How the Waste Emissions Charge is Calculated

The amount of the WEC is calculated by multiplying the number of metric tons of methane emissions reported under subpart W of the Greenhouse Gas Reporting Program (GHGRP) that exceeds the threshold by the amount of the tax (i.e., $900 per metric ton of methane in 2024 and as it escalates as previously noted).

We plan to cover this subject in more detail in a future article.

Exemptions

There are three potential exemptions to offer relief from the WEC burden:

• Regulatory Compliance: Facilities subject to NSPS Subparts OOOOb or OOOOc are exempt if specific conditions are met, including full implementation of applicable state plans and strict adherence to methane emission standards.
• Permitting Delay: Facilities facing delays in permitting gas sales lines may qualify for partial tax relief.
• P&A Wells: Specific considerations apply to facilities managing plugged and abandoned wells.

Note that exemption eligibility is determined quarterly for these exemptions. Meaning, a site or facility may regain its Regulatory Exemption once it comes back into compliance in a quarter subsequent when it was out of compliance, which is particularly relevant for the Regulatory Compliance exemption.

Current Issues

It is nearly impossible for the four paragraphs in the Inflation Reduction Act that relate directly in the WEC to capture all the complexities of how various oil and gas operations are impacted by the intertwined regulations of new emissions regulations (NSPS OOOOb and EG OOOOc), and updates to Subpart W. As a result, operators are faced with several unresolved issues complicating WEC implementation and compliance.

LEARN MORE: H.R.5376 – Inflation Reduction Act of 2022

Super Emitter Events. A Super Emitter Event, one that results in methane emissions of 100 kg per hour or more of methane, could make a facility subject to NSPS OOOOb or EG OOOOc ineligible for the regulatory exemption and increase the WEC obligation. Super Emitter Events are reported under other large release category in Subpart W, unless they are reported elsewhere, and have the potential to increase exposure to the WEC.

If the event was noncompliance with Clean Air Act (CAA) Section 111, then the facility would be out of compliance and result in a loss of the regulatory exemption. For example, if a piece of control equipment malfunctioned, and was noncompliant with CAA Section 111, then the facility would lose its regulatory exemption eligibility. Note that if a Super Emitter Event was not a deviation of requirements, then the event would not be considered non-compliance (EPA did not provide an example).

READ MORE: Understanding the Super Emitter Response Program: A Proactive Approach to Emissions Management

Offsetting Challenges. Although emissions from facilities with high emissions can be offset by those with lower emission rates, the offsetting is limited to “applicable facilities,” meaning only those facilities that emit more than 25,000 metric tons per year of CO₂e are eligible to offset.

Additionally, parent companies with Net WEC Emissions lower than zero cannot sell their negative amounts to other owner-operators for offsetting emissions.

Regulatory Compliance Exemption: The IRA provides exemptions for facilities that are subject to NSPS OOOOb and EG OOOOc, subject to a few material revisions made to the final rule from its original proposal.

The first revision relates to when the Regulatory Exemption goes into effect. In the proposed rule, the exemption would have been allowed only after the EPA had approved state plans under EG OOOOc for all States. The final rule allows facilities to qualify for the exemption if they are in a State which submits, and EPA approves, the State’s plan to fully implement the methane emissions requirements promulgated pursuant to CAA sections 111(d).

The second revision relates to the extent that a facility loses its ability to qualify for the Regulatory Exemption. The proposed rule mandated that there can be “no deviations” at a facility during the reporting years. In the final rule, the EPA recognized “…that in the case of basin-wide facilities, because these facilities are so vast—often containing thousands of CAA section 111 facilities—and because there are numerous ways in which any one of these CAA section 111 facilities can be in noncompliance at any one time, universal compliance for every single CAA section 111 facility would be very challenging for basin-wide facilities.” As a result, the final rule limits the loss of the exemption to the site-level instead of WEC applicable facilities that are defined at the basin-level in the defined at the basin-level (i.e., facilities in the onshore production and gathering and boosting industry segments) to avoid what the EPA described as an “absurd result” inconsistent with Congressional intent.
(Source: Federal Register/Vol. 89, No. 222/Monday, November 18, 2024, P. 91122)

The good news is that as previously noted, eligibility for the Regulatory Exemption (once in place) is determined quarterly. Further, EPA explained during a recent webinar that if a single facility (i.e., a well pad or boosting station) is out of compliance then only that individual site would lose its exemption and not the entire facility (basin).  

M&A Implications: Because the WEC is a tax, it has the effect of reducing net cash flow from operations, which all other variables held equal, and decreasing the value of producing assets. Buyers and sellers of oil and gas assets will have to pay close attention to who is responsible for paying the WEC in the purchase and sale documents.

These are issues that will have to be worked out, and unfortunately the path to resolution most likely runs through the courts, placing more burden on the industry for the lack of a well-crafted policy.