In a report issued on July 25, 2014, EPA’s Office of Inspector General (OIG) issued a series of recommendations for EPA to increase its efforts to reduce methane emissions from natural gas distribution pipelines, including partnering with PHMSA to develop a joint strategy.  According to the report, pipeline leaks accounted for more than 10 percent of total methane emissions from natural gas systems, equating to a loss of more than $192 million of gas in 2011.  EPA does not directly regulate methane, and the report was undertaken to review EPA’s progress in implementing the Obama administration’s 2013 Climate Action Plan, which calls for EPA to develop a comprehensive interagency methane strategy.  (See prior pipelinelaw alert here).

The OIG recognized that EPA currently maintains a voluntary program (Natural Gas STAR) to address methane leaks across the gas industry, but concluded that its efforts have produced limited results from local distribution companies because of financial and policy disincentives.  These include the fact that operators have little financial interest in repairing leaks that do not pose safety hazards, because costs of fugitive emissions are passed on to customers.  As a result of these findings, the OIG report recommends that EPA:  (1) partner with PHMSA to address methane leaks from a combined environmental and safety standpoint, (2) develop a strategy to address the financial and policy barriers that hinder reductions from the distribution sector, (3) establish performance goals, (4) track distribution sector emissions and use that data to help determine if future regulation is appropriate, and (5) assess whether data from ongoing studies should be used to update distribution sector emission factors.

With regard to PHMSA coordination, the report urges EPA to consult closely with PHMSA as it develops any future regulations, noting that “the lack of coordinated action between the EPA and PHMSA hinders an effective partnership where PHMSA’s technology and regulations could be used to produce additional environmental benefits.”  The report also recommends that EPA work with state utility commissions to develop and expand policies that encourage mitigation of leaks, especially from aging cast-iron and unprotected pipes.

EPA was provided an advance draft of the OIG report and has confirmed its willingness to work more closely with PHMSA and to determine by the second quarter of FY 2016 whether potential new regulations beyond voluntary efforts are appropriate.  The status of the implementation of several other recommendations of the OIG report remains unresolved, with resolution efforts in progress.  Despite EPA’s commitment to work with PHMSA, the agencies have not yet conferred on this issue.  Because both PHMSA and EPA have regulatory jurisdiction over different aspects of natural gas pipelines, it will likely take some time for the agencies to develop a proposed path forward and it is unclear at this time whether that will include additional regulation.