J une 8, 2015 Page 1 

### I NCENTIVIZING 

### V OLUNTARY 

### P ARTICIPATION IN



### T HE 

### E NHANCED 

### N ATURAL 

### G AS 

### S TAR 

### 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.