Howard J. Feldman

Senior Director

Regulatory and Scientific Affairs

1220 L Street, NW Washington, DC 20005

- 4070
USA Telephone 202

- 682

- 8340

Fax 202

- 682

- 8270
Email Feldman@api.org www.api.org July 8 , 2015

Mr. Dan Utech Deputy Assistant to President Obama for Energy and Climate Change Eisenhower Executive Office Building
Via Electronic Mail

Dear Mr. Utech:

We greatly appreciate your taking time to meet with us on June 30th to discuss the Administration’s Climate Action Plan and its potential impacts to our members. The American Petroleum Institute (“API”) has had a long, successful working relationship with the U

. S

. Environmental Protection Agency (“EPA”) and the U.S. Department of the Interior ( “ DOI ” ) on a number of efforts to address air emissions

.

It is widely agreed that increased reliance on natural gas will significantly reduce total U

. S

. greenhouse g as emissions and its continued production and use will be essential to ward advancing the goals of the Administration’s Climate Action Plan. EPA recently reported that total methane emissions from natural gas systems are down 11 percent since 2005 even as

p roduction has increased over the last decade.

As you know, t he Administration’s January 14th strategy to address VOC and/or methane emissions from the oil and gas industry included many components across multiple agencies.
This multi

- pronged approach, and the potential timing of its implementation, has created great uncertainty for the future operations of our members as each component will influence the other s and, in some cases, may be in direct conflict or create complica tions for other components. In addition, t he potential t ightening of the ozone ambient air quality standard

, and its potential
future impact on the feasibility and effectiveness of other programmatic components

, greatly adds to this uncertainty. As the Administration is considering its next steps, we would like to
reiterate several of the key points we discussed with you on regulatory programs, voluntary programs, and the need for significant interagency coordination.

Direct Methane Regulation is Unnecessary to Realize Environmental Benefits

Should EPA adopt additional controls as part of the ongoing reconsideration of NSPS OOOO, EPA should continue to regulate VOC emissions only . As has been demonstrated through the existing NSPS OOOO, EPA has been able to effectively achieve reductions of methane as a co

benefit of its VOC

- focused requirements by regulating natural gas as a VOC surrogate . If EPA believes that additional controls are necessary for transmission and st orage sources, EPA should propose a separate NSPS category for transmission and storage, and determine whether this new source category warrants regulatory controls. The industry has led the way in developing theJuly 8, 2015 Page 2 of 3

technologies to reduce VOC emissions ( and methane as a co

- benefit) , and we look forward to working with EPA on the planned NSPS OOOO revisions to continue to make improvements in a rational, cost

- effective way.

Common Sense Voluntary Reductions and Incentives Will Lead to Increased Early
Emissi on Reductions

If the Administration wishes to seek additional reductions through a federal framework, the best approach would be a voluntary program. The industry is interested in participating in a well

constructed voluntary program, and ha s shared optio ns for achieving substantial methane
emissions reductions more rapidly than regulations would allow

. While the uncertainty surrounding the various pending regulatory decisions may influence individual company
decisions whether to participat e in a federal voluntary program

, API and its members continue to be committed to voluntarily reducing emissions, either on their own or through a government partnership. Attached are four documents that describe in more detail our thoughts on various
elements associated with potential voluntary programs:

1. A detailed plan for a phase

- out of high bleed on

- shore pneumatic controller valves.
2. A detailed plan for an equipment leak “find and fix program” to effectively minimize leaks at oil and gas facilities.
3. A May 5, 2015 let ter to EPA Acting Assistant Administrator Janet McCabe covering API Comments on the potential EPA Enhanced Natural Gas STAR (ENGS) program.
4. A June 12, 2015 letter to EPA Acting Assistant Administrator Janet McCabe covering the regulatory and voluntary prog rams, and including a paper entitled I ncentivizing V

oluntary

P articipation in the E

nhanced N

atural G as S tar P rogram

.

Overlap or Conflict with EPA and BLM Methane Reduction Programs Will Dis

I ncentivize Voluntary Reductions and Development on Federal Lands

As you know, the Bureau of Land Management (BLM) is considering control requirements on the very same sources EPA has historically addressed and plans to address in its revised rules. It is imperative that the BLM efforts not discourage participatio n in the ENGS. Further, any possible regulatory efforts by BLM should be cost effective, practical to implement, and designed to minimize waste. Overlapping, duplicative, or conflicting regulatory requirements on

BLM

- managed lands could further dis

- incentivize development of oil and natural gas resources
on federal lands as well as industry participation in a voluntary methane reduction program for existing sources . A clearer understanding is needed of how BLM’s and EPA’s efforts differ and

need whet her there is need for supplemental rulemaking from BLM.

Because the industry is facing a number of regulatory and non

- regulatory initiatives from several agencies at the same time

, we need more time at the front end to comment as effectively and as helpfu lly as we can on these initiatives. API and its members stand ready to engage the
Administration and the agencies to identify cost

- effective and timely emission reductions

, but to be successful this will require full coordination and open communication f rom the regulatory agencies . We hope you wil l do all you can to ensure coordination between the EPA and DOI and

encourage the open communication we seek.July 8, 2015 Page 3 of 3

In conclusion, w e seek your direct engagement with all affected stakeholders to openly chart a

regu latory and voluntary path forward that provides our members greater operational certainty
that allows us to continue meeting our nation’s energy needs while providing an important part of the solution to address these emissions. We look forward to future conversations to determine how we might chart this course forward on these important issues.

Sincerely,

Howard J. FeldmanProgram to Phase

- out High

- bleed Pneumatic Controllers

- Implementation Principles

General

 5

- year replacement goal for all onshore continuous high

- bleed pneumatic controllers

 Create a new and separate Gas STAR Pneumatics Program (separate from the proposed Gas STAR Gold program and the old Gas STAR program)

 W ork together to develop the program specifics

Participation

 Industry leadership would p ublically endorse and promote the program to other trade

associations

 Individual company participation

Program Specifics

 Replace all onshore continuous

- high

- bleed controllers with one of the following:

o continuous

– low

- bleed controllers,

o intermittent

- vent controllers,

o electrically operated controllers and valve actuators or mechanical controllers

,

o convert to instrument air to replace natural gas as the motive gas, or

o remove from service where feasible with no replacement.

 Support annual reporting and alignm ent with timing of GHG reporting

– March 31 st rep o rting deadline for the previous calendar year. Reports would include the following regarding a company’s onshore continuous

- high

- bleed controllers :

o Number replaced

o Number swapped to instrument air

o Number eliminated

o Number remaining

 Individual company commitment/annual targets to meet 100% replacement goal within 5 years

 Only affects controllers located at upstream onshore production and gathering facilities as well as natural gas processing plants.

 EPA may make program details and submitted company

- specific data publically available

 Maintain Subpart OOOO exemption based on functional needs, including but not limited to response time, safety, and positive actuation.Voluntary Leak Program for Oil and Gas Production Sources

- Implementation Principles

General

 Targeted toward higher emissions sources

 Applies to new and existing onshore sites upstream of gas processing plant (as defined in OOOO)

 Applies to onshore production sites with onsite storage vessel or compressor

 Incorporates five

- year phase

- in schedule to implement initial monitoring for participating existing sites based on individual company plan

 Instrument

- based monitoring programs within existing state regulatory and permit requirements or participation in voluntary program should satisfy future regulatory requirements (i.e., NSPS OOOO)

 Allow flexibility in leak detection methods and technologies (e.g., Method 21, IR camera, or other equivalent) to sati sfy the voluntary program requirements

 Committed to reasonable, cost

- effective reporting that tracks progress

Program Specifics

Target Broad facility survey
Target Components Significant emission sources such as malfunctioning fugitive emission components, pneumatic controllers not functioning as designed , and controlled hydrocarbon storage vessels

Method IR camera, or equivalent

Initial Survey

Existing Site Phased in, initiated within no later than 18 months and concluded over no

more than a 5 year period

New Site Within 180 days of start of production following installation of new

hydrocarbon storage vessel or compressor Subsequent Survey s Annual after initial survey

Repair Period  1 st attempt within 15 days

 Repair within 60 days (pending part availability)

 Delay of repair (at next shutdown or pending part availability)

Reporting
Frequency Annual

Contents  Number of new sites monitored

 Number of existing sites monitored

 Number of leaks repaired (excluding those repaired during survey)

 Number of leaks not repaired and reason for delay Tagging/Other

Identification Only of leaking components not repaired during surveyMay 5, 2015

The Honorable Janet McCabe Acting Assistant Administrator Office of Air and Radiation U.S. Environmental Protection Agency
Via Electronic Mail

Re: API Comments on the potential EPA Enhanced Natural Gas STAR (ENGS)

program

Dear Ms . McCabe:

The American Petroleum Institute has had a long, successful working relationship with EPA on a number of air emissions programs. The oil and gas industry has also been successful in significantly reducing emissions from our operations. The EPA has

recent ly reported that methane emissions from hydraulically fractured natural gas wells are down 79 percent since 2005 and total methane emissions from natural gas systems are down 11 percent since 2005 despite significant growth in oil and gas production.
We d o not believe that additional EPA regulation of our emissions is necessary.

As you are aware, industry has a long history of supporting the Natural Gas STAR Program and remains interested in addressing methane emissions through voluntary action. Recently we were briefed on EPA’s thoughts on the potential EPA Enhanced Natural Gas STAR (ENGS) program and would like to share our thoughts with you and your team. We are raising our comments to you given the interrelationship of this program with other existin g and contemplated EPA air programs. Our four primary concerns revolve around 1) flexibility, 2) clear commitments and assurances with respect to benefits that would accrue to participants through their participation, 3) regulatory overlap and 4) recordke eping, quantification, and verification. We believe these concerns need to be addressed within the confines of the potential program if such a program is to be a success and we are happy to discuss these further with you and/or your staff. Howard J. Feldman

Senior Director

Regulatory and Scientific Affairs

1220 L Street, NW Washington, DC 20005

- 4070 USA Telephone 202

- 682

- 8340
Email feldman@api.org www.api.orgPage 2 of 5

Flexibility

 A growing body of research indicates “fat tail” emissions distribution for a variety of sources, where a small number of sites and sources are responsible for a high percentage of emissions. A voluntary program that targets lowering fat tail
emissions is a ppealing to industry, results in the greatest cost

- effective reductions, and produces significant reductions in emissions more quickly. EPA should provide program flexibility to allow for cost

- effective emission reductions. Adhering to rigid protocols or requiring company

- wide implementation of specific technologies could limit participation, which defeats EPA’s ultimate objectives.

 In most instances, application of Best Management Practices (BMPs) is a more practical and effective path to implementing reductions. Standardized practices and associated pollutant reductions will make it easier for agency/industry agreement on practices to be implemented. However, companies/basins will need the ability to amend the standard practices to make implementatio n practical (i.e., variability in operations due to type and amount of product, specific equipment operated as well as accounting for future potential changes of these items).

 Standard BMP protocols are bound to contain details that will make them
ineffi cient in a given geographic area. For example, an equipment leak protocol may call for monitoring at all sites, but this would be inefficient in an area that uses centralized gathering facilities to process production from broadly dispersed
facilities con sisting of only a well head. It would be costly to pay for travel time to routinely monitor the wellhead facilities with little environmental benefit. Companies can increase the emissions reductions with the available resource by customizing BMP protocol s to initially monitor the well head facilities, while routinely monitoring the centralized facilities. The ability to customize the BMPs for efficiency should be considered permissible.

 Within any area, some of the facilities will have regulatory requ irements (i.e., state permits including potential need for offsets, CTGs for existing sources, NSPS, or NESHAP) that will parallel and potentially conflict with employing voluntary BMPs. The voluntary BMPs should not apply in these instances, unless provi sions are available that exempt the facility from the regulatory requirements due to the voluntary BMP protocols.

Benefits of Participation

 As a general matter, participants in the program will need to have a comprehensive understanding of what they wi ll receive in exchange for their participation in ENGS in the way of EPA commitments and assurances.Page 3 of 5

 It is a win for EPA, industry and the environment if EPA makes participation in a revised voluntary program attractive to a large percentage of industr y. A successful voluntary program benefits the environment and has reputational value for both Administration and industry. Linking participation in the voluntary program to the generation of emission reduction credits or offsets encourages industry partic ipation. In particular:

 The voluntary program should be coordinated with other regulatory action, including any Control Technique Guidance to the states, to preserve industry’s ability to generate Emissions Reduction Credits (ERCs) for VOCs
to the maximu m extent permissible under the Clean Air Act and to preserve any credits they have. Voluntary reductions of other ozone precursors such as NOX currently generate ERCs. EPA may want to consider incentivizing further reductions from these precursors in its v oluntary framework to make the program appealing to producers who may not have VOC

- rich gas.

 EPA should consider the generation and use of credits for methane emission
reductions as well.

 EPA should explore crediting early action in recognition of th e significant reductions industry has already made.

 EPA’s voluntary program should include guidance and ensuing provisions for the banking and selling of credits or offsets in nonattainment areas or methane, if regulated.

 Offices such as Office of Air Quality Policy and Standards (OAQPS) and Office of Atmospheric Programs (OAP) are likely to have regulatory programs that impact ENGS participation. As such, EPA management should actively support regulatory efforts to include incentives (or remove disinc entives) for participation
in the ENGS.

 EPA should provide guidance to allow for limiting potential to emit (PTE) for regulatory and permit requirements based on ENGS participation. EPA can include a potentially effective incentive in ENGS by allowing E NGS BMP commitments to limit PTE of a facility, as long as maintaining the BMP for the facility is documented.

Regulatory Overlap

 Participation in ENGS should inform the necessity for further regulation of existing sources. It is unclear how participa tion will inform the agency’s decision on whether to regulate VOC or methane (which will lead to regulation of existingPage 4 of 5

sources and potentially create additional permitting burdens) in the NSPS OOOO
rule.

 EPA should not regulate methane directly under 111(b) or 111(d) but rather pursue a path that allows the ENGS to address existing source emissions.

 Industry is facing a suite of proposed regulatory changes in the coming years. EPA should consider delaying implementation of the program until the new rules are finalized and some regulatory certainty for industry is restored. To gauge industry commitme nt and, thereby, inform the necessity to regulate methane from existing sources, perhaps EPA should first seek a revocable letter of intent to participate rather than a commitment to immediate implementation.

 Voluntary BMPs and regulatory requirements will overlap in many cases. The agency should incentivize ENGS participation by including exemptions from the regulatory requirements in new or revised regulations and permits, including Control Technique Guidelines, when implementation of an equivalent E NGS
BMP is documented.

 EPA should provide guidance to the States to avoid redundancy / overlap of voluntary programs and other programs and regulations.

 EPA communicated that one important aspect of ENGS, the leak monitoring program, will not be incor porated into the program until after amendments to the NSPS OOOO rule are final in 2016. It will be difficult for companies to commit to a voluntary leak monitoring program until program details are known, and the decision to regulate methane will have alr eady been made.

Recordkeeping & Quantification

 Recordkeeping/reporting and verification requirements of ENGS need to be simple as possible and not impose requirements that are more burdensome than any equivalent regulatory program. Quantification of em issions reductions is likely to be part of the program and EPA should engage industry to develop a simplified approach to quantify emission reductions.

 EPA should provide guidance or establish streamlined mechanisms for limiting potential to emit (PTE) with regards to regulatory and permit requirements based on ENGS participation. EPA can include a potentially effective incentive in ENGS by allowing ENGS BMP commitments to limit PTE of a facility, as long as maintaining the BMP for the facility is docum ented.Page 5 of 5

Again, w e look forward to engaging with you and your staff on these issues. Please

contact me if you have any questions.

Sincerely,



### Howard J. Feldman

Cc: Jo seph Goffman Paul Gunning Carey BylinJune 1 2 , 2015

The Honorable Janet McCabe Acting Assistant Administrator Office of Air and Radiation U.S. Environmental Protection Agency
Via Electronic Mail

Re: Oil and gas emissions sources

Dear Ms. McCabe:

The American Petroleum Institute (“API”) has had a long, successful working relationship with the US Environmental Protection Agency (“ EPA ”) on a number of air emissions programs. The oil and gas industry has also been successful in significantly reducing emissions from our operations. As we have indicated previously, w e do not believe that additional EPA regulation of the emissions from our industry is necessary. Increased exploration, production and use of natural gas are both essential to meeting the goals of the Administration’s Climate Action Plan and an objective of US energy policy. Furthermore, t here is wide agreement that increased reliance upon natural gas as a cleaner fuel can significantly reduce US greenhouse gas emissions. Below, we

to uch on our positions on regulation and voluntary programs, and provide a more
detailed discussion of an API framework for emissions reduction credits.

Additional Revisions to NSPS OOOO

Should EPA adopt additional controls as part of the ongoing reconsideration of NSPS
OOOO

, EPA should continue to regulate only VOC emissions

. I f EPA believes that additional controls are necessary for transmission and storage sources

, EPA must propose a separate NSPS category for transmission and storage, and determine whether this new source category warrants regulatory controls

. Additionally, EPA should minimize the reporting, recordkeeping, quantification, and verification burden on industry in any regulatory program. Howard J. Feldman

Senior Director

Regulatory and Scientific Affairs

1220 L Street, NW Washington, DC 20005

- 4070
USA Telephone 202

- 682

- 8340
Email feldman@api.org www.api.orgPage 2 of 3

EPA Voluntary Program

As indicated in my May 5, 2015 letter to you (attached), i t is a win for EPA, industry and the environment if EPA ensures that any voluntary program is embraced by all stakeholders. As described in that letter, o ur four primary concerns revolve around 1) flexibility, 2) clear commitments and assurances with resp ect to benefits that would accrue to participants through their participation, 3) regulatory overlap and 4) recordkeeping, quantification, and verification. We believe these concerns need to be addressed within the confines of the potential program if suc h a program is to be a success and we are happy to discuss these further with you and/or your staff. As you are aware, i ndustry is facing a suite of proposed regulatory changes in the coming

years. EPA should make it clear that robust participation in the onshore equipment leak and high bleed pneumatic controller programs by operators will obviate the need for direct regulation of methane for new sources.

Emission Reduction Credits

A s EPA moves in the direction of additional regulations of oil and gas operations, potentially more stringent ozone standards, and development of new voluntary emissions reduction programs, the establishment of a framework for emissions reduction credits ( “ ERCs ” ) would be a win

- win for all parties.

ERCs provide important compliance flexibility to industry in areas where a more stringent ozone standard could jeopardize continued industry operations.

As indicated

, i t is beneficial for all parties if EPA ensures that any voluntary program is coordinated with other regulatory action, including any Control Technique Guid eline (“ CTG”) to the states

. This would preserve industry’s ability to generate ERCs for VOCs to the maximum extent permissible under the Clean Air Act and to preserve those
credits

. Voluntary reductions of other ozone precursors such as NO X currently generate ERCs. EPA may want to consider incentivizing further reductions from these precursors in its voluntary framework to make the program appealing to producers who may not have VOC

- rich gas. Also, EPA should consider the generation and use of credits for methane emission reductions as well and crediting early action in recognition of the significant reductions industry has already made.

Attached, please find a paper entitled INCENTIVIZING VOLUNTARY PARTICIPATION
IN THE ENHANCED NATURAL GAS STAR PROGRAM, that proposes a framework for the continued generation of emission reduction credits for use as offsets to help attain the ozone NAAQS. This framework would assure that industry has incentives to participate in EPA's voluntary methane emissions reduction program ("Enhanced Natural Gas Star" or “ENGS”) by enabling VOC reductions achieved as co

- benefits ofPage 3 of 3

voluntary methane controls to be treated as ERCs . This would thereby preserv e industry's compliance flexib ility under the NAAQS being developed for ground level
ozone. We anticipate that the framework would be incorporated into the Control Technique Guidelines ("CTGs") EPA is developing for oil and gas production sources,
so that the CTGs do not "mandate" red uctions that will be made voluntarily under the ENGS and thus preclude their use as ERCs.

Since preserving ERC opportunities for companies that wish to use them may significantly inform and influence industry's perspective on the ENGS, we strongly urg e EPA to review and respond to the proposed framework before the draft ENGS is released for comment. Affirming EPA's willingness to preserve ERC opportunities will help lay the groundwork for a positive dialogue on the draft ENGS and clarify one of the pot ential benefits to industry of participating in the ENGS.

We encourage the EPA to take the necessary time to address our proposal before it
releases a draft ENGS. Incorporating the proper incentives i nto the ENGS from the start will greatly assist companies in justifying their participation and the costs
involved. Obviously, w ide industry participation is important to the success of the ENGS

. W e believe that, with the right incentives in place, a significant portion of the production industry would be encouraged to join , which would obviate the need for an additional regulatory program.

Thank you for your consideration. We look forward to discussing these issues with you and your staff at your earliest convenience. Please contact me if you have any questions.

Sincerely,



### Howard J. Feldman

Cc: Jo seph Goffman Paul Gunning Carey Bylin Peter TsirigotisJ une 8, 2015 Page 1 

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One important element of EPA’s methane reduction strategy is the development of the

Enhanced Natural Gas STAR (ENGS) program, the agency’s voluntary program to reduce further methane emissions from existing sources across the oil and gas sector. Successful implementation of the ENGS program, however, is dependent on the willingness of oil and gas producers to par ticipate. A critical consideration will be

whether participating companies will receive emissions reduction credits (ERCs) under the Clean Air Act (CAA or Act) for the voluntary VOC emission reductions achieved as

a co

- benefit of controlling methane under the ENGS program.

T he incentive for companies to participate in the ENGS program could be significantly undercut by EPA’s proposed plan to issue Control Technique Guideline s (CTG s ) that

would require state regulat ion of VOC emissions from existing oil and gas sources

located in ozone nonattainment areas (classified as moderate and above) and potentially transport regions. As described below, if the VOC reductions accompanying methane

reductions under the ENGS are considered “mandatory ” because they are required by states pursuant to the CTG s , then they would not be available to use as ERCs for meeting CAA requirements in areas designated nonattainment for ozone. This would eliminate an important benefit that industry could obtain from voluntary reductions

under the ENGS and thereby create a major dis incentive for participation in the voluntary program

. 1

EPA has the ability to address these concerns. The dis cuss ion below outlines a federal framework for ensuring that companies can participate in a voluntary methane reduction program and, at the same time, generate VOC ERCs that can be used for CAA compliance

. 2 These comments reflect ou r initial thinking; we expect to have further input once we have had the opportunity to review the design elements of the upcoming EPA proposal s for establishing the ENGS program and CTGs for the oil and gas sector

.

1 The importance of generating VOC ERCs will not only be for the benefit of permitting new oil and gas projects in nonattainment areas, but also for the benefit of other industrial sectors that may need these ERCs for CAA compliance. While many new minor s ource oil and gas projects may not need VOC emission offsets as condition for obtaining their air construction permits, ERCs generated by existing oil and gas sources could be useful to other sectors that need them and have limited opportunities to
generat e ERCs.

2 The federal framework proposed in this paper would apply equally to oil and gas sources located on

either state or tribal lands.J une 8, 2015 Page 2

C AA R EQUIREMENTS

The CAA establishe s sp ecific rules for the generation of ERCs. One key requirement is

that the emission reductions must not otherwise be required by some other CAA

program or regulation. 3 EPA has also established federal guidance providing that t o the

extent that the emission reductions are in fact required by CAA, th os e reductions are not “surplus” and consequently may not be used to generate ERCs

. 4

As discussed below, t here is concern that voluntary VOC emission reductions achieved

under the EN GS program will not be considered surplus if they are made now or in the

future by existing oil or gas sources that are subject to new VOC emission reduction requirements over the next few years.

In releas ing its methane strategy of January 14, 2015 , EPA announced its plan to develop CTGs that will guide states toward adopting VOC controls for th o se existing

sources located in ozone nonattainment areas under the CAA

. In particular

, section 182(b)(2) of the CAA requires states to set performance stan dards based on “reasonably available control technology” (RACT) for each category of existing VOC emission sources for which EPA has developed CTGs for controlling VOC emissions

. These RACT requirements would then be incorporated in State Implementation P lan s (SIPs) and be enforceable against covered sources. EPA is now working on draft CTG s and intends to release them for comment in the next few months.

Viewed in this context, there is concern that the voluntary VOC reductions achieved under the ENGS program may not be surplus and thus be ineligible for the generation

of ERCs. This c ould occur if EPA or states were to determine that these voluntary VOC

reductions were otherwise required by another p rovision of the CAA

– specifically , as discussed above, the VOC RACT requirements imposed through section 182(b) (2) of

the Act

.

3 Section 173 (c)( 2) of the CAA (providing that “Emission reductions otherwise required by this chapter shall not be creditable as emissions reductions for purposes of any such offset requirement”). See also Emissions Trading Policy Statement; General Principles for Creati on, Banking and Use of Emission
Reduction Credits, 51 Fed. R eg. 43,814, (December 4, 1986) [hereinafter “EPA ERC Policy”].

4 EPA ERC Policy at 43,832. In addition to being surplus, the emission reductions must meet other criteria

in order for the emission reductions to generate ERCs. These criteria include requirements for the

reduc tions to be actual, quantifiable, enforceable, and permanent. Id

.J une 8, 2015 Page 3

P ROPOSED F RAMEWORK FOR G ENERATION OF VOC ERC S

So that EPA’s development of the CTG s do es not undermine the incentives for industry participation in the ENGS program , EPA should provide clarification that VOC

reductions that occur as a co

- benefit of voluntary methane reductions under the ENGS

program will be deemed to be “surplus” and thereby be able to generate VOC ERCs

under the CAA

.

The most straightforward way for providing certainty on this issue is through the definition of the CTG source category. Specifically

, EPA should define the oil and gas source category covered by the CTGs to exclude those existing oil and gas sources that have implemented “best management practices ” (BMPs) for methane under the ENGS

program and have thereby reduced their VOC emissions to low levels that would meet

or exc ee d the minimum VOC RACT control levels that, as noted above, states would need to adopt in response to the CTG s under CAA section 182(b)(2)

. 5

In this case, the establishment of an exemption for existing sources controlling VOCs through ENGS

- specified BMPs would mean that states would not be required to set
VOC RACT standards for these sources based on the control measures specified in the

CTG s . Since such sources would be excluded from the oil and gas source category to which the CTGs would apply, states would have no legal obligation to establish VOC

RACT standards for these sources under the CAA. This means that the VOC emission

reductions achieved by these sources would not result from the imposition of any mandatory CAA reduction requirement imposed by states or EPA . Rather, the reductions will be achieved through the voluntary implementation of BMPs or other equivalent work practice meas ures under the ENGS program and thereby would be “surplus” reductions for purposes of generating ERCs under the CAA

. 6

In addition to demonstrating that the emissions reduction s are surplus, owners and operators of existing oil and gas sources would have to meet the other criteria for generating creditable VOC ERCs under the CAA. These other criteria include

5 Notably, this approach is similar to the exemption that EPA has provided for new and modified sources

under the NSPS Subpart OOOO regulations . In the case of the Subpart OOOO regulations, EPA has defined the “affected facility” to exclude “highly

- controlled” sources that meet certain performance criteria specified in the NSPS regulation.

6 Furthermore, b y providing this guidance in the CTGs, states would also have the assurance that EPA would approve their nonattainment SIP RACT provisions with respect to the adoption of a BMP exemption for ENGS participation. It would also provide EPA regions with overs ight of tribal lands needed assurance to include equivalent provisions in nonattainment federal implementation plans that EPA must adopt for ozone nonattainment areas.J une 8, 2015 Page 4

requirements for the associated VOC reductions to be actual, quantifiable, enforceable, and permanent. 7 For companies participating in the ENGS program that wish to generate creditable VOC ERCs as co

- benefits of methane reductions, a process for quantifying and documenting these voluntary VOC reductions would be helpful and

reduce uncertainties down

- the

- road

. EPA should , therefore, develop federal guidance for the quantification and accounting of voluntary VOC reductions from oil and gas

sources that could be used to generate ERCs under the CAA

. This guidance would not only be helpful to companies wishing t o obtain VOC ERCs but would also encourage consistency in quantifying and crediting VOC reductions by states (and EPA regions managing tribal lands) that are responsible for establishing ERC programs as part of NAAQS implementation. A dherence to these procedures in the federal guidance c ould

then be considered sufficient for generat ing creditable VOC ERCs so long as the

reductions also voluntarily become federally enforceable through a permit condition or other applicable regulatory requirement imposed by the state or EPA

.

V OLUNTARY M ETHANE E MISSION R EDUCTIONS

The primary objective of the ENGS program is to encourage participating companies to achieve significant voluntary reductions in methane emissions from their existing oil and gas sources. To encourage maximum participation under the ENGS program, EPA

should establish a clear and straight forward process for participating companies to
receive ERCs for the co

- benefit VOC emissions reductions achieved under the ENGS

program

. The generat ion of such VOC credits is therefore a critical component of the ENGS program that should be included in order to preserve industry’s ability to meet

its ozone compliance obligations under the CAA

.

In addition to the ability to generate VOC ERCs, the extent to which companies participate in the voluntary program will depend on a variety of other important

considerations , including t he overall mix of incentives and benefits provided for achieving voluntary methane emissions reductions

. Although outside the scope of this

paper, there will undoubtedly be further dialog ue regarding these incentives and

benefits once the draft ENGS program is released for comment with the goal of crafting a program that encourages robust industry participation in the ENGS program and thereby the achievement of substanti al methane reductions . We look forward to discussing with EPA possible approaches to achieving this important objective once we have had the opportunity to review the proposed design elements of the ENGS

program.

7 EPA ERC Policy at 43,832.J une 8, 2015 Page 1 

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### P ROGRAM

One important element of EPA’s methane reduction strategy is the development of the

Enhanced Natural Gas STAR (ENGS) program, the agency’s voluntary program to reduce further methane emissions from existing sources across the oil and gas sector. Successful implementation of the ENGS program, however, is dependent on the willingness of oil and gas producers to par ticipate. A critical consideration will be

whether participating companies will receive emissions reduction credits (ERCs) under the Clean Air Act (CAA or Act) for the voluntary VOC emission reductions achieved as

a co

- benefit of controlling methane under the ENGS program.

T he incentive for companies to participate in the ENGS program could be significantly undercut by EPA’s proposed plan to issue Control Technique Guideline s (CTG s ) that

would require state regulat ion of VOC emissions from existing oil and gas sources

located in ozone nonattainment areas (classified as moderate and above) and potentially transport regions. As described below, if the VOC reductions accompanying methane

reductions under the ENGS are considered “mandatory ” because they are required by states pursuant to the CTG s , then they would not be available to use as ERCs for meeting CAA requirements in areas designated nonattainment for ozone. This would eliminate an important benefit that industry could obtain from voluntary reductions

under the ENGS and thereby create a major dis incentive for participation in the voluntary program

. 1

EPA has the ability to address these concerns. The dis cuss ion below outlines a federal framework for ensuring that companies can participate in a voluntary methane reduction program and, at the same time, generate VOC ERCs that can be used for CAA compliance

. 2 These comments reflect ou r initial thinking; we expect to have further input once we have had the opportunity to review the design elements of the upcoming EPA proposal s for establishing the ENGS program and CTGs for the oil and gas sector

.

1 The importance of generating VOC ERCs will not only be for the benefit of permitting new oil and gas projects in nonattainment areas, but also for the benefit of other industrial sectors that may need these ERCs for CAA compliance. While many new minor s ource oil and gas projects may not need VOC emission offsets as condition for obtaining their air construction permits, ERCs generated by existing oil and gas sources could be useful to other sectors that need them and have limited opportunities to
generat e ERCs.

2 The federal framework proposed in this paper would apply equally to oil and gas sources located on

either state or tribal lands.J une 8, 2015 Page 2

C AA R EQUIREMENTS

The CAA establishe s sp ecific rules for the generation of ERCs. One key requirement is

that the emission reductions must not otherwise be required by some other CAA

program or regulation. 3 EPA has also established federal guidance providing that t o the

extent that the emission reductions are in fact required by CAA, th os e reductions are not “surplus” and consequently may not be used to generate ERCs

. 4

As discussed below, t here is concern that voluntary VOC emission reductions achieved

under the EN GS program will not be considered surplus if they are made now or in the

future by existing oil or gas sources that are subject to new VOC emission reduction requirements over the next few years.

In releas ing its methane strategy of January 14, 2015 , EPA announced its plan to develop CTGs that will guide states toward adopting VOC controls for th o se existing

sources located in ozone nonattainment areas under the CAA

. In particular

, section 182(b)(2) of the CAA requires states to set performance stan dards based on “reasonably available control technology” (RACT) for each category of existing VOC emission sources for which EPA has developed CTGs for controlling VOC emissions

. These RACT requirements would then be incorporated in State Implementation P lan s (SIPs) and be enforceable against covered sources. EPA is now working on draft CTG s and intends to release them for comment in the next few months.

Viewed in this context, there is concern that the voluntary VOC reductions achieved under the ENGS program may not be surplus and thus be ineligible for the generation

of ERCs. This c ould occur if EPA or states were to determine that these voluntary VOC

reductions were otherwise required by another p rovision of the CAA

– specifically , as discussed above, the VOC RACT requirements imposed through section 182(b) (2) of

the Act

.

3 Section 173 (c)( 2) of the CAA (providing that “Emission reductions otherwise required by this chapter shall not be creditable as emissions reductions for purposes of any such offset requirement”). See also Emissions Trading Policy Statement; General Principles for Creati on, Banking and Use of Emission
Reduction Credits, 51 Fed. R eg. 43,814, (December 4, 1986) [hereinafter “EPA ERC Policy”].

4 EPA ERC Policy at 43,832. In addition to being surplus, the emission reductions must meet other criteria

in order for the emission reductions to generate ERCs. These criteria include requirements for the

reduc tions to be actual, quantifiable, enforceable, and permanent. Id

.J une 8, 2015 Page 3

P ROPOSED F RAMEWORK FOR G ENERATION OF VOC ERC S

So that EPA’s development of the CTG s do es not undermine the incentives for industry participation in the ENGS program , EPA should provide clarification that VOC

reductions that occur as a co

- benefit of voluntary methane reductions under the ENGS

program will be deemed to be “surplus” and thereby be able to generate VOC ERCs

under the CAA

.

The most straightforward way for providing certainty on this issue is through the definition of the CTG source category. Specifically

, EPA should define the oil and gas source category covered by the CTGs to exclude those existing oil and gas sources that have implemented “best management practices ” (BMPs) for methane under the ENGS

program and have thereby reduced their VOC emissions to low levels that would meet

or exc ee d the minimum VOC RACT control levels that, as noted above, states would need to adopt in response to the CTG s under CAA section 182(b)(2)

. 5

In this case, the establishment of an exemption for existing sources controlling VOCs through ENGS

- specified BMPs would mean that states would not be required to set
VOC RACT standards for these sources based on the control measures specified in the

CTG s . Since such sources would be excluded from the oil and gas source category to which the CTGs would apply, states would have no legal obligation to establish VOC

RACT standards for these sources under the CAA. This means that the VOC emission

reductions achieved by these sources would not result from the imposition of any mandatory CAA reduction requirement imposed by states or EPA . Rather, the reductions will be achieved through the voluntary implementation of BMPs or other equivalent work practice meas ures under the ENGS program and thereby would be “surplus” reductions for purposes of generating ERCs under the CAA

. 6

In addition to demonstrating that the emissions reduction s are surplus, owners and operators of existing oil and gas sources would have to meet the other criteria for generating creditable VOC ERCs under the CAA. These other criteria include

5 Notably, this approach is similar to the exemption that EPA has provided for new and modified sources

under the NSPS Subpart OOOO regulations . In the case of the Subpart OOOO regulations, EPA has defined the “affected facility” to exclude “highly

- controlled” sources that meet certain performance criteria specified in the NSPS regulation.

6 Furthermore, b y providing this guidance in the CTGs, states would also have the assurance that EPA would approve their nonattainment SIP RACT provisions with respect to the adoption of a BMP exemption for ENGS participation. It would also provide EPA regions with overs ight of tribal lands needed assurance to include equivalent provisions in nonattainment federal implementation plans that EPA must adopt for ozone nonattainment areas.J une 8, 2015 Page 4

requirements for the associated VOC reductions to be actual, quantifiable, enforceable, and permanent. 7 For companies participating in the ENGS program that wish to generate creditable VOC ERCs as co

- benefits of methane reductions, a process for quantifying and documenting these voluntary VOC reductions would be helpful and

reduce uncertainties down

- the

- road

. EPA should , therefore, develop federal guidance for the quantification and accounting of voluntary VOC reductions from oil and gas

sources that could be used to generate ERCs under the CAA

. This guidance would not only be helpful to companies wishing t o obtain VOC ERCs but would also encourage consistency in quantifying and crediting VOC reductions by states (and EPA regions managing tribal lands) that are responsible for establishing ERC programs as part of NAAQS implementation. A dherence to these procedures in the federal guidance c ould

then be considered sufficient for generat ing creditable VOC ERCs so long as the

reductions also voluntarily become federally enforceable through a permit condition or other applicable regulatory requirement imposed by the state or EPA

.

V OLUNTARY M ETHANE E MISSION R EDUCTIONS

The primary objective of the ENGS program is to encourage participating companies to achieve significant voluntary reductions in methane emissions from their existing oil and gas sources. To encourage maximum participation under the ENGS program, EPA

should establish a clear and straight forward process for participating companies to
receive ERCs for the co

- benefit VOC emissions reductions achieved under the ENGS

program

. The generat ion of such VOC credits is therefore a critical component of the ENGS program that should be included in order to preserve industry’s ability to meet

its ozone compliance obligations under the CAA

.

In addition to the ability to generate VOC ERCs, the extent to which companies participate in the voluntary program will depend on a variety of other important

considerations , including t he overall mix of incentives and benefits provided for achieving voluntary methane emissions reductions

. Although outside the scope of this

paper, there will undoubtedly be further dialog ue regarding these incentives and

benefits once the draft ENGS program is released for comment with the goal of crafting a program that encourages robust industry participation in the ENGS program and thereby the achievement of substanti al methane reductions . We look forward to discussing with EPA possible approaches to achieving this important objective once we have had the opportunity to review the proposed design elements of the ENGS

program.

7 EPA ERC Policy at 43,832.