INTRODUCTION
On August 18, 2015, the U.S. Environmental Protection Agency (EPA) proposed emission standards for new and modified sources in the oil and natural gas sector (referred to as “the Proposed Rule” in this report) as part of the President’s Climate Action Plan. The Proposed Rule’s goal is to cut methane (CH4) emissions from the oil and gas sector by 40% to 45% from 2012 levels by 2025.
Accompanying this Proposed Rule is a Regulatory Impact Analysis (RIA)13 that is required under Executive Orders 12866 and 13563 for all major rulemakings from Executive Branch agencies. The RIA contains estimates of the net benefits of each of several options that the Proposed Rule is considering, which are equal to each option’s estimated benefits minus its estimated compliance costs. Our comments address technical issues with the RIA’s benefits calculations, and their implications for the net benefits estimates.
Although our comments do not address any aspect of the compliance cost estimates, that does not imply that we endorse those cost estimates. The RIA’s benefits estimates are calculated by multiplying an estimate of the tons of methane reduction under the Proposed Rule by an estimate of the social cost of methane (SC-CH4). The SC-CH4 is the focus of our comments. It is an estimate of the dollar value of societal damages per ton of methane emission that would occur in a near-term year (such as 2020 or 2025).
Although climate damages are attributed to a ton of near-term emission, they are based on projections of future climate outcomes many years into the future, and thus are also determined by future assumed levels of greenhouse gas emissions. These projections are made using one or more “integrated assessment models” (IAMs). EPA’s SC-CH4 estimates are based on a paper by Marten et al. (2014). Given a number of technical issues we discuss below, we conclude that SC-CH4 estimates based solely on Marten et al. (2014) do not reflect the standards of scientific review and technical maturity that should be required before use in guiding major Federal regulatory decisions. We also conclude that EPA’s SC-CH4 estimates are likely overstated. As a result of sensitivity analyses we conduct on alternative assumptions for estimating the SC-CH4 values, we find a high likelihood that the Proposed Rule will result in negative net benefits, contrary to the RIA’s conclusions. For our quantitative sensitivity analyses, we focus on EPA’s Option 2, but the concerns we raise apply to all of the options in the RIA.
The rest of the report is organized as follows. Section II provides a discussion of the approach EPA used to calculate the SC-CH4 estimates. Section III discusses the technical issues we have identified with the SC-CH4 estimation approach and reasonable alternative assumptions. Section IV discusses the importance of a thorough peer review, and how the absence of such a process makes the EPA’s SC-CH4 estimates unreliable. Section V provides alternative estimates of the SC-CH4 when using reasonable assumptions. Finally, Section VI provides our conclusions based on the significant technical issues we identified in the SC-CH4 estimation approach and estimation of benefits. Appendix A contains additional summary tables and figures. Appendix B provides some additional commentary about the timing of SC-CH4 benefits and costs.
Full Report: Technical Comments on the Social Cost of Methane As Used in the Regulatory Impact Analysis for the Proposed Emissions Standards for New and Modified Sources in the Oil and Natural Gas Sector
