EPA Proposes Rules for IRA-mandated Waste Emissions Charge for Methane

The Inflation Reduction Act (IRA) signed by President Biden on August 16, 2022, modified the Clean Air Act (CAA) by adding several new sections, including Section 136, “Methane Emissions and Waste Reduction Incentives for Petroleum and Natural Gas Systems.”  Section 136 of the CAA establishes a “Waste Emissions Charge” for applicable facilities that emit more than 25,000 metric tons (mt) of carbon dioxide equivalent (CO₂e) as reported under subpart W (Petroleum and Natural Gas Systems) of Title 40 Code of Federal Regulations (CFR) Part 98 (Mandatory Greenhouse Gas Reporting).

Although the statute defined the charge amount and escalation schedule, it directed the Environmental Protection Agency (EPA) to revise the requirements of 40 CFR Part 98 Subpart W to establish the regulatory framework for the waste emissions charge program with a requirement to promulgate final regulations by August 16, 2024.

Nine Facility Types Subject to the Proposed Rule

On January 26, 2024 (89 FR 5318), EPA proposed rules to implement the Waste Emissions Charge (WEC) program for facilities that exceed a waste emissions threshold. The following table summarizes the nine facility types subject to the rule and the associated waste methane intensity values used to calculate the threshold.

Industry Segment	Industry Segment-Specific Methane Intensity
Onshore petroleum and natural gas production	0.20 percent of natural gas sent to sale from facility; or 10 metric tons of methane per million barrels of oil sent to sale from facility, if facility sends no natural gas to sale
Offshore petroleum and natural gas production
Onshore petroleum and natural gas gathering and boosting	0.05 percent of natural gas sent to sale from or through facility
Onshore natural gas processing
Onshore natural gas transmission compression	0.11 percent of natural gas sent to sale from or through facility
Onshore natural gas transmission pipeline
Underground natural gas storage
LNG import and export equipment	0.05 percent of natural gas sent to sale from or through facility
LNG storage

Calculating Waste Emissions Quantities and Charges

To calculate the waste emissions threshold for each facility in mt, the throughput of natural gas (thousand standard cubic feet or Mscf) is multiplied by the industry specific methane intensity and the density of methane (0.0192 mt/Mscf). For production facilities without natural gas sales, the waste emissions threshold is determined by multiplying the oil intensity metric of 10 mt methane/million barrels of oil by the oil throughput in millions of barrels (bbl).

Facility applicable emissions are determined by subtracting the calculated waste emissions threshold from facility methane emissions as reported under Subpart W. Facility applicable emissions are positive if they exceed the waste emissions threshold and negative if they are below the waste emissions threshold. Emissions exceeding the threshold are subject to the WEC, which is $900/mt in 2024, $1,200/mt in 2025, and $1,500/mt thereafter. WEC charges will be paid to the US Department of Treasury electronically. As proposed, the WEC will affect almost 2,200 oil and gas facilities and result in estimated payments of $770 million in 2025 to comply with the rule.

As set forth in the statute, the proposed rule allows emissions netting. Facilities under common ownership or control as of December 31 for the reporting year would be able to sum emissions to calculate the net WEC. Netting is allowed both within and across industry segments. The proposed rule also includes statutory exemptions for production facilities that exceed the waste emissions threshold if those emissions are caused by unreasonable permitting delays that meet specific criteria. Methane emissions from oil and gas wells that have been plugged and shut-in during the reporting year are also exempt from the WEC calculation.

You can contact TRC for assistance with air measurement and emissions testing services.

Impacts to the Oil and Gas Industry

It is important to note that EPA proposed revisions to 40 CFR Part 98 Subpart W on June 1, 2022 (86 FR 36920) were further revised to accommodate WEC requirements on August 1, 2023 (88 FR 50282).  The final Subpart W rules based on these previously proposed revisions have not yet been promulgated. Unfortunately, some aspects of the previously proposed revisions present challenges for the oil and gas industry. For example, the proposed revisions include new emission factors, which in many cases will result in increased reported greenhouse gas (GHG) emissions even if there has been no change in facility operations. This problem is compounded by the fact that the proposed rule does not readily accommodate rapidly developing measurement technology. As a result, the oil and gas industry is effectively limited from using state-of-the-art methane measurement technology to empirically demonstrate that GHG emissions are actually lower than those resulting from emission factor calculations.

Next Steps

EPA will conduct a virtual public hearing on February 12, 2024. Speakers can register for the virtual hearing using the online registration form available at https://www.epa.gov/inflation-reduction-act/methane-emissions-reduction-program. The last day to pre-register to speak at the hearing will be February 7, 2024. On February 9, 2024, the EPA will post a general agenda that will list pre-registered speakers in approximate order at https://www.epa.gov/inflation-reduction-act/methane-emissions-reduction-program.

EPA is soliciting comments on the proposed rule. EPA’s preferred method for receiving written comments is by submittal to Docket ID No. EPA–HQ–OAR–2023–0434 located at www.regulations.gov. Comments must be received on or before March 26, 2024.

TRC Can Help

The proposed revisions to 40 CFR Part 98 Subpart W that address both GHG reporting and the WEC are intended to align with recently promulgated Quad O emission standards and guidelines for the oil and gas industry.  Accordingly, an effective Quad O compliance strategy is central to reducing reported GHG emissions and potential WECs. TRC will continue to monitor EPA’s Methane Emission Reduction Program and welcomes the opportunity to help clients develop compliance strategies for these complex and evolving requirements.