Gov. Tom Wolf recently announced the creation of a multi-pronged plan to target and reduce methane emissions from unconventional natural gas wells, pipelines, and other sources in the Pennsylvania oil and gas sector. These new rules follow similar proposed rulemaking by the U.S. Environmental Protection Agency (EPA), which was announced September 18, 2015, and is expected to be finalized in June 2016.

Background According to Gov. Wolf’s announcement, the goal of the new plan is to make Pennsylvania “a national leader in addressing climate change while supporting and ensuring responsible energy development, creating new jobs, and protecting public health and our environment.” The Pennsylvania Department of Environmental Protection (DEP) published a Briefing Paper that was released in conjunction with Gov. Wolf’s announcement, and provides the details of the commonwealth’s proposed methane emissions reduction strategy. The DEP also hosted a webinar January 19, 2016, chaired by DEP Secretary John Quigley, to discuss the new plan. At the webinar, Secretary Quigley estimated that 115,000 tons of methane were wasted in Pennsylvania in 2014 as the result of emissions from unconventional wells and midstream operations, and stated his hope that by reducing methane waste, the new measures will “pay for themselves.” Secretary Quigley anticipates at least a 40 percent reduction in methane emissions as the result of the new rules.

Overview of the New Rules The rules comprise four parts that DEP will develop and implement over the course of 2016:

1. By August 2016, DEP will replace the August 2013 Category No. 38 conditional permit exemption (Exemption 38) with an Air Quality General Permit (GP) requirement for oil and gas exploration, development, and production facilities, including well pads. Among other things, the GP will require Best Available Technology for equipment and processes, improved record-keeping, and quarterly monitoring inspections.
2. DEP will revise the current GP-5 for new and modified Natural Gas Compression and/or Processing Facilities to (a) incorporate Best Available Technology requirements, including a Leak Detection and Repair (LDAR) program for new sources; (b) amend the requirements for affected sources; (c) expand the applicability of GP-5 to cover sources located at natural gas transmission stations; and (d) establish more stringent requirements for affected sources.
3. DEP will develop a regulation for consideration by the Environmental Quality Board that establishes stringent requirements for existing sources in the oil and gas industry.
4. Working through the Pipeline Infrastructure Task Force (see our November 2015 Client Alert on this topic), DEP will establish Best Management Practices, including LDAR programs, to reduce fugitive methane emissions from production, gathering, processing, and transmission facilities.

Commentary and Analysis One of the most significant proposed changes to the current regulatory scheme is the replacement of Exemption 38 with a GP requirement. This requirement is expected to exceed the scope of the federal rulemaking effort and could further increase the burden on industry because development of unconventional wells, wellheads, and associated equipment will now be faced with preconstruction permitting and its associated time lag and costs. In addition, DEP authority to remove an exemption is unclear. Consistent with the applicable provisions of the Pennsylvania Air Pollution Control Act (APCA), 35 P.S. § 4001 et seq. and 25 Pa. Code § 127.14 (relating to exemptions), DEP may determine sources or classes of sources to be exempt from the plan approval and permitting requirements of 25 Pa. Code Ch. 127 (relating to construction, modification, reactivation and operation of sources); but the APCA does not provide DEP with express authority to remove previously determined exempt sources. At the very least, there will be a notice and public comment period on the revised exemption guidance that would exist in the wake of removing Exemption 38, which could also result in delays in developing these new rules. Although DEP states it intends to implement the new rules in 2016, it may be unable to meet this timeframe. Finalization of the rules will be largely dependent on the timeframe for EPA’s promulgation of the new federal rules, which could take until 2017 to go into effect. In addition, any legal and legislative challenges to the proposed rules, such as occurred with chapter 78 and 78A drilling regulations under the Pennsylvania Oil and Gas Act, could extend the timeframe for finalization of the rules even further. Also important to note is that Gov. Wolf and DEP have focused on the need to reduce the effects of climate change as a basis for targeting methane emissions, but the proposed rules additionally address emissions that are generally regarded as unrelated to climate change issues, such as VOCs.

Client Alert 2016-022