An interview with Christi Wilson, Trinity Consultants’ Manager of Sustainability Services and a tenured expert on sustainability and environmental compliance.
The new Methane Emissions Reduction Program (MERP), introduced by 2022’s Inflation Reduction Act (IRA) has been proposed as a means of reducing methane emissions across the oil and gas sector by implementing a Waste Emissions Charge (WEC) framework*. As methane, the primary component of natural gas that is emitted during oil and gas exploration and production, processing, gathering, storage, and transmission, is a potent and abundant greenhouse gas that accounts for more than 20% of global GHG emissions, its impact on global temperatures and climate change could be significant. The introduction of a fee under the WEC as part of the IRA’s MERP serves to provide a powerful environmental and financial incentive for oil and gas operators to reduce their greenhouse gas emissions.
Adapting to regulatory changes is nothing new for the oil and gas industry. And although the MERP may appear daunting at first glance, organizations can view this as an opportunity to improve their environmental performance and demonstrate their commitment to sustainability.
To help guide organizations through these changes, we recently spoke with Christi Wilson, an environmental and sustainability expert at Trinity Consultants. Founded in 1974, Trinity Consultants helps organizations overcome complex, mission-critical challenges in EHS, engineering and science through expertise in consulting, technology, training, and staffing. Christi’s extensive background in refining and petrochemicals, along with her expertise in greenhouse gas reporting and regulatory compliance, makes her an invaluable resource as we explore the Inflation Reduction Act and its implications for the oil and gas industry.
Follow along in this four-part blog series as we will explore the following questions:
- What are the key provisions of the Inflation Reduction Act related to methane emissions and what are the potential impacts on the oil and gas sector?
- How can companies effectively calculate their methane emissions and identify opportunities for methane reduction?
- When do the methane requirements from the IRA take effect and how can organizations collect and leverage their data to achieve compliance?
- What can companies do to prepare for possible future financial and operational impacts of regulations on methane emissions?
(Note: This conversation has been edited for clarity.)
The Inflation Reduction Act – Part 1:
Cority: Christi, could you share with us your journey in the environmental and sustainability space at Trinity Consultants?
Christi Wilson (CW): Absolutely! My entire career has been devoted to environmental stewardship, beginning with my time in the refining and petrochemical industries. When I joined Trinity Consultants 17 years ago, I focused on building our practice in Pennsylvania and working with clients in the oil and gas sector. As the EPA’s Greenhouse Gas Reporting Program (GHGRP) was established in 2010, I began augmenting my work helping clients with air quality permitting and regulatory compliance challenges with additional support related to GHG quantification and reporting under that program as well as various voluntary sustainability initiatives.
As environmental sustainability and climate strategy become increasingly essential for businesses, I have recently moved into a full-time sustainability role at Trinity, which allows me to focus on helping our clients stay ahead of the curve and develop practical strategies to support their decarbonization journeys in a rapidly changing ESG focused climate.
Cority: Can you summarize for us what the Inflation Reduction Act is and what it seeks to achieve?
CW: The Inflation Reduction Act was signed into law in August 2022. You can think of it as the baby brother of the “Build Back Better” plan, which comprises several initiatives designed to address topics including climate change and social issues that, taken together, will help promote economic growth and stability. The methane waste charges from the Methane Emissions Reduction Program (MERP) are a part of that legislation.
At Trinity, we’ve been most focused on the new MERP imposed through the legislation, and the associated methane emissions charge. The charge effectively taxes oil and gas companies who exceed thresholds for methane waste emissions that are reported through the GHGRP. The charge is expressed as a percentage of gas sent to sales that are lost as methane emissions.
The waste fee affects virtually all segments of the oil and gas sector – from production at the well head all the way through transmission. It does not, however, include local distribution companies as they have their own set of requirements under other programs.
According to the current Administration, MERP is anticipated to achieve significant progress toward the broader goal of cutting U.S. Greenhouse Gas (GHG) emissions in half by 2030, with some projections estimating as much as a 40% reduction could come from the program.
Cority: So, how does the Methane Emissions Reduction Program determine how much to charge oil & gas companies for their methane waste emissions?
CW: To determine the WEC, the MERP sets “allowable” methane emissions thresholds for each applicable oil and gas sector segment on an emissions intensity basis. The thresholds vary for different industry segments. For instance, whereas the threshold for oil and gas production is 0.2%, it’s 0.05% for non-production assets, and 0.11% for transmission operations.
Any methane emitted above those thresholds is considered “waste” and is subject to the WEC. The charge will first be applied for the 2024 reporting year with a fee of $900/ton of methane, increasing to $1,200/ton for 2025, and then $1,500/ton for 2026 and beyond.
Cority: What are the reporting requirements related to the MERP? What data do organizations need to collect, how will it need to be reported, and how can software support this process?
CW: This program will be administered by the Environmental Protection Agency (EPA) as part of the Greenhouse Gas Reporting Program (GHGRP). Under GHGRP, oil and gas facilities with actual annual emissions in excess 25,000 metric tons of CO2 equivalent per year must report their CO2, methane, and nitrous oxide emissions from various source categories including combustion, pneumatics, wells, compressors, fugitives, pipelines, dehydration systems, etc., by March 31st each year.
The MERP focuses only on methane and requires that methane emissions be summarized on an intensity basis as a function of methane emitted as a percent of the product sent to sale or through the facility.
To the extent companies are already collecting the data and performing GHG emissions calculations needed to report under this program, they will continue to do so going forward, but may need to alter their measurement, monitoring, and/or calculation processes pending several proposed and anticipated changes from the EPA. And software can be extremely helpful to streamline various aspects of this process. The potential financial liabilities associated with the methane charge may also help environmental leaders build the business case for software to help streamline and automate the data collection and reporting process.
But for anyone that has been under the applicable GHGRP reporting threshold previously, it will be imperative to reassess applicability using the revised emission factors, global warming potentials (GWPs), and calculation methods (once finalized) to determine their status going forward.
As the EPA is proposing an increase in GWP for methane from 25 to 28, coupled with some methane emission factor changes for internal combustion and fugitive leaks, it is very possible some facilities who haven’t been subject to reporting in the past, will now have to report their GHG emissions under the GHGRP and evaluate their methane charge liabilities. Those companies will need to implement GHG monitoring plans and establish data collection and validation practices, calculation tools, and reporting mechanisms.
Cority: How does this methane charge differ from other environmental regulations oil and gas companies are currently required to comply with?
CW: The primary difference is the fee aspect of this program, which is new for this industry sector, though not new in concept. Companies have paid emission fees or purchased allowances under various federal and state air quality programs for decades, including the federal NOx budget and Acid Rain Programs in the U.S., cap and trade programs in California, and Canada’s carbon pollution pricing schemes.
What makes the MERP a bit more challenging is that applicability and compliance are intertwined with other existing and evolving federal rules and programs. This adds complexity and uncertainty to oil and gas operators who may be trying to evaluate their risks and liabilities under the program.
Cority: Can you share an example?
CW: There are key exemptions from the methane waste emissions charge, including exemptions for facilities that are subject to and in compliance with the EPA’s New Source Performance Standards (NSPS OOOO rules). The MERP directs operators to use the EPA’s GHG Reporting Program framework to calculate and report methane emissions. However, both of these regulatory programs are currently in a state of flux. The EPA has proposed wide-sweeping revisions and updates to the OOOOb and OOOOc rules, which have not yet been finalized.
Concurrently, the MERP directs the EPA to update the GHGRP to enhance accuracy and ensure that methane emissions are calculated using actual empirical data. These updates have not yet been proposed, but other updates to certain emission factors and the methane global warming potential have been proposed and again, are not yet finalized. Since both the NSPS and the MERP will result in significant changes to the way the oil and gas sector operates and monitors, then calculates and reports their methane emissions, we are closely monitoring the finalization of the NSPS rules and GHGRP updates to help companies fully assess their risks.
Cority: Were the changes imposed by the MERP through the Inflation Reduction Act (IRA) something that the oil and gas industry was expecting?
CW: There was some anticipation. The EPA has been transparent from the inception of the GHGRP back in 2010 that the data collected through that program would be used to inform future regulation. The current administration has been very clear about reducing reliance on fossil fuels, and with the overall goal to cutting greenhouse gas emissions nationwide in half by 2030, it’s not surprising that the oil and natural gas sector would be a target for reductions.
Stay tuned as we continue this conversation with part two of the four-part blog series. In part 2, we’ll explore the additional challenges the Methane Emissions Reduction Program within the Inflation Reduction Act may pose on the oil and gas sector and what actions organizations can take to achieve reasonable reductions in methane emissions. Companies looking for solutions to accurately monitor and manage their methane emissions to ensure compliance with the proposed regulations will find this series helpful.
*Cority has been working with oil and gas companies for over two decades, partnering with seven of the top 10 in the globe and more than 80 oil and gas companies overall. With this experience, Cority has built a deep understanding of the industry, critical business processes and how a digital transformation leads to meeting EHS initiatives.