$48 Billion and Counting: What EPA’s Methane Rule Offers to Society
The Rule’s Origins
Throughout his tenure, President Biden has consistently touted the United States’ return to global leadership on climate change. With Congress at a virtual standstill, though, most federal climate efforts have necessarily come through executive action. Among the most high-profile of these actions so far is EPA’s proposed “Methane Rule.”
Because methane is a powerful greenhouse gas — 25 times more potent than carbon dioxide — cutting methane emissions is vital if the United States is to meet its climate commitments. The proposed Methane Rule responds to that need by targeting methane emissions from the oil and gas sector. The rule tells methane emitters, or “sources,” within that sector what standards they have to meet to comply with the Clean Air Act. The rule is quite ambitious in scope: for the first time, it proposes regulations for existing sources in the oil and gas sector.
For context, under Clean Air Act section 111, EPA first determines if emissions from a certain industrial sector endanger human health and welfare. If so, the agency is then required to issue standards of performance for new sources that have not yet been built, called New Source Performance Standards, or “NSPS.” EPA did just that back in 2016 for methane emissions from the oil and gas sector. These forward-looking methane standards ensure that new equipment has the best system of emission reduction installed from the very start. (The agency has regulated emissions of volatile organic compounds, or “VOCs,” from the sector since the 1970s.)
But all of that covers new sources, while existing (read: older) sources can just keep on operating without up-to-date control technology. Section 111(d) fills that gap. Once an NSPS has been issued, that section requires EPA to propose guidelines that aim to reduce emissions from existing sources through retroactive application of emission controls or best practices. The Methane Rule includes the first 111(d) methane standards for the oil and gas sector.
Why five years between EPA’s promulgation of the new source methane rules back in 2016 and its proposed existing-source rules now? Two administration changes, a lot of litigation, and even a Congressional smackdown.
EPA’s new proposed standards are long and complex, but the primary method the agency has chosen to control methane emissions is one that actually benefits the oil and gas industry too: fixing leaks. These leaks — which happen throughout the oil and gas supply chain — send this potent greenhouse gas directly into the atmosphere. While methane leaks are famously difficult to detect on the ground, thanks to the gas being colorless and odorless, recent evidence suggests that the leakage problem is far worse than the government has appreciated. That massive problem makes efforts to find and stop leaks — known generically as leak detection and repair, or “LDAR” — critical.
Common sense suggests that oil and gas companies also benefit from slowed leaks, as less of their product winds up wasted. But these companies do not have enough of a financial incentive to invest in as much leak prevention as the rest of society would want. Hence why these harmful leaks persist. Those misaligned incentives are a classic example of what economists call a market failure, which demands government regulation to realign them.
The Rule’s Impacts
The Methane Rule addresses this market failure to create enormous value for society. Although EPA calculates virtually all conceivable costs of the rule and calculates only one monetary benefit, it still finds that the monetary benefits exceed costs — by $48 billion. Put differently, that is the value that the Methane Rule will create for society. For perspective, that is higher than hundreds of countries’ annual GDPs.
That figure is even more staggering considering how incomplete EPA’s analysis of benefits is. The benefits it calculates involve methane emissions, monetized using the government’s preferred “social cost of methane.” Even on its own terms, and at the government’s own admission, that number is incomplete, in that it omits major categories of climate damages that methane causes. To be clear, that does not mean the number is fatally flawed; in fact, quite the opposite is true. Rather, it means that the government lacked much of the data it needed to calculate much more, and that the figure EPA used — and, indeed, that the entire executive branch has used for years — is a conservative, lower-bound estimate. (Whether agencies, including EPA, may continue to use this figure depends on the outcome of ongoing litigation against the Biden administration.)
And the Methane Rule’s benefits stretch well beyond avoided climate costs. In addition to slowing methane emissions, EPA’s new standards will incidentally slow many other pollutants. These other pollutants — especially so-called “volatile organic compounds” and “hazardous air pollutants” — collectively cause massive amounts of suffering and death. While EPA claims that data limitations prevent it from quantifying these effects precisely, that does not make the avoided harms any less real or important.
Note also that EPA’s benefits analysis only extends from 2023 to 2035. The agency suggests that it cannot estimate benefits beyond then. But a moment’s thought suggests that these oil and gas industry standards will change the industry in ways that will last well beyond 2035, especially compared to a world in which EPA did nothing. Cutting off the analysis so early artificially truncates the benefits — another reason that $48 billion is an underestimate.
And missing from EPA’s analysis is almost any discussion of who these standards will benefit. It is well accepted that air pollution burdens poor and minority communities at much higher rates. EPA’s own analysis concludes as much. But EPA never conducted an analysis to figure out whether these standards would disproportionately benefit those communities. They might do so, but without specifically testing for it, the agency cannot be sure. If EPA were to conduct that kind of analysis, and if it found that the Methane Rule would reduce social and economic inequality, that would be another benefit that the $48 billion estimate misses.
Nothing prevents EPA from filling many of these gaps. The agency itself has already indicated it intends to strengthen this proposed rule with a supplemental proposal. And, indeed, the Institute for Policy Integrity filed comments suggesting some viable next steps. But these gaps — important as they are — should not overshadow the central point that this rule will be enormously beneficial. Tweaking, finalizing, and implementing this rule as soon as possible would both generate huge value for society and fast-track renewed U.S. leadership on climate change.
By Andrew Stawasz and Meredith Hankins.
