Belcher: Prepare for an onslaught of Biden’s new regulations

As an election year approaches, the likelihood of Congress passing legislation affecting the U.S. oil and gas industry becomes less and less likely.

While prospects for a much-needed federal enabling bill remain bright, it will most likely have to wait until the next Congress. In the absence of legislation, we are seeing a plethora of executive action through rulemaking, executive orders and policy decisions that will impact energy.

While the effects of these actions will be mixed, most of them will not be beneficial to domestic oil and gas production. Collectively, they will have a significant impact on the US oil and gas industry, which is feeling the effects of 1,000 paper cuts.

Earlier this year, the Biden administration set the stage for executive action by issuing a “pause” on new permits for LNG exports to countries not covered by free trade agreements. The pause has become a highly politicized issue as House Speaker Mike Johnson (R-Louisiana) has linked passage on Ukraine aid to the end of the pause.

Such action, if it is included in the law, will only be symbolic as it will not force the administration to issue permits. However, the interruption itself has created uncertainty for U.S. LNG producers and companies and governments that need future sources of LNG.

SEC rule

On March 6, the administration published an 886-page Securities and Exchange Commission (SEC) rule that requires all public companies to include climate-related reporting in their SEC filings. The rule, which has been developed by the SEC for over two years, requires public companies to report their Scope 1 (emissions from their operations) and Scope 2 (emissions from purchased electricity, steam heat or cooling) and other climate-related materials, including, among others, . climate-related risks and material impacts, climate risk management processes and climate-related goals and objectives.

The issued rule replaced the previously proposed rule by removing Scope 3 (emissions from upstream and downstream activities of an enterprise or facility), limiting Scope 1 and 2 greenhouse gas (GHG) emissions disclosure requirements to large accelerated filers and filers accelerated reporting (other than smaller reporting companies and emerging growth companies). Disclosure was only required for material issues and the removal of financial impact indicators from the disclosure requirements related to financial statement impacts.

It also extended safe harbor protections to disclosures about transition plans, scenario analysis, internal carbon pricing and targets and targets, and extended compliance timelines. Several states, companies, and trade associations have filed lawsuits in several jurisdictions to invalidate the rule, arguing that its provisions are too stringent, impose too much burden on industry, and are unevenly applied and impact certain industries. These cases were consolidated into a single review before the 8th Circuit Court of Appeals, which stayed the SEC’s enforcement of the ruling, and the SEC itself issued its own stay pending the ruling.

EPA rule

On March 22, the Environmental Protection Agency (EPA) issued a final rule, Multi-Pollutant Emissions Standards for Model Year 2027 and Later Light- and Medium-Duty Vehicles, which focuses heavily on lowering greenhouse gas emissions to reduce the consumption of gasoline – and oil-fueled vehicles propulsion and the transition of the American fleet to electric vehicles (EV).

The rule, modified to be less stringent following protests by U.S. automakers against the initial requirements, now requires electric vehicles to account for 56% of new vehicle sales by 2032, with plug-in hybrids accounting for an additional 13%. partially electric or gasoline vehicles. cars powered by engines with higher average miles per gallon.

The rule is seen by the oil and gas industry as another attack on fossil fuels, but it also creates even greater challenges for a U.S. power grid that is already facing supply-side/reliability challenges and increased demand from new industrial activity, artificial intelligence and data.

EPA is also in the process of implementing methane regulations issued last December that create a new methane monitoring and reporting program that will take effect this year. The rule phases out flaring at new oil and gas wells, with some exceptions in the early years. One of the more controversial features of the methane regulations is the establishment of a super emitter program, in which outside groups will monitor methane emissions across the country for large methane leaks.

EPA received many comments expressing concerns about the operation of this program and how EPA will certify and ensure the legitimacy of third parties and the accuracy of their reports. Due to the subjectivity of this program, many lawsuits are filed challenging EPA’s authority to initiate it. Additionally, many states are challenging methane regulations in court. Texas filed a legal challenge with the D.C. Circuit Court of Appeals.

BLM rule

Separately, the Bureau of Land Management (BLM) issued a final rule setting limits on methane emissions associated with oil and gas development on federal lands. This rule requires utilities to pay royalties on “wasted gas” and limits the amount of gas that can be released or flared if no pipeline options are available. The BLM believes it could generate $50 million in additional natural gas revenue annually with this rule. Lawsuits will be filed in the coming weeks to challenge the BLM rule.

Starting in 2025, the EPA will charge a methane surcharge, or Waste Emissions Charge (WEC), for methane emissions above a certain threshold. The fee was established as part of the Methane Emission Reduction Program included in the Inflation Reduction Act. It will be assessed annually based on the previous year’s methane leak exceeding 25,000 metric tons of CO₂ from oil and gas systems. The fee will increase over time, starting at $900 per metric ton in 2024 and reaching $1,500 per metric ton in 2026 and beyond.

Moving further downstream to power generation markets, the EPA has released a “non-regulatory” package that will allow the public to have input on planned greenhouse gas emissions rules for existing natural gas-fired power plants. The announcement comes ahead of a series of upcoming regulations in which the EPA will implement more stringent limits on greenhouse gas emissions, air toxics and nitrogen oxide emissions from natural gas turbines in the power sector.

Finally, the administration is pursuing a broad and encompassing initiative known as natural capital accounting, in which the government would include an activity’s alleged impacts on nature in any federal decision requiring a cost-benefit analysis. While this concept is in its early stages of development and has not been widely reported, it is being implemented across the federal government and could have a profound impact on future federal decisions, creating enormous potential implications for the oil and gas industry. This is certainly an area we should all be paying attention to, along with everything else in this regulatory onslaught.