S. EPA also proposed several changes to emissions calculation methodologies and emissions reporting requirements to align with the objectives of the WEC rule.

When Congress developed CAA Section 136, they referenced U.S. EPA’s November 15, 2021 proposed rulemaking for 40 CFR Part 60, Subparts OOOOb and OOOOc. Subsequently, U.S. EPA issued a supplemental proposal for those rules on December 6, 2022, and issued pre-publication versions of the final rules on December 2, 2023, which have yet to be published in the Federal Register. New standards for “super-emitter” events related to large methane releases from (or near) oil and gas facilities are addressed in 40 CFR Part 60, Subpart OOOOb under §60.5371b. U.S. EPA expects that facilities in compliance with the final OOOOb and OOOOc rules would not incur charges under the WEC rule or would eventually be exempt as described later in this article.

Waste Emissions Thresholds

The proposed waste emissions thresholds were established by congress and are formatted as a percentage of the total natural gas or oil throughput of the facility. The WEC only applies to the methane emissions that exceed the waste emissions threshold calculated using these percentages. The thresholds vary by industry segment and are summarized in the table below:

Certain gathering and boosting and natural gas processing industry segments may have zero throughput values because these facilities either receive no natural gas, or process or dispose of natural gas received in a manner that results in sending zero quantities of natural gas to sale. U.S. EPA provides a few examples of these facilities including gathering and boosting stations that receive natural gas and reinject it underground and fractionation plants that only receive and process natural gas liquids. In these cases, U.S. EPA proposes that all reported methane emissions would, by default, exceed the threshold. U.S. EPA is requesting comment on this approach, and an alternative approach that would consider all reported emissions below the waste emissions threshold.

Facility Methane Emissions, Facility WEC Calculation, and Netting

After calculating a facility’s waste emissions threshold, an owner and operator would then calculate their “facility applicable emissions” by subtracting the waste emissions threshold from the total methane emissions reported under Subpart W for the facility. Any emissions value greater than zero is then considered the “facility applicable emissions.” Any exemptions, as described herein, are then subtracted from the facility applicable emissions to calculate the “WEC applicable emissions.”

Facilities under common control across all applicable industry segments would then be allowed to net their WEC applicable emissions, adding together the positive and negative WEC applicable emissions calculated in the previous step. Any net emissions above zero are then multiplied by the $/mt charge to calculate the WEC obligated party’s total WEC, or WEC obligation. In the preamble to the proposed rule, U.S. EPA provides insight into its interpretation of CAA Section 136 for establishing concepts of “common ownership or control for netting of emissions,” which facilities are eligible for netting, and what emissions may be considered in the netting process. Some of the key points from this discussion are:

• The “owner or operator” for purposes of common control is the “owner or operator” reported under Subpart W at 40 CFR §98.4(i)(3);
• Only facilities that have Subpart W emissions greater than 25,000 mt CO₂e are eligible for netting; and
• Facilities that receive the regulatory compliance exemption are not eligible for netting (because they would have zero WEC applicable emissions).

Verification

U.S. EPA proposes to verify WEC filings using information submitted with the WEC filing, 40 CFR Part 98 reports, other credible evidence, and audits of facilities, potentially at the expense of the auditee. The verification process would overlap with the Subpart W verification process because much of the data submitted under Subpart W underpins the WEC filing. Respondents would be required to resubmit their filing within 45 days of being contacted by U.S. EPA or from self-discovery of a substantial error, with possible extensions of up to 30 days. Furthermore, resubmission of a Subpart W report would require updating the WEC filing, up until November 1.

Exemptions

CAA Section 136 provides three exemptions to lower applicable fees or avoid the fees entirely. These exemptions include:

• Production segment emissions resulting from unreasonable delays in permitting gathering or transmission infrastructure necessary for offtake of increased volume as a result of methane emissions mitigation implementation;
• Emissions that are in compliance with the final emissions requirements under CAA Sections 111(b) and (d) (i.e., the NSPS and EG) – considering several caveats as described below; and
• Emissions from wells that are permanently shut in and plugged.

U.S. EPA provides criteria and their justification for what constitutes an “unreasonable delay” in permitting of gathering or transmission infrastructure related to the first exemption. Those criteria include:

• Facility emissions must exceed the waste emissions threshold;
• The entity seeking exemption and the entity seeking the permit must not contribute to the permitting delay;
• The exempted emissions are only those from flaring gas (in accordance with all applicable regulations) that would have been mitigated without the delay; and
• A period of 30 to 42 months (to be specified in the final rule) must have passed since the relevant permit application was considered complete.

U.S. EPA expects sites seeking this exemption could include oil production sites planning to send gas to sale instead of flaring and sites that produce natural gas, condensate, or natural gas liquids that expand operations and must flare gas because no pipeline is available.

U.S. EPA also discusses details related to the regulatory exemptions. The key points from U.S. EPA’s discussion include:

• The exemption would not become available until the Administrator determines that the final NSPS Subpart OOOOb and all EG Subpart OOOOc-implementing state and Federal plans are approved and in effect (this could take several years);
• The exemption would also not become available until the Administrator determines that the emissions reductions achieved by the final requirements are at or above the level that would have been achieved by the NSPS Subpart OOOOb/EG Subpart OOOOc 2021 proposal;
• A “Subpart W facility” would be able to claim the exemption for all facility emissions (not just those covered by the NSPS and EG requirements) if all the CAA Section 111(b) and/or (d) “facilities” or sources at the facility are in compliance (no deviations or violations in the reporting year) with the applicable CAA Section 111 requirements.

It’s important to note that U.S. EPA would be required to make the determinations in items 1 and 2 above before any facilities could claim the regulatory exemption.

For the plugged well exemption, only those emissions above the waste emissions threshold would be considered for exemption. The well would be required to be permanently shut-in and plugged with a metal plate or cap, and in accordance with all Federal, state, and local requirements for closure (with the exception of notifications, reporting, or site remediation). The emissions eligible for exemption would be those that occur at the well level, including wellhead equipment leaks, liquids unloading, and workovers in the reporting year in which the well was plugged.

Wrap-Up

Comments on the proposed rule were originally due by March 11^th, but U.S. EPA recently extended the comment period to March 26, 2024. We expect that U.S. EPA will receive a substantial number of comments on the proposal related to clarification of applicability, the proposed definitions for facilities, and overlap with other oil and gas regulations.

U.S. EPA is hosting several webinars on the proposed rule, and the next event occurs on March 5^th. If you have questions regarding the proposed rule, we recommend checking out the U.S. EPA webinars, and then reaching out to your ALL4 project manager to understand how we can help you navigate the upcoming requirements.