Page 1 of 9 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY WASHINGTON, D.C. 20460

OFFICE OF
AIR AND RADIATION

Petroleum and Natural Gas Systems (Subpart W) of the Greenhouse Gas Reporting Rule Docket: EPA-HQ-OAR-2009-0923

Title: Detailed Determination Cost Analysis

Summary: The purpose of this memo is to provide a more detailed analysis of the determination costs and compare it with the conservatively high er estimates provided in the Economic Impact Assessment to the final Subpart W rule.Page 2 of 9 

### Estimates of Determination Costs

Overview and Purpose

The Final 40 CFR Part 98, Subpart W rule Economics Impact Assessment (EIA) document (EPA-HQ-OAR-2009-0923) provides a simple, macro-level estimat e of determination costs— i.e., the burden of estimating emissions to dete rmine whether an entity exceeds the reporting threshold. The EIA cost estimates for repor ters are assumed to capture the reporting determination burden, however, those cost estimates do not account for the reporting determinations made by facilities that are estimated to fall below the threshold. The EIA includes a separate cost estimate for reporting determinati ons made by facilities that are estimated to fall
below the threshold in orde r to better reflect the rule’s total economic burden.

The reporting determination estimates for non-re porters in the EIA represent conservative, upper-bound estimates of these costs. The purpose of this memo is to provide a more detailed analysis of the determination cost s for non-reporters. The results of the analysis presented below
shows that actual determination costs are potentially much lowe r than the macro-level estimate used in the EIA. The EIA estimates determination costs to be $18.4 million for the first year for all non-reporters acro ss all segments of the oil and gas indus try; the analysis discussed in this memo produces an estimate of $5.6 million. 1

The remainder of this memo provides background a bout the detailed determination cost analysis, the underlying assumptions, and the cal culations and detailed estimates.

Background

EIA Costs Analysis Assumptions

The EIA determination costs are based on one of the following two methods:

1) For onshore petroleum and natural gas produc tion – Each reporter was assigned a screening cost and preliminar y monitoring cost. EPA plans to develop screening tools to assist reporters in threshold determination. The screening cost accounts for the time spent in gathering basic facility level data, such as well count and major equipment count, as well as the staff time required to input this da ta and run the voluntar y screening tool. The screening cost was applied to all non-reporters w ith estimated emissions of 20,000 metric tons CO2e or less; EPA used the results of its threshold analysis to determine the number
of entities at this emissions level. EPA assumed that any non-reporter above the 20,000
metric tons CO 2 e level would conduct some preliminary monitoring to determine whether or not to report and accounted for this in the preliminary monitoring cost. EPA estimated

1 All estimates are given in 2006

‐ dollar years.Page 3 of 9 the screening cost per non-re porter to be $573 and preliminary monitoring cost per nonreporter to be $1,034. A breakdown of these costs by activity and labor hours is as below; Non-reporters in the onshore production segmen t were assumed to spend the following hours conducting the scr eening tool analysis:

a. Regulatory Review – the cost to th oroughly review the rule per company (estimated 1.8 basins per company)
i. Senior Management ($101.31/hr) – 1.5 hours

ii. Middle Management ($88.79/hr) – 1.5 hours

iii. Junior Engineer ($71.03/hr) – 1.5 hours

b. Understand What Information is Required
i. Junior Engineering ($71.03/hr) – 2 hours

c. Gather Operations Data for Screening Tool
i. Junior Engineering ($71.03/hr) – 2 hours

d. Complete Screening Tool and Revise the Results
i. Junior Engineering ($71.03/h) – 1 hour

Non-reporters in the onshore production segm ent above 20,000 metric tons were assumed to spend the following hours conducting pre liminary monitoring, in addition to the screening tool hours above:

a. Further Regulatory Review per Compa ny (estimated 1.8 basins per company)
i. Senior Management ($101.31/hr) – 1.5 hours

ii. Middle Management ($88.79/hr) – 1.5 hour

iii. Junior Engineer ($71.03/hr) – 1.5 hours

b. Gather Actual Data from Field
i. Senior Operator ($60.84/hr) – 8 hours

c. Collect Data from Senior Operators Compile Results and Revise
i. Junior Engineering ($71.03/h) – 4 hour

EPA applied the screening cost estimate to a total of 21,370 non-reporting facilities; of these non-reporting facilities, an additional pr eliminary monitoring co st was applied to 159 facilities, which resulted in a total dete rmination cost of $12.5 million for the onshore production segment in the first year. Th e number of non-reporti ng facilities using screening and preliminary monito ring is shown in Table 3.

2) For other segments of the oil and gas industry – Each non-reporter was assigned a screening cost of $ 1,022 and non-repo rters above the 20,000 metric ton CO 2 e level were assigned an additional prelimin ary monitoring cost of $1,124.Page 4 of 9 Non-reporters, for segments other than ons hore production, were assumed to spend the following hours conducting the screening tool analysis:

a. Regulatory Review – the cost to thoroughly review the rule
i. Senior Management ($101.31/hr) – 0.1 hours

ii. Middle Management ($88.79/hr) – 1 hour

iii. Junior Engineer ($71.03/hr) – 8 hours

b. Understand What Information is Required
i. Junior Engineering ($71.03/hr) – 2 hours

c. Gather Operations Data for Screening Tool
i. Junior Engineering ($71.03/hr) – 2 hours

d. Complete Screening Tool and Revise the Results
i. Junior Engineering ($71.03/h) – 1 hour

Non-reporters, for segments other than onshore production, above 20,000 metric tons were assumed to spend the following hour s conducting preliminary monitoring, in addition to the screening tool hours above:
b. Further Regulatory Review
i. Senior Management ($101.31/hr) – 0.1 hours

ii. Middle Management ($88.79/hr) – 1 hour

iii. Junior Engineer ($71.03/hr) – 8 hours

b. Reevaluate What Data is Required
i. Junior Engineer ($71.03/hr) – 2 hours

c. Gather Actual Data from Field
i. Senior Operator ($60.84/hr) – 4 hours

d. Collect Data from Senior Operators Compile Results and Revise
i. Junior Engineer ($71.03/hr) -1 hour

Table 3 shows the total number of non-repor ting facilities incurring screening tool and preliminary monitoring costs.

EPA determined that such a simplistic approac h, however, likely overestimates the determination cost estimates for the following reasons:

1) Each industry segment has a wide range of fac ility sizes. In some cases, facilities are so small that the screening process may be unn ecessary (e.g., a facility with only one well) or could involve a simple and quick assessmen t using the screening tool. For example, in the onshore production category there are appr oximately 20,072 facilities that have less than 50 wells; each of these facilities has on average an estimated annual emissions of 2,119 metric tons CO 2- equivalent. These facilities, wh ich account for about 94 percent of the non-reporters in the onshore producti on segment, are well below the reportingPage 5 of 9 threshold and may be aware of this, and therefore would most likely not feel the need to use the screening tool. The small facilities th at voluntarily choose to use the screening tools would require much less time than th at assumed in the simplified EIA analysis, which applied a screening cost to all non-repo rters, regardless of size, that was based on the time expected for medium-sized non-reporte rs to use the tool. Applying a constantscreening cost to all non-reporters, however, overstates the cost because most of the nonreporters are small. That is, 94 percent of the non-reporters are sma ll and therefore likely to have screening costs that are much lower than the screening cost estimate used in the analysis.

2) In the case of offshore facilities operating in the Federal Gulf of Mexico, designated representatives may review the emissions estimates provided by Bureau of Ocean Management, Regulation and Enforcement (BOE MRE) Gulfwide Offshore Activity Data System (GOADS) to determine whether their f acilities (i.e., the plat forms) are above or below the 25,000 metric ton re porting threshold. Each design ated representative can conduct this screening for all of its facilities using BOEMRE reported data; in most cases, the designated representative is a company that reports emissions for multiple facilities. Since the emissions data for each pl atform facility is already known, the cost to determine whether or not to report per platform facility is going to be lesser than what EPA estimated in its macro level analysis. He nce, the macro-level analysis overestimates
the cost to determine whether offshore GOADS reporters will have to report to Subpart

W.

3) For all segments, the screeni ng estimate includes a cost com ponent that represents the time taken for a preliminary rule review. The pr eliminary rule review cost was applied to each facility rather than each designated repr esentative, however. This resulted in an
overestimate of the costs because the designated representative need only review the rule
once for all its facilities.

Revised Cost Analysis Assumptions

EPA conducted a more detailed analysis by allocating non-reporters from the onshore production, offshore production, and LDC segments into two categories. The first category represents the small non-reporters, or reporters wi th small operations that will clearly be below the reporting threshold hence will be comfor table making a threshold determination without using the screening tool or have to conduct minimal screening to determine whether or not they have to report. The small non-reporters for each of these three segments are defined as follows:

a) Onshore production – any facili ty with less than 50 wells;

b) Offshore production – any facility in Federal Gulf of Mexico; andPage 6 of 9 c) LDCs – any facility with less th an 150 miles of main pipelines.

The second category represents facilities that ne ed a more detailed scre ening because of their size and large number of equipment. This second category also incl udes facilities that are above 20,000 metric tons CO 2 e and therefore will need some preliminary monitoring to determine whether or not they have to report.

Next, to each group noted above, EPA assigned hour s for the key determination tasks required, such as gathering data and using the screening to ols. This approach be tter captures the estimated labor and costs for screening than the macro-level analysis in the EIA, which used a flat cost that did not vary by each facility’s si ze. In addition, EPA applied prelim inary rule review costs to the designated representatives rather than to indivi dual facilities. The hours assumed for each task and the corresponding labor rates ar e provided in Tables 1 and 2, respectively. Table 3 provides a count of non-reporters that wi ll either conduct screening only or will conduct both screening and preliminary monitoring. Table 4 provides a count of facilities per designated representative; the rule review cost was applied to each desi gnated representative. Finally, Table 5 provides a summary of the first- and subsequent- year de termination costs by industry segment, estimated using Equation 1 and Equation 2 below.

⎟ ⎠ ⎞ ⎜ ⎝ ⎛

+ = 

## ∑

p p p i i i Y n L h L h n d DC 1 Equation 1 

# ( )

p p p Y n L h d DC = 2 Equation 2

where,

DC Y1 = the first year determin ation cost (Table 5)

DC Y2 = the subsequent year determination cost (Table 5)

d = the facilities per designat ed representative (Table 4)

n = the number of facilities that do not perform preliminary monitoring (Table 3)

h i = the labor hours for each labor category (e.g. regulation review), i (Table 1)

L

I = the labor rate for each labor category, i (Table 2)

h

p = the labor hours prelimin ary monitoring (Table 1)

L

p = the labor rate for prelim inary monitoring (Table 2)

n

p = the number of facilities that perf orm preliminary monitoring (Table 3)Page 7 of 9Table 1. Determination Cost Labor HoursLaborHoursOnshoreProduction(less than 50wells)OnshoreProduction(Greaterthan 50wells)OffshoreProduction(FederalGoM)OffshoreProduction(State,California,and Alaska)NaturalGasProcessingNatural GasTransmissionUndergroundStorageLNGStorageLNGImport/ExportTerminalsDistribution(less than 50miles ofmains)Distribution(greater than50 miles ofmains)Regulatoryreview2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5Understandrequiredoperationalinfo0 2 0 0 2 1 1 1 2 0 1Gatheroperationsdata0 2 0 0 2 1 1 1 2 0 1Usescreeningtool1 1 4 1 1 1 1 1 1 2 1Preliminarymonitoring0 14 0 0 14 8 8 8 14 0 8Table 2. Determination Cost Labor RatesLaborRates($2006)OnshoreProduction(less than 50wells)OnshoreProduction(Greaterthan 50wells)OffshoreProduction(FederalGoM)OffshoreProduction(State,California,and Alaska)NaturalGasProcessingNatural GasTransmissionUndergroundStorageLNGStorageLNGImport/ExportTerminalsDistribution(less than 50miles ofmains)Distribution(greater than50 miles ofmains)Regulatoryreview$87.04$71.03$73.94 $73.94 $73.94 $73.32 $73.32 $73.32 $73.32 $73.32 $73.32Understandrequiredoperationalinfo$71.03$71.03$71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03Gatheroperations$63.89$71.03$63.89 $63.89 $63.89 $63.89 $63.89 $63.89 $63.89 $63.89 $63.89Page 8 of 9dataUsescreeningtool$71.03$71.03$71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03Preliminarymonitoring$71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03 $71.03Table 3. Non-Reporting Facilities that Perform and do not Perform Preliminary Monitoring.Number ofNonReportersOnshoreProduction(less than 50wells)OnshoreProduction(Greaterthan 50wells)OffshoreProduction(FederalGoM)OffshoreProduction(State,California,and Alaska)NaturalGasProcessingNatural GasTransmissionUndergroundStorageLNGStorageLNGImport/ExportTerminalsDistribution(less than 50miles ofmains)Distribution(greater than50 miles ofmains)FacilitieswithoutPreliminaryMonitoring20,072 1,298 2,460 698 253 722 244 23 1 1,008 261Facilities withPreliminaryMonitoring0 159 15 4 24 77 20 1 0 0 15Table 4. Facilities per DesignatedRepresentative for each SegmentOnshoreProductionOffshoreProductionNatural GasProcessingNatural GasTransmissionUndergroundStorageLNGStorageLNGImport/ExportTerminalsDistributionFacilities PerDesignatedRepresentative0.56 0.36 0.37 0.13 0.46 1.00 1.00 1.00Page 9 of 9Table 5. Revised Determination Costsfor the First and Subsequent YearsNewDeterminationCostOnshoreProductionOffshoreProductionNatural GasProcessingNatural GasTransmissionUndergroundStorageLNGStorageLNGImport/ExportTerminalsDistribution TotalFirst Year$4,217,525 $482,526 $137,458 $226,621 $88,037 $9,910 $524 $443,925 $5,606,528Subsequent Year$255,503 $5,810 $33,709 $61,379 $17,174 $958 $0 $14,363 $388,894