Over the last few months, the EPA has proposed important changes to Subpart W of the Mandatory Reporting of Greenhouse Gases Rule (Mandatory Reporting Rule or MRR).1 In addition, the EPA finalized provisions that broadly expand the ability of covered entities to use best available monitoring methods (BAMMs) for compliance in the 2011 reporting year. These changes take important steps to reduce the reporting burden, but numerous compliance challenges remain.

The Mandatory Reporting Rule requires owners and operators of facilities in 45 covered industries to report their greenhouse gas (GHG) emissions to the EPA. The MRR provides rules for all industries subject to reporting and uses industry-specific subparts to detail the precise requirements for measuring, monitoring, and reporting GHG emissions. The GHGs under the Mandatory Reporting Rule are defined to include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and the fluorinated hydrocarbons.

Subpart W covers oil and gas production and distribution. Beginning on January 1, 2011, the following eight sectors were required to initiate monitoring and report their 2011 GHG emissions to the EPA by March 31, 2012:2

  • Offshore Petroleum and Natural Gas Production: includes any platform, structure, or associated structure (including tanks and walkways) affixed to offshore submerged lands for the purposes of extracting, processing, and transferring hydrocarbons.
  • Onshore Petroleum and Natural Gas Production: includes all equipment on or associated with a well pad used in the production of petroleum or natural gas as well as equipment for enhanced oil recovery.
  • Onshore Natural Gas Processing: includes all processing facilities as well as the capture of CO2 separated from natural gas streams and GHG emissions from gathering lines and boosting stations. All processing facilities that fractionate or have a throughput of at least 25 million cubic standard feet (MMscf) per day are covered.
  • Onshore Natural Gas Transmission Compression: includes all stationary compressors that move natural gas at elevated pressure in transmission lines from fields or production facilities to distribution pipelines or storage.
  • Underground Natural Gas Storage: includes any subsurface storage where gas has been transferred from its original location. This category also includes all wellheads connected to compression units located at the storage facility.
  • Liquid Natural Gas (LNG) Storage: includes all onshore above ground LNG storage vessels as well as equipment associated with liquefying and regassifying LNG.
  • LNG Import and Export Facilities: includes all equipment that receives LNG by ocean transport and delivers natural gas to the transmission and distribution system as well as equipment that receives natural gas and liquefies it for ocean transport.
  • Natural Gas Distribution Facilities: covers all distribution pipelines and metering and regulating equipment that physically deliver natural gas to end users (does not include individual meters on end users' properties).

In general, the MRR requirements apply to facilities whose GHG emissions exceed 25,000 mtCO2e/y,3 as well as certain other facilities expressly specified in the regulations. The Subpart W rules require monitoring of GHG emissions from covered facilities on January 1, 2011, with the first annual report, covering 2011 emissions, due to EPA by March 31, 2012.

As finalized, the original Subpart W rule raised a number of concerns and compliance challenges. Most significantly, many of the new measurements required to estimate GHG emissions were seen as difficult, if not impossible, to complete in the first year of reporting. Some measurements required the installation of costly new equipment, while others proved dangerous or technically impossible. In addition, some aspects of the rule, most notably the requirement to collect data at the field level, proved confusing. In response to petitions for reconsideration filed by a number of industry groups, the EPA has proposed a series of rules to modify Subpart W's requirements intended to collect the high-quality data EPA seeks while easing the data collection burden on covered sectors.

New Rules for the Use of BAMMs

On September 27, 2011, the EPA finalized amendments to Subpart W that extend the amount of time in which BAMMs can be used for certain required measurements under the rule.4 Under the final rule, BAMMs may be used to estimate any parameter required for the calculation of GHG emissions during the 2011 reporting year without prior approval of the EPA.5 In order to use BAMMs after 2011, owners and operators of covered sources must submit a notice of intent to use BAMMs to EPA by December 31, 2011. After submitting the notice of intent, owners and operators have until March 30, 2012, to submit a BAMM request, which can automatically be used without approval through June 30, 2012. Between March 30 and June 30, 2012, EPA will review those BAMM requests seeking permission to use the BAMM for a longer period of time. Upon EPA approval, a requested BAMM may be used for the time period indicated by EPA, which is not to extend beyond December 31, 2012.

While EPA does not expect that it will be necessary, the new BAMM rule does include provisions for requests to use BAMMs beyond 2012.6 Any owner or operator that wishes to use BAMMs in 2013 or later must file a BAMM request by September 30 of the preceding year for EPA review. The BAMM request may be approved by the EPA if the Administrator is satisfied that the owner or operator is faced with unique or unusual circumstances.7 The rule provides examples of "unique or unusual circumstances," including safety concerns associated with data collection methods.8 The preamble further clarifies the criteria for approval, noting that BAMM will be approved in unique or unusual circumstances, but that "extreme" circumstances are not required, as suggested by the initial rule.9

The new BAMM rule provides a significant expansion of the flexibility granted to owners and operators to use available data and estimation techniques in their GHG emissions calculations. Under the original rule, BAMMs were only automatically available for well-related emissions and specified activity data and were set to expire by June 30, 2011.10 The original rule permitted the use of BAMMs for leak detection until the end of 2011, but these BAMMs were only available upon request to, and with approval granted by, the EPA.11

Proposal to Extend the Reporting Deadline and Make Technical Corrections to the Rule

On August 4, 2011, the EPA proposed technical modifications to several subparts of the MRR including Subpart W.12 Most importantly, the proposal seeks comment on extending the submission deadline for 2011 monitoring data until September 28, 2012.13

Reconsideration of the Use of Field-Level Reporting for Onshore Production

Finally, on September 9, 2011, EPA proposed additional technical corrections to Subpart W, which respond in part to petitions for reconsideration filed by several industry groups. EPA's proposal announces that it plans to finalize the proposed rules before the end of 2011, and the final rules will apply to the first emission reports to be filed in 2012.14 EPA concluded that it would be reasonable to incorporate these significant changes into reports to be filed for 2011 because they are primarily designed to provide additional clarifications and flexibility in reporting, but do not affect the type of information that must be collected to complete an emissions report.15

The most significant change in EPA's reporting rule will effect reporting in the onshore oil and natural gas production sector. In the original rule, an onshore oil and natural gas production facility is defined as all wells within a basin,16 but many of the reporting requirements were tied to field-level data.17 The rule defined "field" by reference to the Energy Information Administration (EIA) 2008 field list, raising significant concerns about the delimitation of field boundaries as well as challenges regarding how wells not in fields on the EIA 2008 list should be reported. To address these concerns, the EPA has proposed to adopt a sub-basin approach.18 The proposal would use county boundaries as the limits of sub-basins and then define four categories of wells within each sub-basin.19 The four categories of wells would be defined as follows: (1) conventional; (2) shale; (3) coal seam; and (4) other tight reservoir rock.20 Within each category, the proposed rule contemplates the use of operational criteria that will require multiple samples per sub-basin category for particular sources where the emissions profiles are variable.21

The rule also proposes a number of other clarifications and technical corrections to Subpart W.

The modification of the BAMM rules and the proposed technical corrections to Subpart W make significant strides in easing the burden placed upon covered owners and operators with reporting obligations. However, the challenge ahead still remains significant. As 2011 draws to a close, it is essential that all owners and operators have Subpart W monitoring plans in place and ensure that these plans are being executed to collect all required data for reporting. While the expansion of the BAMM rules certainly eases some data collection challenges, Subpart W reporting remains a significant undertaking. Among the challenges that remain for covered owners and operators are determining the number of facilities, selecting a designated representative for reporting, and collecting appropriate data from third party service providers to report emissions from portable equipment.

Subpart W of the Mandatory Reporting Rule raises a number of important compliance questions and challenges. Below is a subset of questions encountered in assembling a Subpart W compliance program.

  1. How do I know if I have a Subpart W facility? How many Subpart W "facilities" do I have for which reports must be generated?
  2. Who are the "owner" and "operator" of my Subpart W facility?
  3. Why do I care about designated representatives in connection with Subpart W reporting and how do I select one?
  4. How do I present and actually report the data to the governing agency? What is the "online reporting tool"?
  5. Other than a designated representative, who may have access to EPA's online reporting tool?
  6. If I have multiple operations in oil and gas sectors, does that affect the number of "facilities" that are regulated? How do I aggregate and report the data under Subpart W?
  7. What equipment is within the scope of part of my Subpart W production facility that must be considered for reporting purposes?
  8. How do I know that I am collecting all of the data that I will need for Subpart W reporting purposes?
  9. Do I need agreements in place with contractors to collect data on portable equipment? What should such agreements look like, and do I have them in place?
  10. Do I have a Subpart W compliance monitoring plan for each covered facility? What are the primary elements of such a plan? How do I know if I even need a monitoring plan?
  11. What are Subpart W's calibration requirements? What do I do if I cannot meet those calibration requirements?
  12. For purposes of reporting, how do I distinguish between an external combustion device and a flare?
  13. If my Subpart W facility is also subject to Subpart C, how do I report the facility? Do I need a monitoring plan for the Subpart C components of my facility?
  14. If I have a natural gas processing facility that is only subject to the MRR because of Subpart C requirements, is the facility also subject to reporting under Subpart W?
  15. What do I do if the nameplate capacity of my facility exceeds the MRR threshold for reporting, but I believe that actual throughput will be below reporting levels?
  16. How do I decide if my equipment is part of gathering and boosting (which is exempt from Subpart W reporting) or natural gas processing (which is subject to Subpart W reporting)?
  17. How do I know if I need best available monitoring methods (BAMMs)? When and how do I apply for BAMMs?
  18. How should I factor Subpart W's requirement that I report data for the whole year, regardless of when I acquired a facility, into my due diligence process when acquiring new assets?
  19. What can I do to reduce my compliance risk resulting from the failure of field personnel to collect data?

Footnotes

1 40 C.F.R. Pt. 98.

2 40 C.F.R. § 98.3(b). Note, however, that one of EPA's proposed rules would extend the reporting deadline to September 2012 for 2011 emissions under Subpart W.

3 The unit of measure for the Mandatory Reporting Rule is metric tons of CO2 equivalent (mtCO2e), this measurement requires that other reportable gases be converted using their global warming potential into a value that is equivalent to an amount of CO2. For gases with a higher global warming potential, the amount in CO2e will be greater than the actual amount of the gas emitted.

4 76 Fed. Reg. 59533 (Sept. 27, 2011).

5 Id. 59535.

6 76 Fed. Reg. at 59535.

7 40 C.F.R. § 98.234(f)(8)(iii). 8 Id.

9 76 Fed. Reg. at 59538.

10 40 C.F.R. § 98.234(f)(2)-(3) (2010).

11 Id. § 98.234(f)(4).

12 76 Fed. Reg. 47392 (Aug. 4, 2011).

13 76 Fed. Reg. at 47396.

14 76 Fed. Reg. 56010, 56020 (Sept. 9, 2011).

15 Id.

16 The rule adopts the American Association of Petroleum Geologists' definition of basin. 40 C.F.R. § 98.238.

17 40 C.F.R. § 98.238 (2010). Under Subpart W as finalized one measurement from each field is required to estimate emissions from well completions, well workovers, and well unloading events.

18 76 Fed. Reg. at 560026.

19 Id. at 56050.

20 Id.

21 Id. at 26026.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.