Proposed Regulations on Large GHG Emitters
During the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change, President Biden announced two proposed regulations on specific categories of large greenhouse gas (GHG) emitters, along with funding for multiple climate change initiatives. These regulations would impose specific measures to reduce methane emissions in the oil and gas industry and require contractors with large United States government contracts to disclose their annual GHG emissions and other key climate-related information.
Compared to the release of the proposal requiring certain SEC-registered companies to report GHG emissions and other climate change data, these regulations have received very little coverage. Regardless of the level of media attention, however, these regulations are posed to net significant climate change benefits and create more than a few risks and opportunities for the affected industries.
The Oil and Gas Methane Rule of 2022
The proposed oil and gas methane rule is not a stand-alone regulation. Rather it builds upon another rule from November 15, 2021, which proposed updates to 40 CFR Part 60 – Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review. In other words, it imposes additional methane emissions controls on existing oil and gas operations in response to comments made on the ruling in November 2021 (which is not yet finalized). This proposed rule:
- Increases the range of sites subject to fugitive emissions monitoring and expands monitoring and detection requirements
- Includes measures to discourage abandonment of unplugged wells
- Limits the use of flares by requiring more gas be returned to use
- Imposes new regulations to three methane emitting devices/processes
- Creates a “super-emitter” response program to quickly identify large releases for mitigation
The White House estimates that this rule will reduce methane from United States oil and gas operations by 87 percent below a 2005 baseline, in conjunction with previously proposed and current rules. This would be a striking climate change “win” for an industry that has not had many opportunities—if industry leaders accept these changes to how they conduct operations.
On November 28, 2022, shortly after this rule was proposed, the U.S. Department of the Interior, Bureau of Land Management proposed a rule requiring upgrades to pneumatic equipment, leak detection and repair programs, waste minimization programs, and monthly limits on flaring from oil and gas facilities located on federal public lands.
The Federal Supplier Climate Risks and Resilience Rule
The proposed rule is seen as an integral part of the Federal Sustainability Plan, which aims to achieve net-zero emissions in United States government procurement by 2050.
The rule would require large suppliers of the Department of Defense, General Services Administration, and NASA to publicly disclose their GHG inventory and climate-related financial risk pursuant to the Task Force on Climate-Related Financial Disclosures (TCFD) standard.
It would also require the suppliers to set targets to reduce their GHG emissions pursuant to the Science Based Targets Initiative (SBTi) standard, subject to validation by SBTi. Only “major contractors” (annual federal obligations of more than $50 million) would be subject to all requirements. “Significant contractors” (annual federal obligations of more than $7.5 million up to $50 million) would be subject to disclosing their GHG inventories, and would not be required to use the CDP (formerly the Carbon Disclosure Project) platform. Contractors with annual federal obligations of less than $7.5 million would have no disclosure requirements.
This proposed rule is broader than the previous SEC disclosure rule because it requires the disclosure of GHG emissions and the implementation of GHG emissions reduction targets. This proposed rule would make the United States the first national government in the world to require major suppliers to set GHG emissions reduction goals aligned with the Paris Agreement. The CDP ESG reporting requirement is also new to this proposed rule, which could lead to expansion of disclosure requirements.
When announcing this proposed rule, the White House stated that over half of the contractors who would be subject to disclosure requirements already do so. However, while many file ESG reports with GHG inventories, they do not necessarily disclose climate change risk pursuant to the TCFD standard and have yet to commit to reduction targets pursuant to the SBTi standard. Additionally, SBTi withdrew its guidelines for oil and gas targets, making target setting for this industry impractical, at least temporarily.
Despite any pushback against these requirements, this proposed rule certainly amplifies the position that companies in the United States should adopt long-established international standards for GHG and other ESG-related disclosures. This encourages some degree of consistency and comparability in an area where little exists.
Leslie Wong specializes in ESG strategy/disclosure, energy efficiency, and carbon accounting. She has 30 years of experience in environmental management with a specific focus on ESG services over the past 15 years.