President Obama’s Agencies are rushing to complete onerous energy regulations before his term ends. The Department of Interior is working to finish an offshore oil and natural gas leasing plan and a stream protection rule for coal mining that would leave billions of dollars of stranded coal reserves. On Tuesday, the Interior’s Bureau of Land Management finalized the methane regulation for oil and natural gas production on federal lands. Further, the Environmental Protection Agency plans to finalize biofuel blending requirements for refiners, which is part of the Renewable Fuel Standard. President-Elect Trump has vowed, however, to undo many of the major regulations that President Obama’s team imposed in the last eight years, including the Clean Power Plan.
Methane Regulation for Oil and Natural Gas Production on Federal Lands
President Obama wants to reduce methane emissions from the oil and gas sector by up to 45 percent by 2025. The rule issued on Tuesday will require oil and gas companies operating on federal lands to use new technologies to cut flaring in half (the burning off of excess natural gas), inspect sites for leaks, and replace old equipment that the Obama government believes releases too much methane. The rule also allows the government to require royalty payments on excess gas that producers flare off at drilling sites. The Interior Department believes this rule could cut public land emissions by up to 35 percent. [i] However, BLM estimates the rule would reduce 0.0092 percent of global greenhouse gas emissions, meaning the impact on projected temperature rise would be infinitesimally small.
The Obama Administration has undertaken this rule despite huge strides that the oil and gas industry has taken to reduce methane emissions in its operations. According to EPA, methane emissions have been reduced by 13 percent between 2011 and 2014, while natural gas production has increased. (See chart below.) Furthermore, EPA data shows that methane emissions from hydraulic fracturing fell 81 percent between 2012 and 2014.[ii] The industry achieved this by capturing the gas at the wellhead immediately after well completion, using better control devices (low-bleed or no-bleed pneumatic valves), and using advanced monitoring technology systems to identify sources of methane emissions.[iii]
Congress can use the Congressional Review Act to issue a resolution disapproving the rule within 60 days. If lawmakers take that action, President-Elect Trump, after inauguration day, can sign the resolution stopping the rule.
Stream Protection Rule (SPR)
The Department of the Interior’s Office of Surface Mining (OSM) issued a proposed SPR that would supersede the existing Stream Buffer Zone Rule that was enacted in 2008 to regulate surface coal mining on aquatic environments in Appalachia. The proposed SPR would leave tens of billions of dollars’ worth of coal in the ground with no chance of future development as they become stranded reserves. While those coal deposits are technically and economically minable, they would be unavailable for production given new requirements and restrictions included in the proposed rule.
The Obama administration recently released the Final Environmental Impact Statement for the SPR, however, they have not released the actual final rule. It’s possible that the administration will not release a final SPR because it will certainly be challenged under the Congressional Review Act and if it is disapproved under the Act, the OSM would be prohibited from ever issuing a “substantially” similar rule.
The SPR is flawed. In the past, Congress and the courts having established that a uniform nationwide federal standard for coal mining would not be workable given the significant differences in regional and local geology, hydrology, topography, and environmental factors related to mining operations. The impact of the rule would be between 100,000 to 300,000 lost mining-related jobs, between 30 to 65 percent less coal tonnage recovered, between $14 billion and $29 billion of coal left in the ground, and between $3.1 billion and $6.4 billion less federal and coal state tax bases.[iv]
Offshore Oil and Natural Gas Leasing Plan
The Department of Interior is responsible for producing a 5-year plan for offshore oil and natural gas lease sales. The Department of Interior’s Bureau of Ocean Energy Management unveiled the proposed plan for 2017 to 2022 lease sales in March and is expected to unveil its final plan soon. While the original plan included 10 Gulf of Mexico sales, a 2020 Beaufort sale, a 2021 Cook Inlet sale, a 2022 Chukchi sale, and sales in the Atlantic, the latter sales were removed due to opposition. It is possible that the Interior Department will also remove the Arctic lease sales from the proposal.
Congress could act to overturn it through the Congressional Review Act, which President-Elect Trump is likely to sign. Otherwise, President-Elect Trump, who wants to expand oil and gas drilling on federal lands and waters, can either amend the plan, which would result in no lease sales during the 2 to 3 years it takes for that process, or continue with the plan where 5 Gulf of Mexico sales are planned between 2017 and 2019 under the proposed program. The process to amend the plan is estimated to take two to three years due to all the statutory requirements involved, but no offshore lease sales can be held during that time. The required environmental analysis and public comment period is designed to make it difficult for a new administration or Congress to alter the offshore program.[v]
Biofuel Blending Requirements
EPA proposed increasing the blending requirements as follows:[vii]
- Ethanol made from corn to 14.8 billion gallons in 2017, 300 million gallons more than in 2016, but below the 15 billion gallons in the federal law.
- Cellulosic ethanol made from grasses, wood chips and corn stalks to 312 million gallons in 2017, 82 million more gallons than in 2016.
- Biodiesel made from soybean oil, cooking oil and animal fat to 2.1 billion gallons in 2018, 100 million gallons higher than the levels required in 2017.
The rule is to be finalized by the end of November. The rule would result in ethanol’s share of the U.S. gasoline market to exceed the 10 percent blend wall. The blend wall is a threshold that occurs when the required blending volume exceeds the amount that can be added into most gasoline. Many automobile manufacturers will not warranty automobiles above the 10 percent blend wall. Also, boat engines, lawnmowers, and other small engines have problems using gasoline blended with ethanol.
The EPA also proposed an updated regulatory structure to allow biofuels producers to partially process feedstock at one facility and convert the resulting material into fuels at another using existing pathways; updating fuel regulations to allow expanded availability of high-ethanol fuel blends for use in flex fuel vehicles; new feedstock approvals for cellulosic biofuels produced from short-rotation poplar and willow, cellulosic diesel produced from compressing of cellulosic feedstocks and petroleum, and renewable diesel and biodiesel produced from non-cellulosic portions of separated food waste. The EPA is also requesting comments on other issues, including renewable identification number generation for renewable electricity used as transportation fuel and requirements for facilities that could use carbon capture and storage to reduce carbon in the production of renewable fuels in the future.[viii]
Clean Power Plan
EPA’s Clean Power Plan, which requires a 32 percent reduction in 2005 levels of carbon dioxide emissions from power plants by 2030, is currently in the courts as over half the states have opposed the regulation. The regulation was made final last year, but the Supreme Court has put a hold on it while the Court of Appeals for the District of Columbia Circuit is examining whether to overturn it. If the court decision is delayed past Inauguration Day, President Trump’s Justice Department lawyers could request that the rule is remanded to the EPA for further consideration. If the rule is upheld by the D.C. Circuit, the Trump administration may need to undo it by going through the full rulemaking procedure again.[ix]
The Waters of the United States Rule and the Ozone Rule are two other rules that are likely to be overturned by the Trump Administration. These two rules are also in the courts and would face similar issues as the Clean Power Plan to undo them.
The EPA redefined its jurisdiction under the Clean Water Act, making some small waterways like wetlands and ponds subject to federal rules, and expanding the federal government’s control of local land use issues. The Ozone rule sets the allowable ozone level in air at 70 parts per billion, down from 75 parts per billion. Since ozone is a byproduct of fossil fuel emissions, reducing its concentrations would likely mean reducing fossil fuel use. Many states are finding it difficult to meet the current 75 parts per billion rule, so reducing it further would be quite difficult and costly.
The Obama Administration is hard at work to finalize regulations affecting the energy sector that President-Elect Trump has indicated he wants to undo. Depending on where the Obama Administration regulations are in terms of finalization, the process could be easy or very time consuming. Nevertheless, President-Elect Trump is planning to work for the American people in removing impediments to the functioning of a free market.
[i] The Hill, Feds target methane leaks on public land, November 15, 2016, http://thehill.com/policy/energy-environment/306100-feds-target-methane-leaks-on-public-land
[ii] Daily Caller, Feds Roll Out New Global Warming Rule Before Obama Leaves Office, November 15, 2016, http://dailycaller.com/2016/11/15/feds-roll-out-new-global-warming-rule-before-obama-leaves-office/
[iii]America’s Natural Gas Alliance, Declining Natural Gas Industry Methane Emissions, http://anga.us/issues-and-policy/declining-natural-gas-industry-methane-emissions#.VvrttLnmrIW
[iv] CATO Institute, Protecting Coal Mining from the Stream Protection Rule, February 2, 2016, https://www.cato.org/blog/protecting-coal-mining-stream-protection-rule
[v] Platts, US interior offshore oil and natural gas leasing plan may be complicated by Trump win, November 13, 2016, http://www.platts.com/latest-news/natural-gas/washington/us-interior-offshore-oil-and-natural-gas-leasing-27709239
[vi] The Hill, Obama to block new Arctic drilling, November 16, 2016, http://thehill.com/policy/energy-environment/306346-obama-to-block-arctic-drilling
[vii] Des Moines Register, Ethanol advocates, opponents brace for ruling, November 2, 2016, http://www.desmoinesregister.com/story/money/2016/11/02/ethanol-advocates-opponents-brace-ruling/93170002/
[viii] Ethanol Producer Magazine, EPA schedules public hearing on proposed rule to update RFS, October 31, 2016, http://www.ethanolproducer.com/articles/13859/epa-schedules-public-hearing-on-proposed-rule-to-update-rfs
[ix] The Hill, 14 Obama regs Trump can undo, November 12, 2016, http://thehill.com/regulation/305673-14-obama-regs-trump-could-undo