New proposed methane regulations issued by the U.S. Environmental Protection Agency last week would expand upon and strengthen already released rules that would reduce emissions of the potent greenhouse gas from covered sources 74% compared with 2005 levels. The new proposed regulations build on these rules by ensuring regular inspections at high-emitting, lower-producing wells, advancing monitoring technologies for leaks, and addressing pollution from abandoned wells. They complement the Methane Emissions Reduction Program passed in the Inflation Reduction Act earlier this year.
Instituitional investors and the sustainability nonprofit Ceres, which works with investors and companies to address the climate crisis and other sustainability issues, welcomed the news:
“We expect the companies we invest in to set a high bar in limiting methane emissions to maximize profitability,” said Thomas Golonka, chair of the Vermont Pension Investment Committee. “We engage with oil and gas portfolio companies on strategies towards this end such as eliminating routine flaring and improving detection, direct measurement, and reporting. However, federal regulation can offer a baseline of performance to reach thousands of individual U.S. producers efficiently which will help all asset owners mitigate climate risk in their portfolios.”
"The health, environmental and economic impacts of methane leaks are well-documented and substantial,” said Mary Minette, senior director of shareholder advocacy at Mercy Investment Services. “Methane’s contribution to climate change and air pollution has significant health impacts for vulnerable people, particularly children and the elderly, among those whom we are most responsible to protect from harm."
While EPA’s latest proposal improves regulations that could limit routine flaring, further action will be needed to eliminate such avoidable releases, for which cost-effective solutions are readily available. Recent research found that emissions due to unlit flares and inefficient combustion mean that methane emissions are five times higher than previously thought.
“The EPA’s proposed methane rule would represent an important step toward protecting our communities and the planet from avoidable emissions of this potent greenhouse gas,” said Andrew Logan, Ceres’ senior director of oil and gas. “Since the last EPA rulemaking, institutional investors and companies have spoken out in support of strong federal methane regulations to create consistency and enhance energy security. The latest announcement represents strong progress, and we encourage EPA to include regulations that will eliminate all routine flaring in its final rule.”
Methane-related emissions also exacerbate respiratory illness and contribute to ground-level ozone and smog, increasing the risk of heart disease. Production practices like venting and flaring, especially in areas near poor and vulnerable communities, increase the likelihood of low birth weight, infant and child mortality, and cancer. These impacts hit industry workers and those living near well pads and fall disproportionately on vulnerable populations and communities of color.
“Methane emissions carry an outsized and avoidable climate impact and represent needlessly lost product,” added Logan. “That is a concern for any prudent shareholder or responsible company, and we commend EPA for this strengthened regulatory approach. In addition, we continue to call on companies to join the Oil and Gas Methane Partnership 2.0, committing to the gold standard for accurate, transparent methane emissions reporting.”
Investors are increasingly calling on companies to improve measurement and disclosure of their methane emissions, and some are responding. A 2022 shareholder proposal from Mercy Investment Services calling on Chevron to issue an analysis on the reliability of its methane disclosures earned 98% of investors’ votes. That summer, following investor engagement, ConocoPhillips, Devon, and Pioneer Energy joined OGMP 2.0.
In July, Ceres released the second edition of its landmark report benchmarking the methane emissions of oil and gas companies. It showed enormous gaps between the emissions intensity of production between companies — the highest emitting oil and gas companies had a methane emissions intensity nearly 24 times that of the lowest emitting companies — demonstrating the considerable opportunity that exists to reduce methane emissions, and the need for regulation to encourage all companies to do so.
On the same day that the new draft rules were released, President Biden announced a framework in remarks at COP27 that would involve the U.S., the European Union, Japan, Canada, Norway, Singapore and the United Kingdom. Under it, buyers and sellers of internationally traded natural gas and other fuels will collaborate to minimize greenhouse gas emissions, including methane, across oil and gas supply chains. The International Energy Agency’s 2022 World Energy Outlook found that if countries that are current or potential exporters of natural gas to the European Union were to implement flaring and methane reduction measures, the savings alone would amount to one-third of Russian gas exports to the EU.
A 90-day public comment period will begin for the new draft EPA rules, to include public hearings and testimony. The rule is expected to be finalized in 2023.
About Ceres
Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. Through our powerful networks and global collaborations of investors, companies and nonprofits, we drive action and inspire equitable market-based and policy solutions throughout the economy to build a just and sustainable future. For more information, visit ceres.org and follow @CeresNews.