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ENERGY & SUSTAINABILITY

Analysis, Thoughts and Conversations by Dan Zilnk

NORTH AMERICAN CLIMATE COOPERATION: IT’S ALL ABOUT METHANE

Dan Zilnik

1. The US EPA’s methane regulations come into focus.

In mid-May 2016, the US Environmental Protection Agency (EPA) took a significant step toward meeting the Obama administration's pledge to reduce methane emissions from the oil and gas sector. The Agency released three final rules on methane emissions for the oil and gas sector along with a draft Information Collection Request to inform its future rulemaking on existing oil and gas sources.

The focus on methane has three motivating factors: methane’s global warming potential, the increase in methane emissions from the oil and gas sector, and regulatory cooperation potential. Methane is a potent greenhouse gas (GHG) with a global warming potential 21 times higher than CO2, on a 100-year time horizon. Importantly, methane emissions seem to be on the rise in North America, as shale natural gas production co-produces methane especially in the early part of the production cycle known as “the flow-back period”. There are concerns that the impact of methane emissions from shale oil and gas production could seriously hamper the US’ ability to meet its contributions to the global climate ambitions set in the Paris Agreement in late 2015. Methane regulation in North America is relatively immature compared to the regulation of air pollutants and CO2 through various pricing, trading and efficiency schemes. Bilateral cooperation on methane regulation allows for both the standardizing of best practices across North America and becomes a platform for building goodwill between the US and Canada.

Regulating methane with be challenging across North America as there are large information gaps, and the amount of methane being vented from various oil and gas facilities is still being debated. The issued draft Information Collection Request looks to address this by helping the EPA gather information to inform its rulemaking on existing oil and gas production sources.

2. In Canada, both federal and provincial action is expected to align with the US’ direction on regulating methane.

During Prime Minster Trudeau’s March 10, 2016 official visit to the White House, the US and Canada issued a joint statement outlining increased cooperation between the two countries on climate change and energy security. The centerpiece of this statement was a commitment by the US and Canada to reduce methane emissions to 40–45 percent below 2012 levels by 2025. As the EPA is drafting its regulations to manage methane emissions, the Ministry of Environment and Climate Change, the Canadian ministry principally responsible for implementing climate change policy, is also developing policy on new and existing oil and gas sources with the goal of issuing a draft rule in early 2017.

Further to work at the federal level, Alberta, Canada’s largest oil and gas producing region, has announced that it will introduce legislation that will require oil and gas operators to reduce methane emissions by 45 percent by 2025. On May 24, 2016 the Alberta Government introduced Bill 20, the Climate Leadership Implementation Act, and many observers were surprised to find that legislation to reach Alberta’s methane ambition for oil and gas producers was largely absent from of the Act. The likely reason that the Alberta Government did not provide much guidance on methane in this Act is that little government policy is needed; instead regulatory tools are needed. It is expected that the arm’s length government agency dedicated to regulating Alberta’s energy producers, the Alberta Energy Regulator (AER), will put the oil and gas methane reducing regulation in place using a three pronged approach:

  • Applying new methane emissions design standards to new Alberta facilities.
  • Improving measurement and reporting of methane emissions, and leak detection/repair requirements.
  • Developing a multilateral initiative on methane reduction and verification for existing facilities.

3. The next step is the North American Leaders Summit.  

The North American Leaders Summit is scheduled for June 29, 2016 in Ottawa with Trudeau acting as host, and Obama and Peña Nieto as guests. Mexico, one of the United States’ top energy suppliers and clients, is in the midst of a major reform of its energy sector, which opens the sector to serious participation by private companies for the first time since the 1930s. Canada, the largest US energy supplier, is competing for market share as the US’ domestic shale industry continues to boom. There is little doubt that there will be additional developments related to climate change and energy cooperation at the summit. The question remains if Canada and US will aim to align closely on environmental grounds, as demonstrated by the cooperation on methane, or if the dialogue will evolve into a discussion on how to create a continental industrial advantage via low priced, low emissions and plentiful energy.