America’s natural gas boom has been a rare economic bright spot, and even President Obama likes to take credit for it. But as his term winds down, the Administration is waging a war of regulatory attrition to raise drilling costs and reduce its competitive advantage over wind and solar power.
The latest effort came last week when the Environmental Protection Agency issued its new rule to slash emissions of methane, a byproduct of oil and gas drilling. The industry will be required to cut methane emissions by 40% to 45% over the next decade from 2012 levels. The rule spares existing wells that make no changes, but all new or modified wells will have to install costly new methane mitigation systems.
The rule follows new ozone limits proposed by the EPA last November, new limits issued in March on hydraulic fracturing on public lands, new moratoriums on drilling in and around Alaska, and a potential rule cracking down on greenhouse gas emissions from drilling on federal lands. Keep in mind the states already regulate natural-gas drilling, and they’ve done it well enough to avoid major accidents.
Methane has long been a target of the green lobby because it is viewed as an especially potent contributor to global warming. Yet the EPA’s own research shows methane emissions from drilling have been declining rapidly.
The EPA’s Greenhouse Gas Inventory acknowledged this year that methane emissions from natural gas production have fallen 35% since 2007. That’s despite a 22% increase in gas production over the same period. The EPA last year found that methane emissions from hydraulically fractured gas wells had fallen 73% from 2011 to 2013. Overall methane emissions are 17% lower than in 1990.
The industry has every incentive to capture methane emissions because it’s also a valuable energy source that can be used to produce electricity and heat. The more methane that drillers capture, the better the return on their investment. The industry has already unleashed an array of technologies to prevent leakage from drilling, transportation and processing, and innovation is improving those tools.
The new EPA rule will impose large new costs for little benefit. In 2013 methane emissions counted for about 9% of U.S. greenhouse gas emissions. Of that 9% about 3% are subject to the new rule, which would cut them in half. A Cato Institute study notes that even if the U.S. ceased all carbon emissions “now and forever,” the effect would be to reduce the rise in temperatures by the end of the century by 0.10 degrees Celcius. The methane rule’s contribution would be a mere 0.002 degrees Celsius.
The rule will nonetheless do immediate harm to a drilling industry that is already under pressure from falling global energy prices. The shale gas revolution has created hundreds of thousands of jobs, reduced costs for U.S. manufacturers, raised millions in taxes and royalties for government, and increased U.S. energy security. The new costs will reduce the marginal return on drilling, which means fewer new wells.
Our guess is that this is the real political purpose behind the wave of new drilling rules. The Administration has made coal its main fossil-fuel target, but the green lobby also has natural gas in its sights. A frontal assault is too politically risky, which is why regulatory attrition is the preferred approach.
President Obama’s new climate-change rule requires that utilities move rapidly to increase production from solar and wind power, which can only be competitive if natural gas costs rise sharply. The methane rule continues the assault, which is one more reason that the 2016 presidential election is crucial for continuing U.S. energy production.
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