Every day there is a news story that connects climate change, greenhouse gases (GHG) with the oil and gas (O&G) industry. On August 3, 2015, the Obama Administration announced the details of the “Clean Power Plan” designed to reduce GHG emissions from electric generating plants that use fossil fuels. This is only the beginning of the future regulation and reduction of GHG emissions across all sectors of our economy. Greenhouse gas regulations for the O&G industry is expected soon.
In January 2015, the Obama Administration announced a goal to reduce methane (CH4) emissions from O&G operations by 40-45 percent from 2012 levels by 2025. The expectation is that some type of “command and control” regulation by the USEPA will be proposed to reduce CH4 emissions for the O&G industry during the summer of 2015.
One stated goal to address the climate change issue is to reduce GHG emissions by 80% from industrialized nations by 2050 – this primarily means a reduction in the use of fossil fuels (coal, natural oil, gasoline). Note that fossil fuels supplied over 78% of world’s energy supply in 2012. A recent article by the Society of Petroleum Engineers (SPE) with Dr. Scott Tinker of the SWITCH Energy Project indicated that there is a strong movement to “decarbonize” the world and switch to other sources of energy for our world. This further indicates a push for more regulation of O&G GHG emissions.
Some of the options that government may use for future expected GHG reductions for the oil and gas industry include:
- Command and control regulatory standards and permits
- Carbon taxes
- Cap and trade system
- Voluntary programs
- Mixture of methods
Command and Control
Command and control means that the EPA promulgates regulations that prescribe emission standards, work practices, operational limitations and prohibitions for the targeted industry, process, and/or emission source type. New Source Performance Standards (NSPS) such as those in 40 CFR 60 Subpart OOOO are command and control regulations. Typically NSPS regulations only apply to new or reconstructed emissions sources existing after the NSPS proposal date. GHG command and control regulations may apply to existing and new GHG emission sources.
As an example of command and control, NSPS OOOO limits VOC emissions from oilfield storage tanks to less than 6 tons per year per storage tank. A work practice could include leak detection and repair (LDAR) programs for leaking components (e.g., tank thief hatches, valves, connections, seals) such as implemented by the Texas Commission on Environmental Quality (TCEQ) and Colorado Department of Public Health (CDPHE). An operational limitation example would be the prohibition on using natural gas driven pneumatic devices in natural gas processing facilities.
Since GHGs have been determined an endangerment to the environment by the USEPA and the courts have ruled in USEPA’s favor regarding direct regulation of emissions under the Clean Air Act, command and controls seems to be the primary way GHGs will be reduced.
A carbon tax is usually defined as a tax based on GHG emissions generated from burning fossil fuels. It is an indirect tax assessed on the carbon content of fuels. The taxes set a price on each ton of GHG emitted. The price is passed through from businesses to consumers. By increasing the cost of GHG emissions, governments hope to reduce consumption and demand for fossil fuels and create momentum for the creation of more environmentally friendly energy alternatives.
Carbon taxes are often publicized as creating an incentive without favoring any one way of reducing GHG emissions over another. A recent paper by Jerry Taylor of the Niskanen Center urged adoption of carbon tax as a much less costly means of reducing greenhouse gas emissions than command and control regulations.
British Columbia, Canada has a carbon tax on fossil fuels of approximately $23 (US dollars) per metric ton. The tax is assessed on a price per liter for liquid fuels and price per cubic meter for natural gas. Australia had a carbon tax for 2 years (2012/2013), but repealed it in 2014.
The final EPA Clean Power rule now explicitly says states can use, as one of several remedies, fees (i.e., carbon taxes) as a method meeting the required emissions cuts for electric generating units.
Some proposals offered include a tax on the actual GHG emissions emitted by a facility. This might include using the GHG emission inventory data (40 CFR 98 Subparts C, W, RR) to assess a tax (or fee) on the mass amount of GHG emissions.
Cap and Trade System
Cap and trade systems are designed to be market-based mechanisms to lower GHG emissions. Under a cap-and-trade system, industries would be allocated allowances (carbon credits) or a “cap” limiting them to a certain amount of GHG emissions each year. The “cap” sets a limit on emissions, which is lowered over time to reduce the amount of GHG emissions released into the atmosphere.
The “trade” creates a market for carbon allowances (carbon credits), with the goal of inducing companies to innovate to meet or reduce their actual annual GHG emissions allocated. If a company does not have enough carbon credits in their allocation based on expected GHG emissions, they can reduce GHG emissions at their operations or purchase carbon credits from a GHG trading exchange.
By reducing GHG emissions at a facility a company may generate carbon credits that can be used for future allocations or sold in a carbon trading exchange. The idea is that if Facility X can reduce its GHG emissions for a lower cost than Facility Y, then Facility X can generate tradeable carbon credits that can be sold to Facility Y. The driver being the cost differential between what it cost Facility X to reduce emissions over Facility Y would have to spend.
Cap and trade systems can be complicated and involve complex methods for creating, certifying, monitoring and trading GHG credits.
Examples of cap and trade systems include:
- USEPA Acid Rain Program is a program that has existed since the 1990s that includes cap and trade systems that focus on SO2 and NOx emissions from power plants.
- Regional Greenhouse Gas Initiative (RGGI) is a market-based regulatory program in the United States to reduce GHG emissions in the NE for reduction of CO2 from power plants
- Western Climate Initiative, Inc. (WCI, Inc.) is a non-profit corporation formed to provide administrative and technical services to support the implementation of state and provincial greenhouse gas emissions trading programs.
- European Union Emission Trading Scheme (EU ETS)
For the near future, the US does not seem to be moving toward using a cap and trade system to address GHG emissions for entire US economy. Although this does not exclude using cap and trade systems within existing EPA rules. States can implement their own programs (e.g., RGGI). The final EPA Clean Power rule includes provisions for states to use a “cap and trade” system to meet the required GHG emission cuts.
At this time, voluntary programs are used by the O&G industry to reduce CH4 emissions (CH4) from the wellhead through distribution. Voluntary programs for reducing CH4 emissions from O&G operations include the following:
- EPA Gas STAR Methane Challenge Program – USEPA’s new program for O&G companies to track and reduce CH4 emissions from their operations. This program is considered an integral EPA’s ongoing push to address CH4 emissions and global climate changes.
- ONE Future Coalition – ONE Future (Our Nation’s Energy Future Coalition, Inc.) is a coalition of natural gas industry companies using policy and technical solutions to minimize CH4 emissions associated with the production, processing, transmission and distribution of natural gas.
- Global Methane Initiative (GMI) – GMI is a voluntary, international public/private initiative that promotes cost effective CH4 reduction and recovery and use of CH4 as a clean energy source in four sectors: O&G systems, agriculture, coal mines, municipal solid waste and wastewater.
- CCAC Oil & Gas Methane Partnership – the Climate and Clean Air Coalition (CCAC) created this international, voluntary initiative to reduce CH4 emissions in the O&G sector. The CCAC officially launched the Partnership with founding companies at the UN Secretary General’s Climate Summit in New York in September 2014. The founding companies include: BG-Group, Eni, Pemex, PTT, Southwestern Energy, Total and Statoil. - See more at: http://tinyurl.com/oysshgf
At this time, there are no identified voluntary programs exist that target oil and gas GHG emissions from the combustion of fossil fuels (natural gas, diesel, gasoline).
Some nongovernmental environmental groups have criticized the effectiveness of voluntary programs due to low participation. They typically push for more command and control, taxes and/or cap and trade mandatory methods.
Mixture of Measures
Many expect that the US government will use a mixture of these methods in the short term. Command and control and voluntary measures are expected to be the primarily methods. As the GHG issue gets even more attention, other measures such and carbon taxes and cap and trade systems may be implemented.
HY-BON can help your company prepare and get ahead of the GHG emissions curve and help with your climate change action plan.
Our IQR (Identify, Quantify and Rectify) services can help you know your facility GHG emissions. Using our IQR services and our ongoing Vent Gas Management (VGM) system we can help you reduce GHG emissions and stay in compliance with NSPS OOOO and state air permits. This can make your company money. HY-BON’s vent gas management (VGM) system is a cost effective way to take this issue off of your plate. We use “best in class” vapor recovery units (VRU), Vapor Recovery Towers (VRT) and enclosed combustors (ECU) to comply with storage tank emission control requirements.