Proposed EPA Methane Regulations Will Add Costly Requirements to Upstream Operations

(Federal GHG Regulations) Permanent link

The Oil & Gas Journal recently published an article by V&E partner Larry Nettles and V&E associate Corinne Snow in which they discuss EPA’s newly proposed regulations for methane and volatile organic compound (VOC) emissions and their effect on cost and operations in the upstream market:

The US Environmental Protection Agency (EPA) has proposed regulations for methane and volatile organic compound (VOC) emissions from the oil and gas industry that would place a number of new requirements on upstream operations, including capturing or combusting emissions during well completions, monitoring for fugitive emissions from equipment leaks, and making needed repairs. EPA also proposes to change how an oil and gas source is defined in ways that could put additional permitting burdens on upstream operations. Collectively, these regulations and changes could have widespread, costly, and time-consuming effects on upstream oil and gas operations. To read the entire article, follow this link.

Posted on 02/08/2016 3:33 PM

Supreme Court Denies Cert. in Greenhouse Gas Permitting Case

(Federal GHG Regulations, Litigation) Permanent link

Last week, the Supreme Court denied review of the D.C. Circuit’s April 2015 decision on remand from the Supreme Court’s decision in Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014) (“UARG”). The effect of this denial is to leave in place the D.C. Circuit decision allowing the EPA-intended permitting requirements for “anyway sources” to remain in effect pending EPA’s revisions of its rules to codify those requirements. Under that regime, proposed sources and modifications that are “major” for any other pollutant have to undergo Prevention of Significant Deterioration review for greenhouse gases (GHG) if emitted in amounts above 75,000 tons/year.

Although the Supreme Court’s 2014 opinion in UARG v. EPA declared unlawful the EPA’s Clean Air Act permitting rules to the extent that they would trigger permitting based on GHG emissions alone, the Court left open the door for EPA to include GHG emissions for sources that would require major source permitting “anyway.” Because the Supreme Court was unclear as to whether the current EPA program for these so-called “anyway sources” should be left in place, a number of petitioners sought relief in the guise of “motions to govern” the proceedings at the D.C. Circuit on remand from the Supreme Court. It was the D.C. Circuit’s April 2015 refusal to vacate the pre-existing EPA rules for anyway sources that led the Energy-Intensive Manufacturers Working Group (“Working Group”) to file a petition seeking Supreme Court review. 

The Working Group, an industry group representing iron, steel, paper, aluminum, glass, cement, and chemical interests, argued that the D.C. Circuit should have vacated the existing regulations, and EPA should be required to conduct new rulemaking if it wants to regulate greenhouse emissions from anyway sources. On January 19, 2016, the Court rejected the petition without comment, leaving in place EPA’s current approach for regulating greenhouse gas emissions from anyway sources. 

As explained in a previous post, EPA released a memorandum providing initial guidance on GHG permitting following the Court’s decision in UARG v. EPA in 2014. That guidance remains operative while EPA undertakes rulemaking (in no particular hurry) to adjust its rules accordingly. 

Posted by Lauren Sidner at 01/27/2016 12:20 PM

BLM Wants Royalties for Natural Gas Lost to Venting, Flaring, and Leaks on Federal Land

(Federal GHG Regulations) Permanent link

On January 22, 2016, the Bureau of Land Management (BLM) released a proposed rule aimed at reducing natural gas lost through natural gas venting, flaring, and equipment leaks from both new and existing production activities on federal lands. Except where gas loss is “unavoidable,” as defined by the proposed rule, operators would be charged royalties on natural gas losses from onshore federal and Indian mineral leases administered by BLM. BLM is also revising its royalty regulations to allow the agency to raise royalty rates above the current 12.5 percent levels on competitive leases if it wishes to do so in the future.

BLM will accept public comment on this proposal for 60 days after its publication in the Federal Register. This proposed rule is part of a suite of Obama Administration rules affecting the oil and gas sector that are slated to be finalized before the Administration’s second term ends.

Read entire article here. 

Posted by Corinne Snow at 01/26/2016 1:00 PM

Pennsylvania Governor Announces Plan for Regulating Methane Emissions from the Oil and Gas Industry

(Federal GHG Regulations) Permanent link

On January 19, 2016, Pennsylvania Governor Tom Wolf announced a plan to reduce methane emissions from oil and gas operations within the state, based on their contribution to climate change.

Unlike EPA’s recent proposed methane New Source Performance Standards (NSPS), the Pennsylvania plan would impose requirements on both new and existing sources in the oil and gas sector. The Pennsylvania plan also proposes to regulate oil and gas operations, such as liquids unloading, which were not included in EPA’s proposal. The Governor’s four point plan aims to reduce:

  1. leaks at new unconventional natural gas well pads, through new permit requirements that include Best Available Technology (BAT) for equipment and processes, better record-keeping, and quarterly monitoring inspections;
  2. leaks at new compressor stations and processing facilities, by applying more stringent leak detection and repair (LDAR) requirements;
  3. leaks at existing oil and natural gas facilities through new regulations; and
  4. emissions along production, gathering, transmission and distribution lines by establishing non-binding best management practices, including LDAR programs.

Read entire article here. 

Posted by Corinne Snow at 01/26/2016 2:00 PM

EPA’s Strategic Sustainability Performance Plan to Reduce Agency Greenhouse Gas Emissions

(Federal GHG Regulations, Renewable Fuel Standards and Biofuels) Permanent link

In the fifth post of our series on federal agency Strategic Sustainability Performance Plans (“SSPPs”), we discuss EPA’s plan to achieve the environmental and sustainability goals associated with President Obama’s March 2015 executive order 13693. As explained in the initial post on this topic, the goals of the executive order include a target to reduce overall greenhouse gas (“GHG”) emissions from federal agencies by at least 40 percent by 2025. Published in June 2015, EPA’s SSPP incorporates a number of ongoing Agency strategies for integrating GHG emissions reduction, energy efficiency, sustainable buildings, water conservation, and other efforts. According to EPA, the Agency achieved or surpassed nearly all federal sustainability goals established by previous executive orders 13514 and 13423 and the Energy Independence and Security Act of 2007, and it has plans in place to achieve the goals set in executive order 13693.

EPA’s top ten sustainable performance strategies focus on GHG reduction, sustainable buildings, renewable energy, water use efficiency and management, fleet management, sustainable acquisitions, pollution prevention and waste reduction, energy performance contracts, electronic stewardship and data centers, and climate change resilience. Below are the climate-change focused SSPP goals as well as EPA’s strategies and challenges to meeting those goals.

Goals and Actions

GHG Emission Reduction

  • EPA has already reduced Scope 1 (direct GHG emissions from sources owned or controlled by EPA), Scope 2 (GHG emissions from generation of electricity, steam, or heat purchased by EPA), and Scope 3 GHG emissions (GHG sources not owned or directly controlled by EPA) by almost 60% for Scope 1 and 2 and 46% for Scope 3 below their 2008 baselines in 2014—beating the emissions reduction goal of 25% by 2025.
  • EPA expects to make further progress in reducing its Scope 1 and Scope 2 emissions as a result of implementing energy conservation projects, consolidating laboratory infrastructure, and continuing its investment in green power and renewable energy credits.
  • EPA anticipates reducing its Scope 3 emissions through its office consolidation efforts. This includes the continuance of its telework program, which decreases GHG emissions because employees commute to work less frequently.

Renewable Energy

  • The executive order calls for agency buildings to obtain 30 percent of their power from renewable energy by 2025. According to EPA, in 2006 it became the first federal agency to purchase green power equivalent to 100% of the Agency’s estimated annual energy use. In the upcoming year it will continue to purchase renewable energy credits (“RECs”) and other forms of green power, including plans to complete a REC purchase with DLA Energy.
  • In 2014, onsite renewable energy resources supplied EPA with 5.3 billion British thermal units, which is 0.43 percent of the Agency’s annual energy use. The Agency continues to pursue onsite renewable energy projects such as installation of a 1.5 megawatt solar array at its Edison, New Jersey laboratory in 2016.

Fleet Management

  • The executive order requires agencies to develop fleet efficiency management tools within two years of the order and to reduce fleet-wide per-mile GHG emissions relative to 2014 baseline emissions by 4 percent by 2017, 15 percent by 2021, and 30 percent by 2025. In addition, zero emission or hybrid vehicles must account for 20 percent of all new agency passenger vehicle acquisitions by 2020 and 50 percent of such vehicles by 2025.
  • The EPA reduced its fleet-wide petroleum consumption by 44 percent from 2005 to 2014. The value of this reduction may be limited by the fact that the Agency has steadily reduced its fleet size down to only 1,007 vehicles in 2014. To comply with the new requirements of the executive order, EPA is acquiring zero-emission and hybrid electric vehicles and has already met the requirements to fully integrate fleet data into the Agency fleet management information system, the Federal Automotive Statistical Tool, FleetDASH, and the Federal Motor Vehicle Registration System.

EPA 2015 Strategic Sustainability Performance Plan, June 20, 2015

Climate Change Resilience

  • The executive order calls on the agencies to improve building efficiency, performance, and management through “the incorporation of climate-resilient design and managements elements into the operation, repair, and renovation of existing agency buildings and the design of new agency buildings.”
  • EPA developed and is now implementing an Agencywide Climate Change Adaptation Plan and released 17 Climate Change Adaptation Implementation Plans prepared by its National Environmental Program Offices, its 10 regional offices, and several of its National Support Offices. In addition to EPA’s adaptation plans, the SSPP outlines goals and achievements related to these measures, including developing tools to support climate adaptation planning and implementing a continuity of operations plan to address natural disasters that could interrupt Agency operations.
  • In 2015, EPA conducted climate resiliency tests at several of its laboratories to assess facility-specific vulnerabilities to severe weather events and determine ways to enhance facility resilience.

Challenges

EPA found that having a pipeline of established facility specific energy and water conservation projects has assisted the Agency with achieving and often exceeding its facility sustainability goals. However, EPA’s ability to design and fund many of the major projects that are necessary to continue to meet the increasingly stringent performance requirements is hindered by funding constraints. Previously, EPA has focused on the low hanging fruit—lower cost projects with the highest return on investment—but the Agency believes it now must focus on more resource-intensive projects to meet the federal goals going forward.

EPA cites to the lack of funding for energy conservation measures, sustainable building improvement projects, and space consolidation projects as the biggest obstacles to achieving its facility GHG reduction, energy efficiency, and water conservation goals. The Agency is seeking innovative ways to fund major projects so it can continue to meet its goals and realize additional savings.


Posted at 01/06/2016 10:06 AM

Renewable Energy Tax Credits Extended

(Renewable Fuel Standards and Biofuels) Permanent link

On December 18, 2015, President Obama signed the Consolidated Appropriations Act, 2016 (the “Act”). As part of a heavily negotiated Congressional bargain to lift the crude oil export ban, the Act includes provisions that extend certain tax credits for renewable energy under the Internal Revenue Code of 1986, as amended (the “Code”), including the credits for wind and solar energy. The extension of these credits is expected to continue the significant growth in renewable energy projects constructed in the United States through the end of this decade. Many wind and solar developments had been placed on hold as only wind projects that had begun construction in or prior to 2014 and solar projects that would commence operations no later than December 31, 2016, would have qualified for tax credits under prior law.

Limited Five-Year Extension and Phaseout of Wind Facilities’ Production Tax Credit and Option to Elect the Investment Tax Credit

The Act includes a retroactive five-year extension, through December 31, 2019, of production tax credits (PTCs) for the production of electricity from wind energy. However, the inflation-adjusted credit rate for facilities that begin construction after December 31, 2016, will be reduced. The credit rate for facilities that begin construction in 2017 will be reduced by 20 percent, and the credit rates for facilities that begin construction in 2018 and 2019 will be reduced by 40 and 60 percent, respectively. The election to claim the investment tax credit (ITC) in lieu of PTCs for wind projects has also been extended for five years, and the same phase-out percentages apply.

Although the Act does not define when construction begins, IRS Notice 2013-29 (the “Notice”) states that construction of a qualified facility begins when “physical work of a significant nature begins.” Under the Notice, preliminary activities (such as planning or designing, licensing, obtaining permits, clearing a site, excavation to change the contour of the land or conducting surveys) will not qualify as physical work of a significant nature, regardless of the cost. The Notice explicitly states that beginning excavation of foundations, setting anchor bolts into the ground, or pouring concrete pads of the foundation will all constitute “beginning construction.” The Notice also provides an alternative safe harbor under which construction of a facility will be considered as having commenced if a taxpayer pays or incurs five percent or more of the total cost of the facility, not including land or any property not integral to the facility, and thereafter the taxpayer makes continuous efforts to advance towards completion of the facility.

Five-Year Extension and Phasedown of the Solar Investment Tax Credit

The Act includes a five-year phased extension of the 30 percent ITC for solar energy property, which under prior law would have dropped to 10 percent beginning in 2017. To be eligible for the 30 percent credit, solar energy property must have begun construction before January 1, 2020, and be placed in service before January 1, 2024. Under prior law, the 30 percent ITC was available only for property that was placed in service before January 1, 2017. The adoption of the “beginning construction” standard gives solar developers more flexibility and a longer time frame in which to complete construction. Under a phase-down rule, the credit rate for solar property that begins construction during calendar year 2020 will be 26 percent and for property that begins construction during calendar year 2021 the ITC rate will be 22 percent. Any property that is not placed in service before January 1, 2024, will continue to be eligible for a 10 percent ITC. 

Potential Five-Year Extension for Fuel Cells and Certain other Renewable Resources

House Minority Leader Nancy Pelosi stated that because of a drafting error, the five-year extensions of ITCs and PTCs did not include fuel cells, geothermal, and certain other renewable energy resources. Both Representative Pelosi and House Ways and Means Committee Chairman Kevin Brady stated that the decision to extend fuel cell, geothermal, micro-turbine and combined heat and power tax credits will be revisited before the credits expire on December 31, 2016. Although the Act did not provide a five-year extension for these credits, geothermal energy and certain other section 45 credits (discussed below) were extended for two years under the “extenders” bill. 

Two-Year Retroactive Extensions of Tax Credits for Renewable Energy Resources other than Wind

The Act includes a two-year retroactive extension of PTCs for other forms of renewable energy, including open- and closed-loop biomass, geothermal energy, landfill gas, trash facilities, hydropower, and marine and hydrokinetic facilities. Under this extension, PTCs will be available for such facilities that begin construction before January 1, 2017. The election to claim the ITC in lieu of PTCs for these facilities has also been extended for two years.

Two-Year Extensions for Other Energy Credits

Other energy tax credits have also been extended for two years, including the credits for biodiesel and renewable diesel fuels, alternative fuels, second generation biofuels, Indian coal, energy-efficient properties, alternative fuel vehicles and plug-in vehicles.

Extension and Phasedown of Bonus Depreciation

The Act extends bonus depreciation to property placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation rate for property placed in service during 2015, 2016 and 2017 is 50 percent. The rate is reduced to 40 percent in 2018 and 30 percent in 2019. 

Bonus depreciation is available for use on assets with a Modified Accelerated Cost Recovery System (MACRS) recovery period of twenty years or less. Under MACRS, most renewable energy property has a five-year recovery period, including solar, wind, geothermal, combined heat and power, fuel cell and microturbine property, as well as renewable energy generation property that is part of a “small electric power facility” and certain biomass property.

Impact on the Renewable Energy Industry

The renewable energy industry has experienced numerous boom and bust cycles as a result of past tax credit extensions which only lasted for one or two years. The industry has pushed for a longer term extension that would give developers more certainty and ability to plan ahead, and the five-year extension in the Act does just that. The phasedown of tax credits for wind and solar property provides incentives for developers to begin construction of projects before the phasedown period begins, but also allows projects which are further away from construction to benefit from the reduced tax credits. Finally, the Clean Power Plan may also provide new types of incentives for renewable generation, and these incentives would begin right around the time when the tax credits are phasing out.

Posted by Becky Diffen at 01/04/2016 2:45 PM

Happy Holidays

 Permanent link
The writers of the Climate Change Blog and all of us at V&E wish you a safe and joyous holiday season. We will be taking some time away from the blog, but will return the week of January 4, 2016.
Posted by Corinne Snow at 12/23/2015 10:30 AM