Following last week's announcement by the Obama administration that it will explore the possibility of regulating methane emissions from the oil and gas sector, what are the potential impacts on states and industry if federal methane rules are implemented? During today's OnPoint, Thomas Lorenzen, a partner at Dorsey & Whitney and the former assistant chief in the Environment and Natural Resources Division at the Department of Justice, discusses the significance of the interagency analysis and talks about the administration's next steps.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Thomas Lorenzen, a partner at Dorsey & Whitney and the former assistant chief in the Environment and Natural Resources Division at the Department of Justice. Tom, it's great to have you back on the show.
Thomas Lorenzen: It's great to be here again.
Monica Trauzzi: Tom, last week, the Obama administration announced that it would explore the possibility of regulating methane emissions from the oil and gas sector. No regulations were announced. This is really just the exploratory phase. How significant of a step is this as part of the administration's broader Climate Action Plan?
Thomas Lorenzen: Well, this was the other shoe we were waiting to drop. They had already addressed emissions from coal in the context of power plant emissions, and everyone had been wondering for some time what would EPA do about methane. Methane is a very powerful greenhouse gas, many times more powerful than carbon dioxide, and so its emissions are significant. Regulations will be significant.
Monica Trauzzi: Is it possible that this analysis that is being undertaken now could find that the current level of regulation is adequate and that no further steps are needed?
Thomas Lorenzen: It could find that. Industry has certainly contended that what they're doing presently is adequate to control methane emissions. Indeed, they argue that their incentives for controlling methane are significant because methane is the principal component of natural gas, which we burn, and to the extent they can capture it, they can sell it.
Monica Trauzzi: Why do you believe that this could drive some energy producers back towards coal?
Thomas Lorenzen: Well, what we've seen so far is a drift towards natural gas as the fuel of choice for power because it's cheap, it's plentiful and it's presently relatively unregulated. Once you start imposing the cost of regulations on it, you drive up the price, and that could potentially make coal more attractive again.
Monica Trauzzi: But don't the New Source Performance Standards stand in the way of a shift back to coal unless carbon capture and storage technology is used?
Thomas Lorenzen: Quite possibly, but we haven't yet had court testing of the New Source Performance Standards, and one of the things that the coal industry has been arguing is that carbon capture is not adequately demonstrated yet. So we don't know yet whether or not those New Source Performance Standards will, in fact, go into effect.
Monica Trauzzi: We've already seen state-level action on methane emissions. How would or how might a federal policy interact with those state-level regulations?
Thomas Lorenzen: Well, it could sit on top of -- it could incorporate many of the things that the states are doing and be complementary to it, so we could see the federal government adopting things the states have already done. They could require more than the states are presently doing as well.
Monica Trauzzi: So one of the biggest arguments against the expansion of natural gas production, and certainly something that we hear from the environmental community, is the element of methane. If methane risk is no longer an obstacle as a result of strict regulations by the federal government, then couldn't that give the industry a boost?
Thomas Lorenzen: It could give industry a tremendous boost. The question here is going to be, what are the costs involved in that regulation? How extensive are they? How burdensome are they? And will those regulations be designed to allow industry to recapture that methane and turn it to productive use? If they can do that, then this could be a boon for industry.
Monica Trauzzi: This program involves multiple agencies -- EPA, Agriculture, Energy, Interior, Labor, Transportation. How effective is this approach?
Thomas Lorenzen: Well, we'll see. This is part of the Quadrennial Energy Review, as I think the president's announcement made clear last week. That is the multi-agency approach designed to look, really, at energy infrastructure in this country and how to improve it. If they can get the coal benefits of reducing climate change along with those energy infrastructure improvements, then great. There is a component in that review for each of these agencies, and each has its own jurisdiction.
Monica Trauzzi: What are your expectations for how this will all evolve? What are the next steps following this announcement?
Thomas Lorenzen: Well, I think the next steps we're going to see some proposed rulemaking this spring. We're going to see five white papers on oil and gas. Remember, this effort actually goes beyond just oil and gas. It's also going to address landfills, agriculture and some other areas too.
So what we'll see is we'll see some proposed rules, probably from BLM this spring dealing with the possibility of capturing and reselling methane from oil and gas production on federal lands; we're going to see these white papers that are going to study five separate areas associated with oil and gas production; and then there will be an assessment this fall of whether or not further regulation is needed of oil and gas production.
Monica Trauzzi: All right. We'll be watching that. Thank you for coming on the show.
Thomas Lorenzen: Thank you for having me.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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