Two weeks ago, President Obama and Canadian Prime Minister Justin Trudeau announced that the United States and Canada would increase cooperation to pursue several initiatives aimed at combating climate change. The leaders committed their respective countries to signing the Paris Climate Agreement “…as soon as feasible” and working together to assist developing nations to implement the measures agreed upon in Paris. Closer to home, both nations announced joint regulatory efforts to reduce methane emissions from the oil and gas sector by 40% to 45% below 2012 levels by 2025.

Though the Environmental Protection Agency (EPA) is in the process of finalizing regulations that are aimed at reducing methane emissions from oil and gas companies that are constructing new or modifying wells, processing facilities, and other infrastructure, President Obama’s target will extend these regulations to existing oil and gas wells. In fact, EPA Administrator Gina McCarthy commented, “To get all the way [to the goal] we’re going to have to tackle emissions from existing sources.” Immediately following the announcement of more stringent methane regulations, representatives from the U.S. oil and gas industry decried the effort. Industry groups claim any further regulations of methane could make drilling at some mature, low-flow wells cost prohibitive and would be another headwind on domestic shale drilling, which is already under significant pressure from low gas prices.

Key Details

• Methane, which is more powerful than carbon dioxide at warming the atmosphere when measured over 20 years, is the main ingredient in natural gas and is sometimes burned or flared by drillers at the well head if they do not have the ability to transport or process the gas
• There are currently more than 900,000 existing oil and gas wells in the United States that could be subject to heightened methane regulation
• In addition to the agreements outlined above, the leaders also announced a commitment to increasing R&D funding of clean energy projects as well as a new science partnership to protect each nation’s arctic region

Key Implications

• It is estimated that the cost for U.S. oil and gas drillers to comply with the proposed methane limits for new/modified wells would be $400 million by 2025, with compliance costs much higher if the regulations are extended to existing wells. A recent study in Canada estimated that it would cost approximately $542 million (C$726 million) to meet the targeted emissions reductions
• Though President Obama has agreed to these joint actions with Canada, the long-term commitment of the United States to these actions will likely depend on the outcome of the November election

More Information
White House: U.S.-Canada Joint Statement on Climate, Energy, and Arctic Leadership
SNL: ‘About time, eh?’: Obama, Trudeau reaffirm climate change goals
Utility Dive: U.S., Canada pledge cooperation on Paris climate accord, clean energy, methane leaks
Bloomberg Business: Drillers See Dire Impact at Worst Time in Obama Methane Plan
Financial Post: More layoffs, more spending cuts in hard-hit oil patch as job losses top 100,000

This report is part of the Regulatory Minute series. To view all featured Minutes, please click here.

Contributing Author: Eric Hanson