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Technical flaws in EPA methane rule analysis

Published by
Hydrocarbon Engineering,

According to a new report commissioned by the American Council for Capital Formation (ACCF), the supposed benefits of the US Environmental Protection Agency's (EPA) proposed rule for methane and volatile organic compounds emissions from the oil and gas sector, could be based on assumptions that are not reasonable and not sufficiently reviewed to be used to support regulatory policy making.

The study, conducted by NERA Economic Consulting, analysed the EPA's use of the social cost of methane in its proposed changes to emissions standards for the oil and natural gas sector. The study found that under reasonable assumptions the EPA's proposed methane rule could lead to net costs instead of net benefits.

"There is an exceptional degree of sensitivity of the net benefits estimates to alternative reasonable assumptions. This, combined with the lack of full scientific peer review of the assumptions and approach the EPA used, may potentially render EPA's estimates of social costs of methane inappropriate for use in supporting major national policy decisions," said NERA Vice President Anne Smith. "Our review of a number of alternative assumptions for estimating the social cost of methane indicates a high likelihood that the proposed rule will result in negative net societal benefits, contrary to EPA's conclusions."NERA study concludes that any estimate of benefits from methane reductions, using the social cost of methane, is highly uncertain and likely to be overstated for multiple reasons:

  • The EPA's social cost of methane estimates are based upon a single study (Marten et al., 2014) whose estimates are significantly greater than, and inconsistent with, available estimates in other published papers.
  • EPA relies on social cost of methane estimates that reflect global benefits rather than domestic benefits, a practice that is contrary to the Office of Management and Budget's (OMB's) Circular A-4 (OMB, 2003), and inconsistent with the theoretical underpinnings of benefit cost analysis that bestow this method with its ability to guide a society towards policies that will improve its citizens' well being.
  • EPA's use of social cost of methane estimates based on a 2.5% discount rate is inconsistent with the short atmospheric lifespan of methane. Its inclusion overstates EPA's social cost of methane estimates and hence its net benefits.
  • EPA's use of an assumption regarding indirect radiative forcing effects of atmospheric methane, is not clearly supported by the scientific literature but increases the benefits estimates by about 40%.
  • EPA's use of scenarios that assume no future emissions control policies to estimate the benefit of reducing a ton of emissions in the near future also overstates the social cost of methane estimates.

In addition, the absence of a full scientific peer review of the methodology behind EPA's social cost of methane estimates calls into question the reliability of all of the RIA's estimated benefits and net benefits, which the NERA study demonstrates may be greatly overstated.

"The technical flaws in EPA's benefit analysis cannot be ignored," said ACCF Senior Economic Advisor Margo Thorning. "The sweeping changes proposed in the methane emissions rule will have a severe economic impact and should be placed on hold until a more rigorous analysis can be conducted."

Adapted from press release by Francesca Brindle

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