Rollback of Methane Regulations Tests Corporate Commitments

Jun 17

This is the first of several memos covering proposed changes to U.S. Environmental Protection Agency (EPA) regulations for the oil and gas industry.

In March, the Environmental Protection Agency (EPA) announced “the biggest deregulatory action in U.S. history.” Administrator Lee Zeldin claimed the agency was “driving a dagger straight into the heart of the climate change religion.” Needless to say, that is an unusual goal for an EPA head. Some oil and gas CEOs may have winced, because the deregulatory push creates uncertainty and clashes with corporate commitments and investor demands to reduce greenhouse gas emissions.

First, a bit of background. EPA derives its statutory authority to regulate greenhouse gas emissions from the Clean Air Act and its amendments. Like all federal agencies, EPA priorities shift from one administration to the next as political appointees interpret its mandate differently. The EPA pendulum swing has arguably grown in recent years, reflecting a polarized political climate. However, statute remains. When administrations push things too far in one direction or another, the boundaries of administrative discretion are tested in the courts.

This article focuses on oil and gas regulations, but Zeldin’s deregulatory agenda extends to the power sector as well. On June 11, EPA proposed eliminating greenhouse gas regulations as well as mercury and toxic air standards for electricity generating units, arguing that because U.S. power sector emissions “do not contribute significantly to dangerous air pollution,” the sector should not be regulated. But the U.S. electricity sector accounts for 24% of U.S. GHG emissions, second only to transportation. The U.S. power sector produced nearly 1.5 billion metric tons of CO2 emissions in 2023—more than the entire continent of Africa, and hardly an insignificant amount. Still, EPA is likely to make a similar argument to justify rolling back regulations on other stationary sources including oil and gas facilities.

Since 2011, EPA has gradually introduced new rules to reduce emissions from the oil and gas industry, including methane and volatile organic compounds (VOCs). In 2012, the Obama administration EPA finalized new source performance standards (NSPS) for the oil and gas industry, targeting VOCs and indirectly regulating methane as a co-pollutant. These OOOO rules introduced requirements for new, modified, and reconstructed well sites, compressor stations, and other equipment. EPA followed this up in 2016 with NSPS rules known as OOOOa that regulated methane emissions at new and modified facilities, and added coverage of new types of equipment and processes. In August 2020, the first Trump administration published two final rules that weakened the OOOOa requirements, but these were subsequently overturned by a Congressional Review Act vote, reinstating the Obama-era methane rules.

More recently, the Biden administration and the previous Congress developed three central programs to address methane emissions from oil and gas. First, when Congress passed the Inflation Reduction Act (IRA) in August 2022, it imposed a Waste Emissions Charge, or a fee on emissions above certain threshold levels for eligible facilities. Second, Congress required EPA to amend Subpart W of the Greenhouse Gas Reporting Program covering oil and gas facilities to ensure that reporting and calculation of the WEC charges “are based on emprical data” and “accurately reflect the total methane emissions and waste emissions from the applicable facilities.” And third, EPA finalized in December 2023 the OOOOb (for new sources) and OOOOc (for existing sources) rules, after several years under development. (For details, see CEESA white paper, “Will Trump Mend or End Federal Methane Rules?”, January 2025).

Each of the key Biden-era methane programs is now being targeted for rescission or changes by either Congress or the Trump administration. In a joint resolution of disapproval, Congress overturned the EPA WEC implementation rule. Congress may eliminate the Clean Air Act section that established the WEC in a “budget reconciliaton” bill in the next few months, thereby ending the WEC. In contrast with these legislative moves, amending the OOOO rules via executive branch actions will be a slower process, because changes to federal regulations are subject to the Administrative Procedures Act.

The nature of future regulatory changes remains uncertain, but EPA’s March 12 announcements suggest that big reversals are coming. EPA stated that it would reconsider not only the OOOOb/OOOOc rules, but the agency’s 2009 Endangerment Finding. Following the Supreme Court’s 2007 Massachusetts v. EPA decision, which held that greenhouse gases are air pollutants, the agency’s 2009 finding that six greenhouse gases endangered public health has underpinned subsequent GHG regulations on vehicles, power plants, and oil and gas facilities. EPA also announced it would reconsider the Greenhouse Gas Reporting Program (GHGRP). Separately, the EPA Office of Enforcement and Compliance Assurance noted in a March 12 memorandum that pursuant to executive orders and EPA initiatives, “enforcement and compliance will no longer focus on methane emissions from oil and gas facilities.”

The gutting of EPA methane regulations poses a challenge for oil and gas companies, many of which have spent substantial time, resources, and expertise in recent years to improve emissions monitoring and mitigation. Commitments to cut methane assumed great prominence in investor presentations and sustainability reports. Oil and gas companies have emphasized their progress and plans at nearly every high-profile industry conference. And an ever-growing number of companies have joined voluntary initiatives such as the Oil and Gas Methane Partnership (OGMP 2.0) and the Oil and Gas Decarbonization Charter. A regulatory rollback would push against this tide.

To be sure, some operators have done little to monitor and mitigate emissions and they may welcome the policy reversion—but this year, many companies have reiterated their commitment to methane reductions. When companies make operational and planning changes that reduce methane emissions, naturally they want to maintain progress rather than revert to older practices simply because the regulatory climate changes. Companies rightly note that they plan for the long term rather than change tack with every change in government. The larger international operators are also still subject to various regulations in different markets, as well as the influence and demands of their joint venture partners. And of course, oil and gas operators are still subject to investor and societal pressure to continue reducing methane emissions.

External demands for better data on emissions intensity across supply chains are likely to grow rather than recede over the medium to long term. One critical driver is the EU Methane Regulation, which entered into force in August 2024 and has already introduced new reporting requirements for EU gas importers and their suppliers. The regulation will impose important new rules related to methane monitoring, reporting, and verification (MRV) that will enter force on January 1, 2027.

These factors suggest that progress toward methane reductions will continue, even if there is greater reliance on market mechanisms and voluntary commitments. But a severe weakening of federal methane regulations presents some challenges. Perceptions of the industry could suffer if weaker federal standards create more variable performance among operators—and greater transparency will shine a spotlight on the laggards. The competitivenes and market appeal of U.S. liquefied natural gas (LNG) could be affected as well. A rollback would harm the case for a “regulatory equivalance” determination under the EU methane regulation—essentially a judgment from EU member states and their competent authorities that rules and regulations from another country are equivalent to MRV rules that apply to operators in the European Union. If EU member states perceive that U.S. regulations have been weakened, it will be harder to justify an equivalence determination.

More directly, the EPA calls to reconsider the Greenhouse Gas Reporting Program (GRHRP)—to scale it back or potentially end it altogether—would remove a critical benchmark for estimating industry-wide emissions, a point of comparison among companies, and a critical yardsick for demonstrating progress in emissions reductions.

The next memo in this series will examine the importance of the GHGRP, and the risks associated with substantially revising the program.