Looming Congressional Action On Methane/Percentage Depletion/IDC/New Orphan Well Program

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Chris Kearney | NSWA Vice President, Governmental Affairs

Currently there does not appear to be broad based support for a tax on methane or a domestic carbon tax via the major budget bill – commonly referred to as the Reconciliation Bill – slated for Senate floor action this Fall (details on budget bill discussed below). However, that has not stopped advocates of a methane tax, a cross border tax, a carbon tax, and the elimination of IDC and Percentage Depletion from continuing to push for their inclusion in budget legislation.  Indeed, many advocates for such measures see this as a “once in a lifetime” opportunity, as pressure for action on climate change related legislation intensifies.   

To that end, a sharp debate – away from public view – is emerging between Senators who are seeking to advance a “stick it to the oil and gas industry” agenda and pro-industry Senators, including Sen. Joe Manchin (D-WV) and his GOP allies.

In the coming weeks and months, both sides will continue to make clear their priorities to colleagues when it comes to what should – and should not – be included in the Reconciliation Bill.

Regarding the status of the budget reconciliation process, Democrats on the Senate Budget Committee and White House officials have agreed to a $3.5 trillion framework for the Fiscal Year (FY) 2022 budget reconciliation package – which is when legislative text is drafted and released, likely in the early Fall – is expected to include most of President Biden’s proposed $1.8 trillion American Families Plan and elements of the $2.25 trillion American Jobs Plan that are not included in the eight-year, $1.2 trillion Bipartisan Infrastructure Framework — which includes an estimated $579 billion in new spending.

Together, the reconciliation package and the bipartisan infrastructure framework would bring the total on new spending on infrastructure, climate, childcare, education, and paid family leave programs to $4.1 trillion.

The next step in the process will be to get agreement from the full Senate Democratic Caucus on the spending and revenue targets so the Senate Budget Committee can draft its FY 2022 budget resolution – expected sometime this week or next.

Once the $3.5 trillion budget blueprint – known as a budget resolution – is adopted by both chambers, Democrats on various committees can begin to develop the legislative pieces that will ultimately become the comprehensive, multi-title Reconciliation Bill that provides the details of the budget blueprint.

That resolution provides funding “instructions” to various Senate and House committees, which in turn use them as the basis for drafting implementing legislation this is where the oil and gas tax related provisions would be included.

Current expectation is that the Reconciliation Bill will come to the Senate floor sometime this Fall.  Senate Democrats say the goal is to have it fully paid for, though it is not clear how many of their funding offsets will actually raise revenue or cut spending – typically the “pay-for” benchmarks for a reconciliation bill.

In the House, Speaker Nancy Pelosi has expressed support for the $3.5 trillion figure. However, it remains to be seen if House Democrats would support the budget framework once it comes to the lower chamber. 

Indeed, highlighting the tensions within her caucus and the tight majority she holds (just four seats), Speaker Pelosi has publicly made clear that the House will not take up the Senate infrastructure bill until the Senate passes the budget reconciliation bill. Such a move will give the Speaker and her leadership time to consult with rank-and-file members regarding the Senate proposal and gauge the need for potential changes.

On infrastructure, the bipartisan group of 22 senators who reached agreement continue to work to finalize the specific details of the agreement, with the release of agreed upon text expected this week.

A key element of the bipartisan infrastructure package includes an effort being advanced by the Senate  Energy and Natural Resource Committee, led by Chair Joe Manchin to include the draft bill reported out of committee in mid-July that authorizes billions of dollars for energy infrastructure, environmental projects, and water infrastructure projects.

Of note, title six of the bill (beginning on page 386) would direct the Secretary of Interior – in coordination with the Secretary of Agriculture and in consultation with the Interstate Oil and Gas Compact Commission as applicable – to establish a program for orphan well plugging, remediation, and restoration, aimed at reducing methane emissions through the authorization of a $5 billion dollar grant (both short-term and long-term funding) program targeted at states and Indian tribes that would prioritize abandoned well site clean-up on federal lands by the greatest need, while intending to create tens of thousands of jobs in the process. The bill would also establish a federal grants program for states to fund cleanup on state and private lands. 

The goal, as announced by Majority Leader Schumer is to pass the bipartisan bill and the FY 22 budget resolution (blueprint for the legislative package mentioned above) to be brought to the Senate floor before the August Recess – currently scheduled to begin August 9th

NSWA VP for Governmental Affairs, Chris Kearney, and NSWA leadership will continue to actively engage and advocate with Congressional and agency leaders – as well as other industry trade association partners – on NSWA’s priorities as the various legislative and regulatory processes unfold.  

President Has Signed Methane Rule Repeal/Next Steps On EPA Methane Regs 

On June 30, President Biden signed the Congressional Review Act (CRA) Resolution which repealed the Trump Administration’s methane “policy” rule  (i.e., the 2020 EPA regulations that revised the targeted emissions for regulation under New Source Performance Standards (NSPS) for oil and natural gas production facilities).

The primary effect of this change is to reinstate the portion of 2016 NSPS that regulates many components for methane emissions rather than regulating them as volatile organic compounds (VOC).

A separate Trump Administration rule on methane, known unofficially as the methane “technical” rule, which provided an offramp from its leak detection and repair6 (LDAR) provisions when wellsite production fell below 15 barrels/day, was not directly repealed and is legally still in place.

However, EPA has now made its own regulatory – not legislatively directed – determination that because the rescinded policy rule applied to VOC emissions and the CRA resolution eliminated that regulation, such well sites are now returned to their status under the 2016 methane-based rule.

Meaning, low production wells will again – to an extent – be subject to the semi-annual LDAR program.

It’s notable that EPA’s current interpretation of the NSPS regulations apply to new and modified sources. A modified source would be, for example, a refractured well. There are no current federal regulations on existing sources, including low production wells. Existing sources are currently regulated by states and some states may have low production well requirements.

It’s important to note that the CRA action is just the beginning of a long EPA regulatory process.

In September, for example, EPA is expected to propose: 1) revisions to the 2020 technical changes to relevant subpart sections of the NSPS and; 2) emissions guidelines under Section 111(d) of the Clean Air Act that would apply to all existing sources. 

Both of these actions will be developed through the federal rulemaking process, which includes public notice and comment., with a final rule expected to be issued in October 2022.

In addition, the federal emissions guidelines, in some cases, may lead to development of state regulations, unless the state defers to EPA for implementing a federal program. 

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