On November 18, 2024, the Environmental Protection Agency (EPA) finalized its rule to implement the Inflation Reduction Act’s (IRA) Waste Emission Charge (WEC).[1] In the IRA, Congress directed EPA to impose and collect an annual charge on methane emissions from large emitters in the oil and natural gas sector.[2] Clean Air Act (CAA) section 136 applies the WEC to oil and natural gas facilities that report methane emissions of more than 25,000 metric tons of carbon dioxide equivalent per year to the Greenhouse Gas Reporting Program (GGRP) beginning in 2024.[3] If such facilities exceed specific emissions performance levels, the fee in 2024 starts at $900 per metric ton of methane, increasing to $1,200 per metric ton in 2025 and $1,500 per metric ton in 2026 and thereafter.[4]
EPA’s final rule provides implementation details consistent with CAA section 136 and, as EPA explains, Congress’s intent to “incentivize a variety of near-term actions to reduce methane emissions from oil and natural gas operations while the EPA and States work to implement the EPA’s recently finalized CAA section 111 methane standards.”[5]
In this legal analysis, we explain the changes EPA made in its final rule in response to public comments and EPA’s reasoning for the changes, which include adjustments to the emissions netting provisions and the conditions required to make exemptions available to emitters.
This final rule will fall within the 60 legislative day window of the Congressional Review Act.[6] Given the upcoming political shift for Congress and the White House the rule’s fate remains to be seen. We will track any legislative, litigation, and regulatory steps the Trump administration may initiate.[7]
EPA’s Related Rulemakings
This final WEC rule is part of a series of regulatory steps directed by Congress in the IRA, which also includes two previously finalized rules for oil and natural gas sources related to reducing and reporting methane emissions. EPA explains in the WEC rule that Congress intended for these rules to work together to reduce methane emissions from the oil and natural gas sector.[8]
In December 2023, EPA finalized the Standards of Performance for New, Reconstructed, and Modified Sources (NSPS) and Emission Guidelines (EG) for Existing Sources: Oil and Natural Gas Sector Climate Review (NSPS OOOOb/EG OOOOc) under sections 111(b) and (d) of the CAA.[9] This rule requires owners and operators to install emission control technologies and to increase monitoring for unintended methane emission leaks with options to use advanced technologies. Congress designed some of the regulatory exemptions for the WEC to be available only if EPA finalized OOOO rules that were at least as stringent as EPA’s 2021 proposed OOOO rule.[10]
Congress also directed EPA to revise the GHG emissions reporting rules for the oil and natural gas sector to “improve the accuracy of reported emissions and to incorporate empirical data.”[11] In May 2024, EPA finalized updates to the reporting rules, known as subpart W under the Greenhouse Gas Reporting Program (GHGRP),[12] and the WEC fees are based on these reported emissions.
EPA explains the connection among the three rules, stating that “the sooner facilities adopt the methodologies and technologies required in those [two other related] rules, the lower their assessed WEC; at full implementation of those rules, the EPA expects many of the WEC-affected facilities will be below the WEC emissions thresholds.”[13] EPA states that the final WEC rule is “an important piece of a comprehensive national strategy established by Congress via the IRA to reduce methane emissions.”[14]
Key Components of EPA’s Final Rule and Notable Changes from Proposal
CAA section 136 includes the central components of the WEC program: 1) waste emissions thresholds; 2) the ability to net emissions across different facilities; and 3) exemptions for certain emissions and facilities.[15] EPA’s final rule provides implementation details based on the language and objectives of CAA section 136.[16]
Waste Emissions Thresholds
The waste emissions threshold is a “facility-specific amount of metric tons of methane emissions calculated using the methane intensity thresholds specified by Congress in CAA section 136(f)(1) through (3) and a facility’s natural gas throughput (or oil throughput in certain circumstances).”[17] The WEC only applies to a facility’s emissions above the waste emissions threshold.[18]
Netting
CAA section 136(f)(4) allows facilities subject to the WEC that are under “common ownership or control” to net their total emissions, potentially lowering their WEC obligation by accounting for facility emissions levels below the applicable thresholds at the applicable segments of the oil and natural gas industry listed in section 136(d).[19]
In the final rule, EPA expanded the business operational level that can use the netting process rule to include facilities under common ownership or control at the parent company level, not just owners and operators of individual facilities as proposed.[20] In comments on the proposed rule, stakeholders urged EPA to broadly read section 136(f) to allow netting at the parent company ownership level.[21] EPA notes in the final rule that many commenters argued that such a reading would incentivize emission reductions by allowing companies to take advantage of cost-effective reduction opportunities across their entire operations.[22] Commenters also cautioned that restricting the netting provisions to a facility’s direct owner or operator was inconsistent with the intent of the provision as parent companies also have common ownership and control of their facilities through their subsidiaries.[23] EPA explains, “these final regulations reflect that the best reading of the statute entails a broader interpretation of the term ‘common ownership or control’, so the final rule expands the use of netting to the parent company level by allowing owners and operators with a common parent to transfer negative emissions amongst each other.”[24]
Exemptions
Congress created three exemptions that may lower a facility’s WEC obligation or exempt the facility entirely from the charge. EPA anticipates that over time fewer facilities will be charged the fee because they will fall under the exemptions.[25]
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- Unavoidable Delays: EPA exempts facilities from the WEC if emissions occurred at the facility because of unavoidable delays in “environmental permitting of gathering or transmission infrastructure” pursuant to CAA section 136(f)(5).[26]
- Regulatory Exemption: EPA exempts facilities that are subject to and in compliance with final methane emissions requirements promulgated pursuant to CAA sections 111(b) and (d) pursuant to CAA section 136(f)(6).[27]
- Plugged Wells: EPA exempts emissions from wells that are permanently shut in and plugged pursuant to CAA section 136(f)(7).[28]
EPA made two significant changes from the proposal for the regulatory exemption: the timing for when facilities can be eligible for the exemption and the scope of the exemption.
Timing for When the Regulatory Exemption is Available
The final rule allows facilities to qualify for the exemption if they are in a state which submits, and EPA approves, the state’s plan to fully implement the methane emissions requirements promulgated pursuant to CAA sections 111(d). In contrast, the proposal would have only allowed the exemption once EPA had approved state plans for all states.[29]
EPA explains in the final rule that the timing change “better align(s) with Congress’ purpose to incentivize States to move promptly toward full implementation of the CAA section 111 program, and to motivate regulated facilities to achieve emissions reductions as quickly as possible.”[30] EPA also notes that that with the change, the final rule “better aligns with the statutory purpose” because lagging states will not cause a national delay of the implementation of the exemption.[31]
However, the final rule does not allow the regulatory compliance exemption for facilities until after the date their state’s plan requires facilities in the state to be in compliance. The proposed rule had allowed a facility to be eligible for the exemption once EPA approved the state’s plan.[32]
EPA states that these two timing changes will incentivize states to quickly create implementation plans and encourage facilities to meet state plan compliance deadlines, which has the effect of “tying the exemption to the date actual emissions reductions are achieved as Congress intended.”[33]
Scope of the Regulatory Exemption
In the final rule, EPA agreed with commenters who suggested the proposed rule unfairly limited the potential application of the regulatory exemption because any violation of the regulations, no matter how minor, would cause a facility to lose the right to the exemption.[34] As a result, the final rule limits the categories of violations that will cause a facility to be disqualified from using the regulatory exemption to those that are likely to cause increased emissions.[35] Disqualifying violations include “self-reported noncompliance, noncompliance with monitoring requirements, emission limits and any surrogate limits, operating limits (including operating parameter limits), and work practice standards – the categories of noncompliance most likely to result in emissions increases.”[36] The final rule makes clear that any violations adjudicated in an administrative or judicial action at the federal or state level also will disqualify a facility from taking advantage of the regulatory exemption.[37]
The final rule also reduces the length of time for which the exemption would be unavailable because of noncompliance by limiting the period of time to a quarter of a calendar year.[38] EPA reasons that because “Congress did not specify how long a WEC applicable facility would lose the exemption for in the event of noncompliance”, a quarterly period is reasonable.
Regarding which parts of a facility lose the regulatory exemption from noncompliance, EPA retained its proposed approach for WEC applicable facilities in the natural gas processing, transmission compression, and underground storage industry segments. Thus, any noncompliance within these WEC applicable facilities will result in the entire WEC applicable facility losing the regulatory compliance exemption.[39] However, for noncompliance by a WEC applicable facility specific to the onshore production and gathering and boosting industry segments, the final rule notes that “EPA appreciates that in the case of basin-wide facilities, because these facilities are so vast—often containing thousands of CAA section 111 facilities—and because there are numerous ways in which any one of these CAA section 111 facilities can be in noncompliance at any one time, universal compliance for every single CAA section 111 facility would be very challenging for basin-wide facilities.”[40] In order to avoid a scenario that EPA calls an “absurd result” that would be inconsistent with Congressional intent, the final rule limits the loss of the exemption to the site-level rather than the facility-level for the gathering and boosting segments.[41]
[1] EPA, Waste Emissions Charge for Petroleum and Natural Gas Systems: Procedures for Facilitating Compliance, Including Netting and Exemptions (“WEC Final Rule”), 89 FR 91094, 40 CFR Parts 2, 98, and 99, (Nov. 18, 2024), https://www.govinfo.gov/content/pkg/FR-2024-05-14/pdf/2024-08988.pdf. See EELP’s article analyzing the proposed rule at https://eelp.law.harvard.edu/wp-content/uploads/2024/08/Analysis-of-EPA-Waste-Emission-Charge-Proposal.pdf. The proposed rule is at https://www.federalregister.gov/documents/2024/01/26/2024-00938/waste-emissions-charge-for-petroleum-and-natural-gas-.
[2] Id at 91095. EPA states that “[O]il and natural gas facilities are the nation’s largest industrial source of methane, a greenhouse gas (GHG) that is 28 times more potent than carbon dioxide (CO2) and is responsible for approximately one third of all warming resulting from anthropogenic emissions of greenhouse gases.”
[3] Id. at 91094.
[4] Id. at 91096.
[5] Id. at 91095.
[6] The Congressional Review Act (CRA) provides for congressional oversight of federal agencies’ rules. The CRA requires federal agencies to submit a report on each new rule to both houses of Congress before the rule can take effect. If Congress does not approve of a new rule, it can enact a joint resolution of disapproval eliminating the rule. A disapproved rule may not be reissued in substantially the same form absent a statutory change. The joint resolution of disapproval must be introduced within a 60 legislative day period beginning when the rule was first submitted to Congress for review. Additionally, if a rule is submitted with fewer than 60 days left in the Congressional session, the next Congress has an opportunity to review the rule.
[7] For a chronological summary of oil and gas sector methane regulations see EELP’s Regulatory Tracker page “VOC and Methane Standards for Oil and Gas Facilities” at https://eelp.law.harvard.edu/tracker/epa-voc-and-methane-standards-for-oil-and-gas-facilities-2/.
[8] Id. at 91095. “As Congress intended, the WEC, including the provisions finalized in this final rule, will incentivize a variety of near-term actions to reduce methane emissions from oil and natural gas operations while the EPA and States work to implement the EPA’s recently-finalized CAA section 111 methane standards.”
[9] Standards of Performance for New, Reconstructed, and Modified Sources (NSPS) and Emission Guidelines (EG) for Existing Sources: Oil and Natural Gas Sector Climate Review (NSPS OOOOb/EG OOOOc), 40 CFR Part 60 (Dec. 2023), at https://www.epa.gov/system/files/documents/2023-12/eo12866_oil-and-gas-nsps-eg-climate-review-2060-av16-final-rule-20231130.pdf.
[10] See 42 U.S.C. 7436(f)(6)(A)(ii). EPA’s final OOOO rules are designed to meet these requirements.
[11] Id.; WEC Final Rule at 91099.
[12] EPA, Greenhouse gas Reporting Rule codified at 40 CFR part 98, subpart W at https://www.federalregister.gov/documents/2024/05/14/2024-08988/greenhouse-gas-reporting-rule-revisions-and-confidentiality-determinations-for-petroleum-and-natural
[13] EPA, Waste Emissions Charge for Petroleum and Natural Gas Systems (“WEC Proposed Rule”), 89 FR 5318 (Jan. 26, 2024) at 5320, https://www.federalregister.gov/documents/2024/01/26/2024-00938/waste-emissions-charge-for-petroleum-and-natural-gas-systems#:~:text=The%20sooner%20facilities%20adopt%20the,below%20the%20WEC%20emissions%20thresholds.
[14] WEC Final Rule at 91096.
[15] Id. at 91096-7. EPA notes that “[t]he WEC therefore incentivizes more efficient operations because the charge applies only to the least efficient and most wasteful of oil and gas facilities (and only to the subset of their emissions that exceed thresholds and are not exempt).”
[16] See 42 U.S.C. 7436(f)(1)-(3).
[17] WEC Final Rule at 91096.
[18] Id. at 91097.
[19] Id. at 91109. “In calculating the total emissions charge obligation for facilities under common ownership or control, the Administrator shall allow for the netting of emissions by reducing the total obligation to account for facility emissions levels that are below the applicable thresholds within and across all applicable segments identified in subsection (d).” 42 U.S.C. 7436(f)(4).
[20] Id. at 91098-9.
[21] Id.
[22] Id.
[23] Id.
[24] Id. at 91098.
[25] Id.
[26] “Charges shall not be imposed pursuant to paragraph (1) on emissions that exceed the waste emissions threshold specified in such paragraph if such emissions are caused by unreasonable delay, as determined by the Administrator, in environmental permitting of gathering or transmission infrastructure necessary for offtake of increased volume as a result of methane emissions mitigation implementation… EPA interprets ‘gathering or transmission infrastructure necessary for offtake’ to include gathering and transmission pipelines and compressor stations, and ‘increased volume as a result of methane emissions mitigation implementation’ to include increased amounts of natural gas at on- or offshore production facilities available for transport that would have otherwise been emitted if not for an unreasonable delay in the environmental permitting of offtake infrastructure.” Id. at 91117; 42 U.S.C. 7436(f)(5).
[27] “Charges shall not be imposed pursuant to subsection (c) on an applicable facility that is subject to and in compliance with methane emissions requirements pursuant to subsections (b) and (d) of section 7411 of this title upon a determination by the Administrator that – (i) methane emissions standards and plans pursuant to subsections (b) and (d) of section 7411 of this title have been approved and are in effect in all States with respect to the applicable facilities; and (ii)compliance with the requirements described in clause (i) will result in equivalent or greater emissions reductions as would be achieved by the proposed rule entitled Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources only if a determination is made by the Administrator that such final requirements are approved and in effect in all States with respect to the applicable facilities, and that the emissions reductions resulting from those final requirements will achieve equivalent or greater emission reductions as would have resulted from the EPA’s methane emissions requirements proposed in 2021.” Id. at 91118;42 U.S.C. 7436(f)(6)
[28] “…[A] permanently shut-in and plugged well is one that has been permanently sealed to prevent any potential future leakage of oil, gas, or formation water into shallow sources of potable water, onto the surface, or into the atmosphere.” Id. at 91141.
[29] EPA explains that this approach is “both a better reading of the law and has greater fidelity to the Congressional purpose. Industry commenters emphasized that a State-by-State approach would incentivize States to move quickly to develop and submit approvable State plans implementing the section 111 emissions guidelines, furthering Congress’s intent in enacting the compliance exemption. Making the compliance exemption available to facilities in a State as soon as all CAA section 111(b) and (d) facilities within that State are subject to all of their applicable methane emissions requirements will provide an incentive for every State to move expeditiously and avoid delays in effectuating the compliance exemption that might occur if the slowest State sets the pace.” Id. at 91098.
[30] Id. at 91097.
[31] Id.
[32] Id. at 91132-3.
[33] Id.
[34] Id. at 91123
[35] Id.
[36] Id.
[37] Id.
[38] Id. at 91136.
[39] Id. at 91133.
[40] Id. at 91135.
[41] Id.