Mandatory Reporting of Greenhouse Gases

1200 Pennsylvania Ave., NW.

Attention: Docket ID [EPA–HQ–OAR–2008–0508; FRL–8782–1]

Subject: Mandatory Reporting of Greenhouse Gases

In addition to the specific comments made herein, we support those comments submitted by the Independent Petroleum Association of America, American Petroleum Institute, and the American Exploration and Production Council. 

The Environmental Protection Agency (EPA) is proposing a regulation to require reporting of greenhouse gas (GHG) emissions from all sectors of the economy.  The rule would apply to fossil fuel suppliers and industrial gas suppliers, as well as to direct greenhouse gas emitters. The proposed rule does not require control of greenhouse gases, rather it requires only that sources above certain threshold levels monitor and report emissions.  These comments will address several specific issues raised in the proposal that can have a compelling bearing on independent American natural gas and oil producers.

Several of the commenters that we support above raise serious issues regarding EPA’s

interpretation of its authority to create and implement the GHG reporting regulation.  We share those concerns.  More specifically, we question whether EPA has the authority to create the comprehensive program it proposes. EPA’s authority to require GHG reporting stems from the Consolidated Appropriations Act, 2008.  The relevant language from the Act is: Of the funds provided in the Environmental Programs and Management account, not less than $3,500,000 shall be provided for activities to develop and publish a draft rule not later than 9 months after the date of enactment of this Act, and a final rule not later than 18 months after the date of enactment of this Act, to require mandatory reporting of greenhouse gas emissions above appropriate thresholds in all sectors of the economy of the United States. Equally relevant, this language exists in an appropriations bill.  Appropriations bills do not provide broad and enduring authority for agencies to create new programs.  Rather, appropriations bills are time limited, creating funding and policy actions that cannot extend beyond the scope of the direction in the bill. For example, for many years Congress included a moratorium on the development of American offshore oil and natural gas resources in appropriations bills. But, because of the time limited nature of the appropriations bills, the moratorium had to be inserted for each fiscal year.  This GHG reporting requirement must be read in a similar context.  EPA has not done so. A logical reading of the language would conclude that EPA must create a GHG reporting requirement, but it is not a plausible reading to give EPA the sweep of authority that it implies in this proposal. It does create authority to build a massive, continuing reporting program; it does create authority to mandate extensive and costly monitoring. It does not grant EPA the ability to bootstrap this limited Congressional mandate into a major program through the contrived logic that Section 114 of the Clean Air Act can be used. As several other commenters have described, Section 114 does not apply in the context of the emissions reporting required by the Consolidated Appropriations Act, 2008, provision.  Perhaps most notably, Section 114 is limited to pollutants covered by the Clean Air Act.  The EPA is now in the process of proposing to find that GHG, primarily carbon dioxide, contribute to air pollution that may endanger public health or welfare. Prior to completing this action and concluding that GHG should be covered by the Clean Air Act, Section 114 cannot be applied and the extensive authority of that section is not applicable to this reporting mandate. In this context, the reporting requirements under the Consolidated Appropriations Act, 2008, should be limited to a one time effort utilizing available information.

We endorse the 25,000 tons/year reporting threshold for a facility. However, we are concerned about the scope of the facility definition. The proposed rule defines a facility as: Facility means any physical property, plant, building, structure, source, or stationary equipment located on one or more contiguous or adjacent properties in actual physical contact or separated solely by a public roadway or other public right-of-way and under common ownership or common control, that emits or may emit any greenhouse gas. Parts of the Clean Air Act define sources in the context of facilities; this definition defines facility in the context of a source.  That being stated, the fundamental issue is creating a framework where the reporter can understand, logically, that a discrete operation constitutes a facility.  This issue is particularly significant in the context of onshore petroleum and natural gas production facilities (see below).

We oppose the proposed requirement that once a facility reports, it must always report. In a larger context, we do not believe that the mandate under the Consolidated Appropriations Act, 2008, authorizes the creation of an ongoing reporting requirement. Nevertheless, petroleum and natural gas production operations change over time. In general, production operations decline as the petroleum and natural gas are extracted. Consequently, although a facility may meet the requirements of the threshold initially, it should not be compelled to report after it falls below the threshold. Moreover, production facilities are frequently shared by multiple operators and are regularly sold to other operators as companies shift their portfolios of properties. The industry has been described as a “food-chain” industry; smaller producers acquire properties from larger producers as they decline and become less profitable or inconsistent with the business plan of the larger company.  Burdening these transactions with the cost of reporting requirements on facilities that have fallen below the threshold is unreasonable.

We believe that including onshore petroleum and natural gas production facilities in the reporting requirements runs counter to EPA’s focus in this proposal.  EPA structured the proposal by selecting its 25,000 tons/year facility reporting threshold in part based on a cost effectiveness test to capture most of the GHG emissions while limiting excessive costs.  Despite this effort, under the current proposal 43 percent of the first year capital costs to comply with the rule will be borne by the petroleum and natural gas industry to report an estimated 3 percent of the nation’s GHG emissions. Expanding the reporting requirements to onshore facilities will dramatically increase these costs unnecessarily.

American petroleum and natural gas production comes from approximately 933,000 wells – roughly 500,000 oil wells and 433,000 natural gas wells. These facilities are spread across 33 states.  Offshore facilities would be within the scope of the reporting requirements.  EPA estimates that 50 offshore facilities would be covered under the 25,000 tons/year threshold.  If EPA were to expand the reporting requirements to onshore facilities, it is highly unlikely that any production well facility would meet the reporting threshold.  For example, approximately 85 percent of oil wells and 74 percent of natural gas wells are marginal wells producing less than 15 barrels/day of oil and 90 mcf/day of natural gas, respectively.  Most of these operations are owned by small businesses.  None of them would exceed the reporting threshold individually. EPA largely seems to recognize this reality when it states: …this segment is not proposed for inclusion primarily due to the unique difficulty in defining a ‘‘facility’’ in this sector and correspondingly determining who would be responsible for reporting. EPA has requested comments on how to define a facility for onshore petroleum and natural gas production and whether to require reporting on a basin level. We believe that the appropriate facility definition tracks the nature of the operation – essentially a well pad which may contain one or several wells and the attendant separation and storage facilities.  As we discussed above, these operations will fall well below the reporting threshold.  To approach the reporting on a basin level would result in compelling this industry to use a reporting threshold far below the 25,000 tons/year threshold required for other industries.  In essence, all production operations would have to determine emissions levels by whatever estimation or monitoring requirements would apply.  This would impose dramatically different costs.  To put all of this in some perspective, EPA’s INVENTORY OF U.S. GREENHOUSE GAS EMISSIONS AND SINKS: 1990-2007 (Released on April 15, 2009) would suggest that the GHG emissions from natural gas systems and petroleum systems account for roughly 2.3 percent of U.S. GHG emissions.  EPA suggests that about 27 percent of these emissions come from onshore petroleum and natural gas production operations – or roughly 0.6 percent of U.S. GHG emissions. There is no compelling rationale to justify imposing on this segment of American industry a far costlier reporting requirement, capturing hundreds of thousands of wells many owned by small businesses, solely for the purpose of minimally improving the U.S. GHG emission inventory. Moreover, there are clearly emissions estimating tools at work that have been used and can be improved without imposing these new requirements. If better estimates are needed for this small portion of the GHG inventory, EPA’s support documents present information that can draw a pathway.  EPA operates the Natural Gas Star program. It cites information in supporting documents to the current proposal indicating that Natural Gas Star has identified and to some degree determined what emissions areas at production facilities generate the most emissions.   Similarly, API is releasing a new version of its Compendium of Greenhouse Gas Emissions Estimation Methodologies for the Oil and Gas Industry.  These tools can be used to create reasonable average emissions projections for production facilities that could be linked to production volumes.  And, EPA could then improve its GHG estimates for onshore petroleum and natural gas production without imposing the costly reporting burdens that would result from inclusion of these operations in the reporting requirements.

We believe that EPA has exceeded its Congressional direction in the creation the current GHG reporting proposal.  Authority derived from appropriations bills is narrow and time limited.  It does not confer upon the Agency the capability to create an enduring reporting program. Moreover, the Agency’s use of Section 114 in the context of GHG that have not be covered by the Clean Air Act is incorrect and cannot be the basis for the expansive monitoring and reporting program in this proposal.  That being stated, we support the basic facility threshold for reporting as reasonably cost effective as long as the definition of facility is narrowly construed. However, we oppose the “once in – always in” provision because natural gas and petroleum production naturally declines over time and this requirement would impose a legacy reporting mandate no matter how small the emissions.  Finally, we oppose the addition of reporting requirements for onshore petroleum and natural gas production facilities because it would impose unnecessary burdens for emissions sources that are a small fraction of the total and we suggest that EPA can estimate these emissions without imposing such an unreasonable burden. If there are questions regarding these comments or if additional information is required, please contact Edward Cross at the Kansas Independent Oil & Gas Association (KIOGA) 785-232-7772.