April 2024, Vol. 251, No. 4


Pipeline Industry Concerned About Methane Fee Proposal

By Stephen Barlas, Contributing Editor, Washington, D.C.

(P&GJ) — 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 — which cites the section of the Clean Air Act — proposed rule on Jan. 26, 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% 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 then to $1,500 in 2027 and each year beyond for the preceding year’s excess emissions. 

In a hypothetical example, 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 such a facility would exceed its threshold by 696 tons, subjecting it to a $626,400 charge due to the EPA 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 that applauded some of the improvements in the reporting rule that the EPA was planning to make. However, 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 that the EPA wants and has proposed to use in the Part 99 Program, and he 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. 

In a press release, Dustin Meyer, American Petroleum Institute (API) senior vice president of Policy, Economics and Regulatory Affairs, 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,” which is available to companies whose emissions comply with the EPA’s final rule issued in January 2024 — which sets standards of compliance for various pieces of equipment, in the case of the transmission industry, including wet and dry seal compressors, controllers and rod packing (Government, PGJ February)

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, transmission lines or compressor stations necessary to offtake associated gas, (3) a certain amount of time must have passed between submitting the permit application and claiming unreasonable delay, and (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 which may make “netting” more difficult to apply to a facility. 

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