By M. Katherine Crockett, IOGA Newsletter, April 2009

On March 10, 2009, the United States Environmental Protection Agency (“EPA”) issued a proposed rule that requires for the first time mandatory monitoring and reporting of greenhouse gas (“GHG”) emissions from large GHG emissions sources in the United States. Acting in response to the Fiscal Year 2008 Consolidated Appropriation’s Act’s mandate that EPA issue a final GHG reporting rule under its Clean Air Act authority by June 26, 2009, the proposal applies to a broad range of source categories from all sectors of the economy, including the oil and natural gas (“O&G”) industry.

As a general matter, the proposed rule applies to suppliers of fossil fuels or industrial GHGs, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more of GHG emissions per year. While EPA’s press release states that most small businesses fall below the 25,000 metric ton threshold and therefore will not be required to monitor and report their GHG emissions, EPA also reports that 85-90% of total national GHG emissions, from approximately 13,000 facilities, will be covered by the proposal. The gases covered by the proposed rule are carbon dioxide, methane, nitrous oxide, hydroflourocarbons, perflourocarbons, sulfur hexafluoride, and other fluorinated gases including nitrogen trifluoride and hydrofluorinated ethers. Although the current version of the proposed rule does not require emissions sources to monitor or report indirect GHG emissions, such as GHG emissions associated with raw material production and transport, EPA is seeking comment on whether the final rule should require reporting on purchased electricity as a surrogate for these indirect emissions.

The primary goal of the mandatory reporting program is to provide EPA with comprehensive and accurate baseline data to inform future national climate change policies, including research and development initiatives, economic incentives, new or expanded voluntary programs, adaptation strategies, emissions standards, a carbon tax or a cap-and-trade program. Because EPA does not know at this time what specific policies may be adopted, the data gathered pursuant to the mandatory reporting system must be of sufficient quality to support a range of potential approaches to climate change. Other stated objectives of the proposed mandatory GHG reporting system are (a) balancing of rule coverage to maximize the amount of emissions reported while excluding small emitters and (b) creating reporting obligations that are consistent with existing GHG reporting programs by using existing GHG emission estimation and reporting methodologies to reduce the reporting burden, where feasible.

With respect to the O&G sector specifically, the following O&G system facilities may be required to report their GHG emissions under the proposed rule: offshore petroleum and natural gas production facilities, onshore natural gas processing facilities (including gathering and boosting stations), onshore natural gas transmission compression facilities, underground natural gas storage facilities, liquefied natural gas storage facilities, and liquefied natural gas import and export facilities. Under the proposal, these facilities would be required to monitor and report their “fugitive emissions” data from their operations, which is defined to include unintentional equipment emissions; intentional or designed releases of methane- and/or carbon dioxide-containing natural gas or hydrocarbon gas (not including combustion flue gas) from emissions sources, including, but not limited to, open ended lines, equipment connections or seals to the atmosphere; and carbon dioxide emissions resulting from the combustion of natural gas in flares. These fugitive emissions must be counted in determining the 25,000 metric ton per year reporting threshold and may subject many operations to the regulation.

Significantly, while the proposal currently does not include onshore petroleum and natural gas production facilities—due in part to the difficulty of defining what constitutes a “facility” in this sector—EPA is requesting public comment on whether and how fugitive GHG emissions from this source category should be regulated in the future. Specifically, EPA is considering a basin-level definition of “facility,” which would require all individual companies within a particular basin (exempting small businesses as defined by the Small Business Administration¹) to report their collective fugitive emissions. EPA is also seeking comment on strategies for reporting fugitive emissions from the natural gas distribution sector.

For covered facilities in operation on January 1, 2010, the first report would be submitted to EPA by March 31, 2011 for the 2010 calendar year, except for vehicle and engine manufacturers, whose reporting obligations would begin with the 2011 model year. Somewhat controversially, the proposed rule does not provide for independent third-party verification of the GHG emissions reported by regulated entities. Rather, EPA will verify the accuracy of the GHG emissions reported under the registry following self-certification by individual reporters.

As of the date of the submission of this article, the proposed rule has not yet been published in the Federal Register. Once published, the period for public comment on the proposal will run for 60 days. EPA also has scheduled two public hearings on the proposal on April 6-7, 2009 in Arlington, VA and April 16, 2009 in Sacramento, CA.

More information, including the full text of the proposed rule, is available on EPA’s website at
www.epa.gov/climatechange/emissions/ghgrulemaking.html.

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¹With regard to the oil and gas industry, businesses engaged in crude petroleum and natural gas extraction and natural gas liquid extraction may have a maximum of 500 employees to be considered a “small business concern.” With regard to support services, businesses engaged in drilling oil and gas wells may have a maximum of 500 employees and other support activities for oil and gas operations may have maximum annual receipts of $7.0 million to be considered a “small business concern.” See 13 C.F.R. § 121.201.

Prior editions of this newsletter have discussed the bill passed during the 2009 Regular Session of the West Virginia Legislature that created a requirement for “industrial facilities” to notify the Mine and Industrial Accident Emergency Operations Center within 15 minutes of ascertaining the occurrence of an “emergency event.” This legislation defined covered “industrial facilities” as (a) facilities required to submit a Risk Management Plan under Section 112(r) of the federal Clean Air Act and (b) any factory, mill, plant or refinery, other than a coal facility, that the West Virginia Department of Homeland Security and Emergency Management (“WVDHSEM”) determines has a reasonable potential to have an emergency event, after such a facility has been placed on actual written notice of its coverage under the statute. An “emergency event” is an unplanned event including, but not limited to, an explosion, a fire that cannot be contained within 15 minutes of discovery, the release of a reportable quantity or extremely hazardous substance, loss of life or serious personal injury. In addition to the 15-minute reporting requirement, industrial facilities must implement an event communications system—at a minimum, the facility must designate a person to serve as a contact for state and local emergency responders. As soon as practicable after the emergency event, covered facilities also must provide state and local officials with timely authorized access to the person(s) charged with managing the emergency on behalf of the facility, as well as to the areas affected by the emergency event, provided that the facility has determined those areas to be reasonably safe for such access. Any failure to comply with these requirements exposes a covered industrial facility to potential liability for civil penalties.

On August 4, 2009, WVDHSEM filed with the West Virginia Secretary of State notice of an emergency rule, entitled the “Industrial Accident Rapid Response Rule” (the “Rule”), to implement the requirements of the new statute. Among other things, the Rule clarified the meaning of a covered “emergency event” by defining “unplanned event” as “an event that is not otherwise authorized or permitted pursuant to state and/or federal law or a planned event that results in unplanned consequences . . . that cannot be controlled within the parameters set forth for the planned event.”; The Rule also gave facilities the option to provide a written report to follow-up on the initial notification of an emergency event. Finally, the Rule outlined specific procedures for classifying and calculating appropriate civil penalties for violations of the statute’s reporting, communications or access requirements, as well as how any penalty may be adjusted by WVDSHEM or even waived.

On February 3, 2010, however, the Secretary of State announced that the Rule had expired, noting that WVDHSEM failed to file the agency-approved rule with the Legislative Rulemaking Review Committee within the timeframe required by the State Administrative Procedures Act.; Accordingly, the Rule was no longer effective as of December 3, 2009. The Secretary of State’s notice stated further that the Rule may not be refiled as an emergency rule if WVDHSEM wishes to pursue the rulemaking process for 170 CSR 2; rather, the agency must resubmit the entire Rule to the Secretary of State for another hearing and public comment period. WVDSHEM is attempting to address the expiration of the Rule through House Bill 4081, which would authorize the Rule as filed in the State Register on August 4, 2009, subject to a minor amendment.

Importantly, the requirements of the statute remain in force despite the expiration of the Rule. Oil and gas operations covered by the statute—i.e., those facilities required to submit an RMP under Section 112(r) of the Clean Air Act and those facilities that have received written notice from WVDHSEM of their coverage under the statute—remain subject to the 15-minute notification requirement and the event communications systems and access requirements, as well as the applicable civil penalties for failure to comply.

The Environmental and Safety Committee will continue to monitor this issue and will apprise IOGA members of future developments.

Please contact us if you have any questions.

The Spilman Environmental Practice Group
Katherine Crockett
304.340.3832
kcrockett@spilmanlaw.com