This news is classified in: Traditional Energy Oil and Gas
Sep 4, 2019
As the Amazon rainforest burns, and an unprecedented category 5 hurricane devastates the Bahamas and barrels towards Florida, the Trump White House is making it easier for U.S. companies to release heat-trapping gases into the atmosphere – for reasons which are hard to comprehend.
President Trump announced last Thursday, August 29 that the U.S. Environmental Protection Agency (EPA) will roll back another round of Obama-era emission regulations. The new EPA mandate would replace those initially introduced by President Obama requiring oil and gas companies to monitor and fix methane leaks from infrastructure equipment such as pipelines, storage facilities and wells.
Methane (CH4) is a chemical foundation of natural gas and a potent greenhouse gas pollutant known to play a significant role in climate change. While methane lingers in the atmosphere for just 10 years compared to the 100 years for carbon dioxide (CO2), methane is 28 times more effective at trapping heat than CO2.
The amendment in question proposes to reorganize which sectors of the industry are regulated. In particular, the transmission and storage sectors (mid and downstream operations) would no longer be required to monitor and fix methane leaks. Those in favor of deregulation argue that methane emissions have declined over the years despite sizeable increases in oil and gas production in the U.S. Industry leaders claim that strict guidelines on methane pollution are costly and burdensome, specifically for older wells and smaller companies. Economic barriers associated with the current regulations hinder production growth for an industry that is lower-margin than many realize.
President Trump has made his position clear when it comes to overbearing government regulations that hinder business growth and profitability. This is especially evident in the energy industry, where he has touted U.S. energy dominance as a key policy objective. The EPA estimates that the proposition would save the petroleum industry an estimated $100 million through 2025 in compliance costs ($17 million per year) – a win for the oil and gas sector that could lead to increased production and improve U.S. energy security according to the amendment's backers. Yet, this is a pithy sum when considering the $135 billion in revenues achieved by the O&G sector just last year and the billions of dollars in environmental damage that could result from the measure.
The American Petroleum Institute (API), a trade association that represents the oil and gas industry, praised the decision by the EPA and reiterated that the industry will continue to reduce emissions through smart, innovative solutions rather than unnecessary regulatory burdens. Initiatives such as The Environmental Partnership, a coalition of U.S. oil and gas companies, aims to improve the industry’s environmental footprint and commitment to reducing greenhouse gas emissions.
Despite this, energy companies such as BP (NYSE: BP) and Royal Dutch Shell plc (NYSE: RDS-A), have repeatedly expressed support for federal regulations – believing that regulations preventing methane leaks would provide a more consistent approach rather than varying laws at the state level. Additionally, there is growing recognition among energy companies and their investors that climate change must be addressed, generating demand to reform business operations to reduce environmental impacts.
A group of 140 investors, the Interfaith Center on Corporate Responsibility, urged the oil and gas sector to oppose the recent rollbacks because climate change is a threat both physically and economically. Just last year, the Oil and Gas Climate Initiative, including Shell and Exxon Mobil Corp (NYSE: XOM), pledged to set a goal of reducing methane emissions to less than 0.25% of the total natural gas the group of 13 member companies produces by 2025.
BP has also partnered with the Environmental Defense Fund to combat methane leaks through new technologies. Touted as a cleaner source of energy than coal and other fossil fuels, rolling back regulations of methane pollution jeopardizes natural gas’ role as a transition fuel in addressing climate change – an image the industry has been pushing for years.
The EPA ruling will go through a 60-day comment period and could come into effect as early as next year, but will likely face fierce opposition and legal challenges from its environmentalist opponents. However, with major oil and gas companies already fighting methane emissions, it is unclear whether eliminating methane leaking requirements will significantly boost U.S. oil and gas production – an outcome this administration is clearly hoping for.
It is also worth remembering that agriculture emits almost as much methane as the fossil fuel industry in the United States. Some 37% of the 665 million metric tons of methane released into the atmosphere in 2017 came from agriculture versus 43% from the energy industry. “Cow burps” and manure account for over half of CH4 emissions in the agriculture sector.
President Trump is again choosing U.S. energy security over climate change. He also is pandering to a strong pro-Trump constituency: the oil and gas industry. Nor would Trump go after agricultural emitters as farmers and agribusiness are another important constituency.
While difficult decisions must sometimes be made based on the balance of economic and environmental interests, it appears that the business and strategic benefits – a few million dollars a year in a trillion-dollar industry – hardly outweigh the climate cost in this case.
