Penny-Wise and Pound-Foolish: The Problem with the EPA’s Proposed Changes to Current Methane Regulations

Penny-wise and pound-foolish is a great phrase to describe the Environmental Protection Agency’s (EPA’s) plan to ease rules put in place to reduce harmful methane emissions from the oil and gas industry. While potentially saving money in the short term, a rollback of these policies and regulations is shortsighted and will ultimately serve to weaken the competitiveness of the US natural gas industry, both domestically and in international markets. In November, the EPA held a public hearing in Denver on the proposed changes to the current methane emission standards. I had the chance to provide testimony at the hearing, and used the opportunity to illustrate the inherent issues with weakening the current methane emission regulations:

Methane is a superpotent greenhouse gas, and its power to adversely affect the global climate is well known. Managing methane that escapes the natural gas supply chain is critical to combating climate change and is becoming increasingly important to oil and gas companies as customers begin to demand climate-responsible gas. A strong national focus on ensuring the US oil and gas industry is the global leader in producing, transporting, and distributing “low-emissions” (meaning low-methane emissions) natural gas is essential for the short- and long-term health of the industry, as well as for state and national economies, which rely on it for their prosperity. Given the emerging dynamics in the supply and demand of global gas, we must anticipate that a market-based price premium will emerge for low-emissions gas. Therefore, it is in our national interest to ensure US gas sets the bar globally for low-emissions gas.

Thanks to fast action by the EPA and state regulators in the last administration, the United States, and state governments including Colorado’s, established the global standard for positive and effective policy and regulations on methane emissions. However, today, leadership in this area is coming out of Europe, Australia—even Russia and the Middle East. US-based international oil companies (IOCs) are following slowly in comparison, with very little, if any, public endorsement from our mid-tier companies.

A report published in the journal Science in July 2018 found that methane emissions from US oil and gas operations amount to 2.3 percent of total annual methane production (an emissions intensity of 2.3 percent), which is 60 percent higher than the current estimate from the EPA. That equates to an estimated 13 million metric tons lost each year, which is enough natural gas to heat 10 million US homes, and has a global warming potential that is equal to:

• The greenhouse gas emissions from 7.9 million passenger vehicles driven for one year
• The annual CO₂ emissions from the energy used by 4 million US homes
• The annual CO₂ emissions from just over nine (9.2) coal-fired power plants

The 2.3 percent emissions intensity found by the Science study is also:

• Over six (6.2) times as high as the 2018 baseline of 0.37 percent emissions intensity recently announced by the 13 international oil and gas companies participating in the Oil and Gas Climate Initiative (OGCI)
• 9.3 times as high as the OGCI’s 2025 target of 0.25 percent emission intensity
• 11.5 times as high as the 0.2 percent emissions intensity target suggested by Environmental Defense Fund last April, five months before the OGCI targets were announced

To be absolutely clear, the future of natural gas in the national and global energy transition is not certain. Even today the industry is under threat from multiple angles. Both public and commercial awareness of the problem is growing; even the New York Times covered it prominently in June 2018. As a climate-conscious world grows more aware of the impact of methane emissions, natural gas will come under the same pressure as coal and the other fuels that gas is replacing.

Utility-scale electricity generation was once the market that represented the primary growth opportunity for gas. But renewables are proving to be stiff competition in this market. Even with the current oversupply and historically low price of natural gas, firm, reliable power from integrated portfolios of wind, solar, and storage are outcompeting both new and existing gas generation. Utilities from Indiana, Michigan, Colorado, and California have all put forth economics-based proposals to use renewables and storage to retire existing—or avoid new—gas-fired capacity. Failing to address methane emissions will only compound the challenges that natural gas is already facing due to the falling cost of alternative power-generation resources and technologies.

In more traditional gas markets, including those for heat, industrial processes, and as inputs to chemical processing, we see simultaneous trends to accelerate the efforts to manage greenhouse gas and methane emissions from the production, sale, and use of products and services by the largest cities and biggest corporations, and in large-scale industries like global transport and heavy manufacturing. This force from the downstream value chains will put increasing pressure on energy suppliers to deliver low-emissions inputs, creating additional challenges for traditional natural gas suppliers.

Especially in the light of the amazing production and cost advantages of US-produced gas, a rollback of emissions regulations now is a shortsighted move that ignores emerging signals from the oil and gas industry’s most critical customers and growing competition from alternatives that promise advantages in both cost and climate impact. On top of that, reputable operators already comply with the current federal regulations because their operations go beyond compliance. That means the savings from deregulation will benefit only a small minority of poor performers and ultimately cost the industry as a whole.

Methane emissions matter. Without regulations to reduce their impact on our common future benefits, the US oil and gas industry will be less globally competitive at a time when US gas exports are looking for new markets. While deregulation may provide modest savings in the short term, the long-term negative consequences are much greater, both for the United States and for the world.

Last fall, Rocky Mountain Institute joined several leading climate and energy NGOs to release a set of guiding principles for reducing methane emissions across the natural gas value chain. Shell, BP, Chevron, ExxonMobil, Woodside, Qatar Petroleum, ENI, Total, Equinor, and Gazprom, along with many others, have signed onto the principles and formally announced measures to patch up the oil and gas industry so that natural gas has a place in the great energy transition. These principles are now more important than ever; as the Environmental Defense Fund called out in a recent blog, it is critical that the world’s top oil and gas companies act as corporate leaders on methane emissions. On top of that, the EPA should help the US oil and gas industry set the bar for low-emissions gas globally, not take a step in the other direction.

 

You can learn more about RMI’s efforts to solve the methane emissions problem in the global oil and gas industry here.