Methane Regulations & US EPA’s Clean Power Plan Compliance Strategies

The US EPA’s Clean Power Plan proposed in June 2014 is a key component of President Obama’s Climate Action Plan.  When final, the rule will require a 30% reduction in carbon emissions from the power sector by 2030 from 2005 levels, with an interim goal in 2020. Many have speculated about what this regulation will mean for electricity producers across the nation, but a common prediction is that coal-fired plants will begin to take a backseat to those fueled by natural gas in the immediate-term and by cleaner renewable energy resources longer-term.  One of EPA’s building blocks for compliance is carbon dioxide (CO2) reduction through re-dispatching from coal-fired generators to natural gas combined cycle plants, and the Energy Information Administration projects that natural gas will surpass coal as the nation’s primary source of electricity generation by 2035.

In addition to facing regulatory pressures to burn more gas in existing plants and convert existing plants to natural gas, electricity providers are provided incentives through low natural gas prices to build new gas plants.  Increased domestic production through hydraulic fracturing of Marcellus shale (or “fracking”) has led to the lowest gas prices the country has seen in 10 years.  While natural gas conversion may have seemed like a straightforward compliance solution for energy generators, the situation was complicated last month by the Obama administration’s announcement that the EPA will propose new regulations to cut emissions of methane from the oil and gas industries, with a goal of reducing total U.S. methane emissions 40% to 45% by 2025.

While natural gas is touted as being a cleaner burning fuel than coal, there is debate about how much environmental damage is done during its production and pipeline transportation.  Natural gas, a hydrocarbon composed primarily of methane, is found in a liquid state when compressed underground.  Faults along pipelines or spills during drilling can cause methane to come into contact with air and evaporate as a gas into the atmosphere.  Pound for pound, methane has 21 times the global warming potential as CO2.  A report published in Science in February 2014 concluded that official inventories, including US EPA’s, consistently underestimate actual methane emissions, with the natural gas and oil sectors as important contributors.

The Obama Administration’s targets come shortly after the release of a separate study conducted by researchers at the University of Austin, Texas regarding methane emissions at natural gas production site in the United States.  The results show that early adopters of EPA’s New Source Performance Standards (NSPS), which requires “green completions” to capture excess natural gas in the wellhead instead of releasing it, is effective as a means of limiting methane release during the early phases on natural gas production.  Beginning this year, all wells drilled after August 23, 2011 will be subjected to NSPS regulations.

Obama’s additional methane reduction efforts will include strengthening its Greenhouse Gas Reporting Program to require reporting in all segments of the industry and providing $15 million in funding for the Department of Energy (DOE) to develop technologies to detect and reduce losses from natural gas transmission and distribution systems.  Improved leak detection and reporting may lead to expensive upgrades to natural gas infrastructure, costs that will likely be recovered through price increases to electric companies.  While the cost of natural gas may increase, it seems unlikely that the required infrastructure improvements will cause utility scale renewables or carbon capture and storage facilities to become cost competitive alternatives.  For now, natural gas conversion still seems like a viable option for CPP compliance, but it may come at a slightly higher cost.

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