Clearly, this discussion raises the question as to why, if emissions can be reduced profitably using environmental controls, more producers are not adopting the controls in their own economic self-interest.  This question is made clear when examining simple estimates of the rate of return to installing emissions controls, using the engineering compliance costs estimates, the estimates of natural gas product recovery, and assumed product prices (Table 3-8).  The rates of return presented in Table 3-8 are for evaluated controls where estimated revenues from additional product recovery exceed the costs.  The rate of return is calculated using the simple formula:  .

Table 3-8	Simple Rate of Return Estimate for Final NSPS Controls, Primary Baseline
Emission Point
                                Control Option
                                Cost of Control
                        Revenues from Product Recovery
                           Estimated Rate of Return
New Completions of Hydraulically Fractured Wells
                                     REC/
                                  Combustion
                                    $33,237
                                    $34,780
                                     4.6%
Reciprocating Compressors  (Processing Plants)
                                Replace packing
                                    $2,090
                                    $4,317
                                    106.5%
Centrifugal Compressors (Processing Plants)
                               Route to control
                                    $3,132
                                    $50,106
                                    1499.7%
Pneumatic Controllers (Oil and Gas Production )
                                Emissions limit
                                      $23
                                    $1,542
                                    6467.3%
Overall NSPS*

                                 $169,914,312*
                                 $184,596,889*
                                     8.6%*
* Costs and estimated rate of return for overall NSPS based on national costs of rule, not per unit costs like the other items in the table.
Note: The table presents only control options where estimated revenues from natural gas product recovery exceeds estimated annualized engineering costs

      Recall from Table 2-23 in the Industry Profile, that EIA estimates an industry-level rate of return on investments for various segments of the oil and natural gas industry.  While the numbers vary greatly over time because of industry and economic factors, EIA estimates a 10.7 percent rate of return on investments for oil and natural gas production in 2008. While this amount is higher than the 4.6 percent rate estimated for a REC, it is significantly lower than the rate of returns estimated for other controls anticipated to have net savings.
      Assuming financially rational producers, standard economic theory suggests that all oil and natural gas firms would incorporate all cost-effective improvements, which they are aware of, without government intervention.  The cost analysis of this RIA nevertheless is based on the observation that emission reductions that appear to be profitable, on average, in our analysis have not been adopted by a significant segment of the industry.  This observation, often termed the "energy paradox", has been noted to occur in other contexts too where consumers and firms appear to undervalue a wide range of investments in energy conservation, even when they pay off over relatively short time periods. We discuss some possible explanations for the apparent paradox in this context.  First, there may be an opportunity cost associated with the installation of environmental controls (for purposes of mitigating the emission of pollutants) that is not reflected in the control costs.  In the event that the environmental investment displaces other investment in productive capital, the difference between the rate of return on the marginal investment displaced by the mandatory environmental investment is a measure of the opportunity cost of the environmental requirement to the regulated entity.  However, if firms are not capital constrained, then there may not be any displacement of investment, and the rate of return on other investments in the industry would not be relevant as a measure of opportunity cost.  If firms should face higher borrowing costs as they take on more debt, there may be an additional opportunity cost to the firm.  To the extent that any opportunity costs are not added to the control costs, the compliance costs presented above may be underestimated.
      A second explanation could be that the average impacts identified in this RIA are not reflective of the true costs and benefits of the RECs that are compelled by the regulation, relative to the RECs performed voluntarily.   In this final rule, based on public comments and explained above, EPA has identified several circumstances under which RECs would not be feasible or cost-effective, and has allowed firms to continue to use combustion devices only for those completions and recompletions.   In addition to these general categories, the natural variation in well-head prices, cost, or other technical issues may mean that the rational decision to not complete using a REC in the absence of this regulation in certain circumstances may not be captured by the analysis of central estimate impacts contained in this RIA.   In part to address this issue, EPA has provided the break-even analysis above, as well as a sensitivity analysis where we vary several parameters that may influence individual REC decision-making.

      Third, the assumed $4/Mcf payment rate does not reflect any taxes or royalties that might apply to producers implementing the control technologies.  We expect that royalties and taxes influence producers' economic and operational decisions, particularly at the margin, as these royalties or taxes reduce potential net returns and prevent adoption of environmental controls.  However, there are various reductions in taxable income and incentives that can serve to reduce costs which also can affect decisionmaking.  For example, firms may be able to deduct pollution control expenditures and depreciation from income taxes.  Also, for the oil and natural gas industry, producers may be eligible for deductions of intangible drilling costs and other state or federal production and investment credits.  Historically, EPA has not estimated post-tax (or post-royalty) compliance costs (which are typically cost-reducing) in compliance cost estimation as this requires information and tax accounting beyond the scope of the analyses.
A third explanation for why there appear to be negative cost control technologies that are not generally adopted is imperfect information.  If emissions from the oil and natural gas sector are not well understood, firms may underestimate the potential financial returns to capturing emissions.  Quantifying emissions is difficult and has been done in relatively few studies.  Recently, however, advances in infrared imagery have made it possible to affordably visualize, if not quantify, methane emissions from any source using a handheld camera.  This infrared camera has increased awareness within industry and among environmental groups and the public at large about the large number of emissions sources and possible scale of emissions from oil and natural gas production activities.  Since a significant percent of new natural gas well completions with hydraulic fracturing and existing natural gas well recompletions with hydraulic fracturing are estimated to be controlled in the baseline, it is unlikely that a lack of information will be a major reason for these emission points to not be addressed in the absence of Federal regulation in 2015.  However, for other emission points, a lack of information, or the cost associated with doing a feasibility study of potential emission capture technologies, may continue to prevent firms from adopting these improvements in the absence of regulation.
Finally, the cost from the irreversibility associated with implementing these environmental controls are not reflected in the engineering cost estimates above.  Due to the high volatility of natural gas prices, it is important to recognize the value of flexibility taken away from firms when requiring them to install and use a particular emissions capture technology.  If a firm has not adopted the technology on its own, then a regulation mandating its use means the firm loses the option to postpone investment in the technology in order to pursue alternative investments today, and the option to suspend use of the technology if it becomes unprofitable in the future.  Therefore, the full cost of the regulation to the firm is the engineering cost and the lost option value minus the revenues from the sale of the additional recovered product.  In the absence of quantitative estimates of this option value for each emission point affected by the NSPS and NESHAP improvements, the costs presented in this RIA may underestimate the full costs faced by the affected firms.
With these caveats in mind, EPA believes it is analytically appropriate to analyze engineering compliance costs presented in Table 3-2 and Table 3-4 using the additional product recovery and associated revenues.  EPA continues to explore what factors could explain apparent underinvestment in cost-effective emission reducing technologies absent government regulation, and the measurement of opportunity costs more generally.
NESHAP Sources

As discussed in Section <IP_ADDRESS>, EPA examined two emissions points as part of its analysis for the final NESHAP Amendments.  Unlike the controls for the final NSPS, the controls evaluated under the final NESHAP Amendments do not direct significant quantities of natural gas that would otherwise be flared or vented into the production stream.  Table 3-9 shows the projected number of controls required, estimated unit-level capital and annualized costs, and estimated total annualized costs.  The table also shows estimated emissions reductions for HAP, VOC, and methane, as well as a cost-effectiveness estimate for HAP reduction, based upon annualized engineering costs.
Table 3-9	Summary of Estimated Capital and Annual Costs, Emissions Reductions, and HAP Reduction Cost-Effectiveness for Final NESHAP Amendments
                            Source/Emissions Point
                      Projected No. of Controls Required

                      Emission Reductions (tons per year)

                          Capital Costs/ Unit (2008$)
                         Annual-ized Cost/Unit (2008$)
                         Total Annualized Cost (2008$)
                                      HAP
                                      VOC
                                    Methane
                 HAP Reduction Cost-Effectiveness (2008$/ton)
Production - Small Glycol Dehydrators
                                      74
                                    35,518
                                    22,396
                                   1,657,300
                                      505
                                      915
                                      316
                                     3,284
Transmission -  Small Glycol Dehydrators
                                       7
                                    19,399
                                    18,957
                                    132,700
                                      164
                                      298
                                      103
                                      808
Reporting and Recordkeeping
                                      N/A
                                      N/A
                                      N/A
                                   1,694,907
                                      N/A
                                      N/A
                                      N/A
                                      N/A
Total
                                      81

                                   3,484,907
                                      669
                                     1,213
                                      419
                                     5,209
Note: Totals may not sum due to independent rounding.

     Under the final NESHAP Amendments, about 81 controls will be required, costing a total of $3.5 million annually (Table 3-9).  We include reporting and recordkeeping costs as a unique line item showing these costs for the entire set of final amendments.  These controls will reduce HAP emissions by about 670 tons, VOC emissions by about 1,200 tons, and methane by about 420 tons.  The cost-per-ton to reduce HAP emissions is estimated at about $5,200 per ton. All figures are in 2008 dollars.
References

Oil and Gas Journal. "Natural Gas Pipelines Continue Growth Despite Lower Earnings; Oil Profits Grow." November 1, 2010.

Oil and Gas Journal. "OGJ150." September 21, 2009.

Oil and Gas Journal. "OGJ150 Financial Results Down in '09; Production, Reserves Up." September 6, 2010.

Oil and Gas Journal. "Special Report: Worldwide Gas Processing: New Plants, Data Push Global Gas Processing Capacity Ahead in 2009." June 7, 2010.

U.S. Energy Information Administration (U.S. EIA). 2012. Short-Term Energy Outlook March 2012. < http://<IP_ADDRESS>/forecasts/steo/uncertainty/index.cfm> March 6, 2012.

Benefits of Emissions Reductions
Introduction

      The final Oil and Natural Gas NSPS and NESHAP Amendments are expected to result in significant reductions in existing emissions and prevent new emissions from expansions of the industry.  While we expect that these avoided emissions will result in improvements in air quality and reduce health effects associated with exposure to HAP, ozone, and fine particulate matter (PM2.5), we have determined that quantification of those health benefits cannot be accomplished for this rule in a defensible way.  This is not to imply that there are no health benefits of the rules; rather, it is a reflection of the difficulties in modeling the direct and indirect impacts of the reductions in emissions for this industrial sector with the data currently available, as explained below.  For the final NSPS, the HAP and climate benefits can be considered "co-benefits", and for the final NESHAP Amendments, the ozone and PM2.5 health benefits and climate benefits can be considered "co-benefits".  These co-benefits occur because the control technologies used to reduce VOC emissions also reduce emissions of HAP and methane.
The final NSPS is anticipated to prevent, 190,000 tons of VOC, 11,000 tons of HAP, and 1.0 million tons of methane from new sources, while the final NESHAP Amendments are anticipated to reduce 670 tons of HAP, 1,200 tons of VOC, and 420 tons of methane from existing sources. The specific control technologies for the final NSPS are anticipated to have minor secondary disbenefits, including an increase of 1.1 million tons of carbon dioxide (CO2), 550 tons of nitrogen oxides (NOx), 19 tons of PM, 3,000 tons of CO, and 1,100 tons of total hydrocarbons (THC).  The specific control technologies for the NESHAP Amendments are anticipated to have minor secondary disbenefits, but EPA was unable to estimate these secondary disbenefits.  Both rules would have additional emission changes associated with the energy system impacts.  The net CO2-equivalent emission reductions are 18 million metric tons for the final NSPS and 8,000 metric tons for the final NESHAP.  As described in the subsequent sections, these pollutants are associated with substantial health effects, welfare effects, and climate effects.  With the data available, we are not able to provide a credible benefits estimates for any of these pollutants for these rules, due to the differences in the locations of oil and natural gas emission points relative to existing information, and the highly localized nature of air quality responses associated with HAP and VOC reductions.   In addition, we do not yet have interagency agreed upon valuation estimates for greenhouse gases other than CO2 that could be used to value the climate co-benefits associated with avoiding methane emissions.  Instead, we provide a qualitative assessment of the benefits and co-benefits as well as a break-even analysis in Section 6 of this RIA.  A break-even analysis answers the question, "What would the benefits need to be for the benefits to exceed the costs." While a break-even approach is not equivalent to a benefits analysis, we feel the results are illustrative, particularly in the context of previous benefit per ton estimates.
Direct Emission Reductions from the Oil and Natural Gas Rules

      As described in Section 2 of this RIA, oil and natural gas operations in the U.S. include a variety of emission points for VOC and HAP including wells, processing plants, compressor stations, storage equipment, and transmission and distribution lines.  These emission points are located throughout much of the country with significant concentrations in particular regions.  For example, wells and processing plants are largely concentrated in the South Central, Midwest, and Southern California regions of the U.S., whereas gas compression stations are located all over the country.  Distribution lines to customers are frequently located within areas of high population density.
In implementing these rules, emission controls may lead to reductions in ambient PM2.5 and ozone below the National Ambient Air Quality Standards (NAAQS) in some areas and assist other areas with attaining the NAAQS. Due to the high degree of variability in the responsiveness of ozone and PM2.5 formation to VOC emission reductions, we are unable to determine how these rules might affect attainment status without air quality modeling data.  Because the NAAQS RIAs also calculate ozone and PM benefits, there are important differences worth noting in the design and analytical objectives of each RIA. The NAAQS RIAs illustrate the potential costs and benefits of attaining a new air quality standard nationwide based on an array of emission control strategies for different sources. In short, NAAQS RIAs hypothesize, but do not predict, the control strategies that States may choose to enact when implementing a NAAQS. The setting of a NAAQS does not directly result in costs or benefits, and as such, the NAAQS RIAs are merely illustrative and are not intended to be added to the costs and benefits of other regulations that result in specific costs of control and emission reductions. However, some costs and benefits estimated in this RIA account for the same air quality improvements as estimated in an illustrative NAAQS RIA.
      By contrast, the emission reductions for implementation rules are generally from a specific class of well-characterized sources.  In general, EPA is more confident in the magnitude and location of the emission reductions for implementation rules rather than illustrative NAAQS analyses.  Emission reductions achieved under these and other promulgated rules will ultimately be reflected in the baseline of future NAAQS analyses, which would reduce the incremental costs and benefits associated with attaining the NAAQS.  EPA remains forward looking towards the next iteration of the 5-year review cycle for the NAAQS, and as a result does not issue updated RIAs for existing NAAQS that retroactively update the baseline for NAAQS implementation. For more information on the relationship between the NAAQS and rules such as analyzed here, please see Section 1.2.4 of the SO2 NAAQS RIA (U.S. EPA, 2010d).  Table 4-1 shows the direct emission reductions anticipated for these rules.  It is important to note that these benefits accrue at different spatial scales.  HAP emission reductions reduce exposure to carcinogens and other toxic pollutants primarily near the emission source.  Reducing VOC emissions would reduce precursors to secondary formation of PM2.5 and ozone, which reduces exposure to these pollutants on a regional scale.  Climate effects associated with long-lived greenhouse gases like methane are primarily at a global scale, but methane is also a precursor to ozone, a short-lived climate forcer that exhibits spatial and temporal variability.

Table 4-1	Direct Emission Reductions Associated with the Oil and Natural Gas NSPS and NESHAP Amendments in 2015 (short tons per year)
                                   Pollutant
                               NESHAP Amendments
                                     NSPS
                               Primary Baseline
                                      HAP
                                      669
                                    11,487
                                      VOC
                                     1,213
                                    188,741
                                    Methane
                                      419
                                   1,010,382
                        Alternative Regulatory Baseline
                                      HAP
                                      669
                                    19,028
                                      VOC
                                     1,213
                                    292,532
                                    Methane
                                      419
                                   1,721,763

Secondary Impacts Analysis for Oil and Gas Rules
     The control techniques to avert leaks and vents of VOC and HAP are associated with several types of secondary impacts, which may partially offset the direct benefits of this rule.  In this RIA, we refer to the secondary impacts associated with the specific control techniques as "producer-side" impacts.  For example, by combusting VOC and HAP, combustion increases emissions of carbon monoxide, NOx, particulate matter and other pollutants.  In addition to "producer-side" impacts, these control techniques would also allow additional natural gas recovery, which would contribute to additional combustion of the recovered natural gas and ultimately a shift in the national fuel mix.  We refer to the secondary impacts associated with the combustion of the recovered natural gas as "consumer-side" secondary impacts.  We provide a conceptual diagram of both categories of secondary impacts in Figure 4-1.

Figure 4-1	Conceptual Diagram of Secondary Impacts from Oil and Gas NSPS and NESHAP Amendments

      Table 4-2 shows the estimated secondary "producer-side" impacts.  Relative to the direct emission reductions anticipated from these rules, the magnitude of these secondary air pollutant impacts is small.  Because the geographic distribution of these emissions from the oil and gas sector is not consistent with emissions modeled in Fann, Fulcher, and Hubbell (2009), we are unable to monetize the PM2.5 disbenefits associated with the producer-side secondary impacts.  In addition, it is not appropriate to monetize the disbenefits associated with the increased CO2 emissions without monetizing the averted methane emissions because the overall global warming potential (GWP) is actually lower.  Through the combustion process, methane emissions are converted to CO2 emissions, which have 21 times less global warming potential compared to methane (IPCC, 2007).
Table 4-2	Secondary Air Pollutant Impacts Associated with Control Techniques by Emissions Category, Primary Baseline ("Producer-Side") (short tons per year)
Emissions Category
                                      CO2
                                      NOx
                                      PM
                                      CO
                                      THC
Total Completions of New Gas Wells (NSPS)
                                    981,559
                                      504
                                      15
                                     2,745
                                     1,039
   New Gas Well Completions: REC/Combust
                                    133,177
                                      68
                                       0
                                      372
                                      141
   New Gas Well Completions: Combust
                                    848,382
                                      436
                                      15
                                     2,373
                                      898
Existing Well Recompletions: Combust
                                    91,800
                                      47
                                       1
                                      257
                                      97
   Existing Well Completions: REC/Combust
                                    17,251
                                       9
                                       0
                                      48
                                      18
   Existing Well Completions: Combust
                                    74,549
                                      38
                                       1
                                      208
                                      79
Pneumatic Controllers (NSPS)
                                     22.0
                                      1.0
                                      2.6
                                      0.0
                                      0.0
Storage Vessels (NSPS)
                                     856.0
                                      0.5
                                      0.0
                                      2.4
                                      0.9
Total NSPS
                                   1,074,237
                                      553
                                      19
                                     3,004
                                     1,137

      For the "consumer-side" impacts associated with the NSPS, we modeled the impact of the final NSPS on the national fuel mix and associated CO2-equivalent emissions (Table 4-3).  We provide the modeled results of the "consumer-side" CO2-equivalent emissions in Table 7-12.
      The modeled results indicate that through a slight shift in the national fuel mix, the CO2-equivalent emissions across the energy sector would increase by 0.65 million metric tons for the final NSPS and NESHAP Amendments in 2015.  This is in addition to the other secondary impacts and directly avoided emissions, for a total 17.7 million metric tons of CO2-equivalent emissions averted as shown in Table 4-4.  While the NEMS is designed to estimate changes in fuel consumption as economic and regulatory factors change (such as are shown in Table 7-11), the NEMS is unable to estimate national-level emissions of criteria pollutants.
Table 4-3	Modeled Changes in Energy-related CO2-equivalent Emissions by Fuel Type for the Final Oil and Gas NSPS and NESHAP Amendments in 2015 (million metric tonnes) ("Consumer-Side")[1]
Fuel Type
                  NSPS (million metric tons change in CO2-e)
Petroleum
                                     -0.07
Natural Gas
                                     0.04
Coal
                                     0.68
Other
                                     0.00
Total modeled Change in CO2-e  Emissions
                                     0.65
1 These estimates reflect the modeled change in CO2-e emissions using NEMS shown in Table 7-12. Totals may not sum due to independent rounding.

Table 4-4	Total Change in CO2-equivalent Emissions including Secondary Impacts for the Final Oil and Gas NSPS and NESHAP Amendments in 2015 (million metric tonnes)
Emissions Source
                                     NSPS
                                    NESHAP
                                  Amendments
Averted CO2-e Emissions from New Sources[1]
                                     -19.2
                                    -0.008
Additional CO2-e Emissions from Combustion and Supplemental Energy (Producer-side)[2]
                                     0.97

                                      N/A
Total Modeled Change in Energy-related CO2-e  Emissions (Consumer-side)[3]
                                     0.65
                                      N/A
Total Change in CO2-e Emissions after Adjustment for Secondary Impacts
                                     -17.6
                                    -0.008
[1] This estimate reflects the GWP of the avoided methane emissions from new sources shown in Table 4-1 and has been converted from short tons to metric tons.
[2] This estimate represents the secondary producer-side impacts associated with additional CO2 emissions from combustion and from additional electricity requirements shown in Table 4-2 and has been converted from short tons to metric tons.
[3]This estimate reflects the modeled change in the energy - related consumer-side impacts shown in Table 4-3 and reflects both NSPS and NESHAP Amendments.
Totals may not sum due to independent rounding.

      Based on these analyses, the net impact of both the direct and secondary impacts of these rules would be an improvement in ambient air quality, which would reduce exposure to various harmful pollutants, improve visibility impairment, reduce vegetation damage, and reduce potency of greenhouse gas emissions.  Table 4-5 provides a summary of the direct and secondary emissions changes for each rule.
Table 4-5	Summary of Emissions Changes for the Final Oil and Gas NSPS and NESHAP Amendments in 2015 (short tons per year)

                                   Pollutant
                                     NSPS
                               NESHAP Amendments
Change in Direct Emissions
                                      VOC
                                   -190,000
                                     -670

                                    Methane
                                  -1,000,000
                                    -1,200

                                     HAP
                                    -11,000
                                     -420
Change in Secondary Emissions (Producer-Side)
                                      CO2
                                   1,100,000
                                      N/A

                                      NOx
                                      550
                                     N/A

                                      PM
                                      19
                                     N/A

                                      CO
                                     3,000
                                     N/A

                                      THC
                                     1,100
                                     N/A
Change in Secondary Emissions (Consumer-Side)
                                     CO2-e
                                    720,000
                                      N/A
Net Change in CO2-equivalent Emissions
                              CO2-e (short tons)
                                  -19,000,000
                                    -8,800

                             CO2-e (metric tonnes)
                                  -18,000,000
                                    -8,000
Note: Totals may not sum due to independent rounding.

Hazardous Air Pollutant (HAP) Benefits
     Even though emissions of air toxics from all sources in the U.S. declined by approximately 42 percent since 1990, the 2005 National-Scale Air Toxics Assessment (NATA) predicts that most Americans are exposed to ambient concentrations of air toxics at levels that have the potential to cause adverse health effects (U.S. EPA, 2011d).  The levels of air toxics to which people are exposed vary depending on where they live and work and the kinds of activities in which they engage.  In order to identify and prioritize air toxics, emission source types and locations that are of greatest potential concern, U.S. EPA conducts the NATA.   The most recent NATA was conducted for calendar year 2005 and was released in March 2011.  NATA includes four steps:
      1) Compiling a national emissions inventory of air toxics emissions from outdoor sources
      2) Estimating ambient and exposure concentrations of air toxics across the United States
      3) Estimating population exposures across the United States
      4) Characterizing potential public health risk due to inhalation of air toxics including both cancer and noncancer effects
      Based on the 2005 NATA, EPA estimates that about 5 percent of census tracts nationwide have increased cancer risks greater than 100 in a million.  The average national cancer risk is about 50 in a million.  Nationwide, the key pollutants that contribute most to the overall cancer risks are formaldehyde and benzene. ,  Secondary formation (e.g., formaldehyde forming from other emitted pollutants) was the largest contributor to cancer risks, while stationary, mobile and background sources contribute almost equal portions of the remaining cancer risk.
      Noncancer health effects can result from chronic, subchronic, or acute inhalation exposures to air toxics, and include neurological, cardiovascular, liver, kidney, and respiratory effects as well as effects on the immune and reproductive systems.  According to the 2005 NATA, about three-fourths of the U.S. population was exposed to an average chronic concentration of air toxics that has the potential for adverse noncancer respiratory health effects. Results from the 2005 NATA indicate that acrolein is the primary driver for noncancer respiratory risk.
      Figure 4-2 and Figure 4-3 depict the estimated census tract-level carcinogenic risk and noncancer respiratory hazard from the assessment.  It is important to note that large reductions in HAP emissions may not necessarily translate into significant reductions in health risk because toxicity varies by pollutant, and exposures may or may not exceed levels of concern.  For example, acetaldehyde mass emissions are more than double acrolein emissions on a national basis, according to EPA's 2005 National Emissions Inventory (NEI).  However, the Integrated Risk Information System (IRIS) reference concentration (RfC) for acrolein is considerably lower than that for acetaldehyde, suggesting that acrolein could be potentially more toxic than acetaldehyde.   Thus, it is important to account for the toxicity and exposure, as well as the mass of the targeted emissions.

Figure 4-2	Estimated Chronic Census Tract Carcinogenic Risk from HAP exposure from outdoor sources (2005 NATA)

Figure 4-3	Estimated Chronic Census Tract Noncancer (Respiratory) Risk from HAP exposure from outdoor sources (2005 NATA)

Due to methodology and data limitations, we were unable to estimate the benefits associated with the hazardous air pollutants that would be reduced as a result of these rules. In a few previous analyses of the benefits of reductions in HAP, EPA has quantified the benefits of potential reductions in the incidences of cancer and noncancer risk (e.g., U.S. EPA, 1995). In those analyses, EPA relied on unit risk factors (URF) developed through risk assessment procedures. These URFs are designed to be conservative, and as such, are more likely to represent the high end of the distribution of risk rather than a best or most likely estimate of risk. As the purpose of a benefit analysis is to describe the benefits most likely to occur from a reduction in pollution, use of high-end, conservative risk estimates would overestimate the benefits of the regulation. While we used high-end risk estimates in past analyses, advice from the EPA's Science Advisory Board (SAB) recommended that we avoid using high-end estimates in benefit analyses (U.S. EPA-SAB, 2002). Since this time, EPA has continued to develop better methods for analyzing the benefits of reductions in HAP.
As part of the second prospective analysis of the benefits and costs of the Clean Air Act (U.S. EPA, 2011a), EPA conducted a case study analysis of the health effects associated with reducing exposure to benzene in Houston from implementation of the Clean Air Act (IEc, 2009). While reviewing the draft report, EPA's Advisory Council on Clean Air Compliance Analysis concluded that "the challenges for assessing progress in health improvement as a result of reductions in emissions of hazardous air pollutants (HAP) are daunting...due to a lack of exposure-response functions, uncertainties in emissions inventories and background levels, the difficulty of extrapolating risk estimates to low doses and the challenges of tracking health progress for diseases, such as cancer, that have long latency periods" (U.S. EPA-SAB, 2008).
In 2009, EPA convened a workshop to address the inherent complexities, limitations, and uncertainties in current methods to quantify the benefits of reducing HAP. Recommendations from this workshop included identifying research priorities, focusing on susceptible and vulnerable populations, and improving dose-response relationships (Gwinn et al., 2011).
In summary, monetization of the benefits of reductions in cancer incidences requires several important inputs, including central estimates of cancer risks, estimates of exposure to carcinogenic HAP, and estimates of the value of an avoided case of cancer (fatal and non-fatal). Due to methodology and data limitations, we did not attempt to monetize the health benefits of reductions in HAP in this analysis. Instead, we provide a qualitative analysis of the health effects associated with the HAP anticipated to be reduced by these rules and we summarize the results of the residual risk assessment for the Risk and Technology Review (RTR).  EPA remains committed to improving methods for estimating HAP benefits by continuing to explore additional concepts of benefits, including changes in the distribution of risk.
Available emissions data show that several different HAP are emitted from oil and natural gas operations, either from equipment leaks, processing, compressing, transmission and distribution, or storage tanks.  Emissions of eight HAP make up a large percentage of the total HAP emissions by mass from the oil and gas sector: toluene, hexane, benzene, xylenes (mixed), ethylene glycol, methanol, ethyl benzene, and 2,2,4-trimethylpentane (U.S. EPA, 2011a).  In the subsequent sections, we describe the health effects associated with the main HAP of concern from the oil and natural gas sector: benzene, toluene, carbonyl sulfide, ethyl benzene, mixed xylenes, and n-hexane.  These rules combined are anticipated to avoid or reduce 20,000 tons of HAP per year.  With the data available, it was not possible to estimate the tons of each individual HAP that would be reduced.
EPA conducted a residual risk assessment for the NESHAP rule (U.S. EPA, 2012).  The results for oil and gas production indicate that maximum lifetime individual cancer risks could be 10 in-a-million for existing sources with a cancer incidence of 0.02 before and after controls.  Approximately 120,000 people are estimated to have cancer risks at or above 1-in-1 million for oil and gas production.  For existing natural gas transmission and storage, the maximum individual cancer risk could be 20-in-a-million with a cancer incidence of 0.001.  Approximately 1,100 people are estimated to have cancer risks at or above 1-in-1 million for oil and gas transmission and storage. Benzene is the primary cancer risk driver.  The results also indicate that significant noncancer impacts from existing sources are unlikely, especially after controls.  It is important to note that the magnitude of the HAP emissions avoided by new sources with the NSPS are much higher than the HAP emissions reduced from existing sources with the NESHAP.
Benzene
      The EPA's IRIS database lists benzene as a known human carcinogen (causing leukemia) by all routes of exposure, and concludes that exposure is associated with additional health effects, including genetic changes in both humans and animals and increased proliferation of bone marrow cells in mice.,,  EPA states in its IRIS database that data indicate a causal relationship between benzene exposure and acute lymphocytic leukemia and suggest a relationship between benzene exposure and chronic non-lymphocytic leukemia and chronic lymphocytic leukemia.  The International Agency for Research on Carcinogens (IARC) has determined that benzene is a human carcinogen and the U.S. Department of Health and Human Services (DHHS) has characterized benzene as a known human carcinogen.,  A number of adverse noncancer health effects including blood disorders, such as preleukemia and aplastic anemia, have also been associated with long-term exposure to benzene.,   The most sensitive noncancer effect observed in humans, based on current data, is the depression of the absolute lymphocyte count in blood.[,]   In addition, recent work, including studies sponsored by the Health Effects Institute (HEI), provides evidence that biochemical responses are occurring at lower levels of benzene exposure than previously known.,,,   EPA's IRIS program has not yet evaluated these new data.
Toluene
Under the 2005 Guidelines for Carcinogen Risk Assessment, there is inadequate information to assess the carcinogenic potential of toluene because studies of humans chronically exposed to toluene are inconclusive, toluene was not carcinogenic in adequate inhalation cancer bioassays of rats and mice exposed for life, and increased incidences of mammary cancer and leukemia were reported in a lifetime rat oral bioassay.
The central nervous system (CNS) is the primary target for toluene toxicity in both humans and animals for acute and chronic exposures.  CNS dysfunction (which is often reversible) and narcosis have been frequently observed in humans acutely exposed to low or moderate levels of toluene by inhalation: symptoms include fatigue, sleepiness, headaches, and nausea.  Central nervous system depression has been reported to occur in chronic abusers exposed to high levels of toluene.  Symptoms include ataxia, tremors, cerebral atrophy, nystagmus (involuntary eye movements), and impaired speech, hearing, and vision.  Chronic inhalation exposure of humans to toluene also causes irritation of the upper respiratory tract, eye irritation, dizziness, headaches, and difficulty with sleep.
Human studies have also reported developmental effects, such as CNS dysfunction, attention deficits, and minor craniofacial and limb anomalies, in the children of women who abused toluene during pregnancy.  A substantial database examining the effects of toluene in subchronic and chronic occupationally exposed humans exists.  The weight of evidence from these studies indicates neurological effects (i.e., impaired color vision, impaired hearing, decreased performance in neurobehavioral analysis, changes in motor and sensory nerve conduction velocity, headache, and dizziness) as the most sensitive endpoint.
Carbonyl sulfide
      Limited information is available on the health effects of carbonyl sulfide.  Acute (short-term) inhalation of high concentrations of carbonyl sulfide may cause narcotic effects and irritate the eyes and skin in humans. No information is available on the chronic (long-term), reproductive, developmental, or carcinogenic effects of carbonyl sulfide in humans.  Carbonyl sulfide has not undergone a complete evaluation and determination under U.S. EPA's IRIS program for evidence of human carcinogenic potential.
Ethylbenzene
      Ethylbenzene is a major industrial chemical produced by alkylation of benzene. The pure chemical is used almost exclusively for styrene production.  It is also a constituent of crude petroleum and is found in gasoline and diesel fuels.  Acute (short-term) exposure to ethylbenzene in humans results in respiratory effects such as throat irritation and chest constriction, and irritation of the eyes, and neurological effects such as dizziness.  Chronic (long-term) exposure of humans to ethylbenzene may cause eye and lung irritation, with possible adverse effects on the blood.  Animal studies have reported effects on the blood, liver, and kidneys and endocrine system from chronic inhalation exposure to ethylbenzene.  No information is available on the developmental or reproductive effects of ethylbenzene in humans, but animal studies have reported developmental effects, including birth defects in animals exposed via inhalation.  Studies in rodents reported increases in the percentage of animals with tumors of the nasal and oral cavities in male and female rats exposed to ethylbenzene via the oral route.[,] The reports of these studies lacked detailed information on the incidence of specific tumors, statistical analysis, survival data, and information on historical controls, thus the results of these studies were considered inconclusive by the International Agency for Research on Cancer (IARC, 2000) and the National Toxicology Program (NTP).[,]  The NTP (1999) carried out a chronic inhalation bioassay in mice and rats and found clear evidence of carcinogenic activity in male rats and some evidence in female rats, based on increased incidences of renal tubule adenoma or carcinoma in male rats and renal tubule adenoma in females. NTP (1999) also noted increases in the incidence of testicular adenoma in male rats. Increased incidences of lung alveolar/bronchiolar adenoma or carcinoma were observed in male mice and liver hepatocellular adenoma or carcinoma in female mice, which provided some evidence of carcinogenic activity in male and female mice (NTP, 1999). IARC (2000) classified ethylbenzene as Group 2B, possibly carcinogenic to humans, based on the NTP studies.
Mixed xylenes
      Short-term inhalation of mixed xylenes (a mixture of three closely-related compounds) in humans may cause irritation of the nose and throat, nausea, vomiting, gastric irritation, mild transient eye irritation, and neurological effects.  Other reported effects include labored breathing, heart palpitation, impaired function of the lungs, and possible effects in the liver and kidneys.  Long-term inhalation exposure to xylenes in humans has been associated with a number of effects in the nervous system including headaches, dizziness, fatigue, tremors, and impaired motor coordination. EPA has classified mixed xylenes in Category D, not classifiable with respect to human carcinogenicity.
n-Hexane
      The studies available in both humans and animals indicate that the nervous system is the primary target of toxicity upon exposure of n-hexane via inhalation. There are no data in humans and very limited information in animals about the potential effects of n-hexane via the oral route.  Acute (short-term) inhalation exposure of humans to high levels of hexane causes mild central nervous system effects, including dizziness, giddiness, slight nausea, and headache.  Chronic (long-term) exposure to hexane in air causes numbness in the extremities, muscular weakness, blurred vision, headache, and fatigue.  Inhalation studies in rodents have reported behavioral effects, neurophysiological changes and neuropathological effects upon inhalation exposure to n-hexane.  Under the Guidelines for Carcinogen Risk Assessment (U.S. EPA, 2005), the database for n-hexane is considered inadequate to assess human carcinogenic potential, therefore the EPA has classified hexane in Group D, not classifiable as to human carcinogenicity.
Other Air Toxics
In addition to the compounds described above, other toxic compounds might be affected by these rules, including hydrogen sulfide (H2S).  Information regarding the health effects of those compounds can be found in EPA's IRIS database.
VOC
VOC as a PM2.5 precursor
      This rulemaking would reduce emissions of VOC, which are a precursor to PM2.5.  Most VOC emitted are oxidized to carbon dioxide (CO2) rather than to PM, but a portion of VOC emission contributes to ambient PM2.5 levels as organic carbon aerosols (U.S. EPA, 2009a).  Therefore, reducing these emissions would reduce PM2.5 formation, human exposure to PM2.5, and the incidence of PM2.5-related health effects.  However, we have not quantified the PM2.5-related benefits in this analysis.  Analysis of organic carbon measurements suggest only a fraction of secondarily formed organic carbon aerosols are of anthropogenic origin.  The current state of the science of secondary organic carbon aerosol formation indicates that anthropogenic VOC contribution to secondary organic carbon aerosol is often lower than the biogenic (natural) contribution.  Given that a fraction of secondarily formed organic carbon aerosols is from anthropogenic VOC emissions and the extremely small amount of VOC emissions from this sector relative to the entire VOC inventory it is unlikely this sector has a large contribution to ambient secondary organic carbon aerosols.  Photochemical models typically estimate secondary organic carbon from anthropogenic VOC emissions to be less than 0.1 ug/m[3].
      Due to time limitations under the court-ordered schedule and data limitations regarding locations of new well completions, we were unable to perform air quality modeling for this rule.  Due to the high degree of variability in the responsiveness of PM2.5 formation to VOC emission reductions, we are unable to estimate the effect that reducing VOC will have on ambient PM2.5 levels without air quality modeling.
PM2.5 health effects and valuation
      Reducing VOC emissions would reduce PM2.5 formation, human exposure, and the incidence of PM2.5-related health effects.  Reducing exposure to PM2.5 is associated with significant human health benefits, including avoiding mortality and respiratory morbidity.  Researchers have associated PM2.5- exposure with adverse health effects in numerous toxicological, clinical and epidemiological studies (U.S. EPA, 2009a).  When adequate data and resources are available, EPA generally quantifies several health effects associated with exposure to PM2.5 (e.g., U.S. EPA (2011g)).  These health effects include premature mortality for adults and infants, cardiovascular morbidity such as heart attacks, hospital admissions, and respiratory morbidity such as asthma attacks, acute and chronic bronchitis, hospital and ER visits, work loss days, restricted activity days, and respiratory symptoms.  Although EPA has not quantified these effects in previous benefits analyses, the scientific literature suggests that exposure to PM2.5 is also associated with adverse effects on birth weight, pre-term births, pulmonary function, other cardiovascular effects, and other respiratory effects (U.S. EPA, 2009a).
      EPA assumes that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type (U.S. EPA, 2009a).  Based on our review of the current body of scientific literature, EPA estimates PM-related mortality without applying an assumed concentration threshold.  This decision is supported by the data, which are quite consistent in showing effects down to the lowest measured levels of PM2.5 in the underlying epidemiology studies.
      Previous studies have estimated the monetized benefits-per-ton of reducing VOC emissions associated with the effect that those emissions have on ambient PM2.5 levels and the health effects associated with PM2.5 exposure (Fann, Fulcher, and Hubbell, 2009).  Using the estimates in Fann, Fulcher, and Hubbell (2009), the monetized benefit-per-ton of reducing VOC emissions in nine urban areas of the U.S. ranges from $560 in Seattle, WA to $5,700 in San Joaquin, CA, with a national average of $2,400.  These estimates assume a 50 percent reduction in VOC, the Laden et al. (2006) mortality function (based on the Harvard Six City Study, a large cohort epidemiology study in the Eastern U.S.), an analysis year of 2015, and a 3 percent discount rate.
      Based on the methodology from Fann, Fulcher, and Hubbell (2009), we converted their estimates to 2008$ and applied EPA's current VSL estimate.  After these adjustments, the range of values increases to $680 to $7,000 per ton of VOC reduced for Laden et al. (2006).  Using alternate assumptions regarding the relationship between PM2.5 exposure and premature mortality from empirical studies and supplied by experts (Pope et al., 2002; Laden et al., 2006; Roman et al., 2008), additional benefit-per-ton estimates are available from this dataset, as shown in Table 4-6.  EPA generally presents a range of benefits estimates derived from Pope et al. (2002) to Laden et al. (2006) because they are both well-designed and peer reviewed studies, and EPA provides the benefit estimates derived from expert opinions in Roman et al. (2008) as a characterization of uncertainty.  In addition to the range of benefits based on epidemiology studies, this study also provided a range of benefits associated with reducing emissions in eight specific urban areas.  The range of VOC benefits that reflects the adjustments as well as the range of epidemiology studies and the range of the urban areas is $280 to $7,000 per ton of VOC reduced.
      While these ranges of benefit-per-ton estimates provide useful context for the break-even analysis, the geographic distribution of VOC emissions from the oil and gas sector are not consistent with emissions modeled in Fann, Fulcher, and Hubbell (2009).  In addition, the benefit-per-ton estimates for VOC emission reductions in that study are derived from total VOC emissions across all sectors.  Coupled with the larger uncertainties about the relationship between VOC emissions and PM2.5, these factors lead us to conclude that the available VOC benefit per ton estimates are not appropriate to calculate monetized benefits of these rules, even as a bounding exercise.

Table 4-6	Monetized Benefits-per-Ton Estimates for VOC (2008$)
                                     Area
                                  Pope et al.
                                 Laden et al.
                                   Expert A
                                   Expert B
                                   Expert C
                                   Expert D
                                   Expert E
                                   Expert F
                                   Expert G
                                   Expert H
                                   Expert I
                                   Expert J
                                   Expert K
                                   Expert L
                                    Atlanta
                                     $620
                                    $1,500
                                    $1,600
                                    $1,200
                                    $1,200
                                     $860
                                    $2,000
                                    $1,100
                                     $730
                                     $920
                                    $1,200
                                     $980
                                     $250
                                     $940
                                    Chicago
                                    $1,500
                                    $3,800
                                    $4,000
                                    $3,100
                                    $3,000
                                    $2,200
                                    $4,900
                                    $2,800
                                    $1,800
                                    $2,300
                                    $3,000
                                    $2,500
                                     $600
                                    $2,400
                                    Dallas
                                     $300
                                     $740
                                     $780
                                     $610
                                     $590
                                     $420
                                     $960
                                     $540
                                     $360
                                     $450
                                     $590
                                     $480
                                     $120
                                     $460
                                    Denver
                                     $720
                                    $1,800
                                    $1,800
                                    $1,400
                                    $1,400
                                    $1,000
                                    $2,300
                                    $1,300
                                     $850
                                    $1,100
                                    $1,400
                                    $1,100
                                     $280
                                     $850
                               NYC/ Philadelphia
                                    $2,100
                                    $5,200
                                    $5,500
                                    $4,300
                                    $4,200
                                    $3,000
                                    $6,900
                                    $3,900
                                    $2,500
                                    $3,200
                                    $4,200
                                    $3,400
                                     $830
                                    $3,100
                                    Phoenix
                                    $1,000
                                    $2,500
                                    $2,600
                                    $2,000
                                    $2,000
                                    $1,400
                                    $3,300
                                    $1,800
                                    $1,200
                                    $1,500
                                    $2,000
                                    $1,600
                                     $400
                                    $1,500
                                   Salt Lake
                                    $1,300
                                    $3,100
                                    $3,300
                                    $2,600
                                    $2,500
                                    $1,800
                                    $4,100
                                    $2,300
                                    $1,500
                                    $1,900
                                    $2,500
                                    $2,100
                                     $530
                                    $2,000
                                  San Joaquin
                                    $2,900
                                    $7,000
                                    $7,400
                                    $5,800
                                    $5,600
                                    $4,000
                                    $9,100
                                    $5,200
                                    $3,400
                                    $4,300
                                    $5,600
                                    $4,600
                                    $1,300
                                    $4,400
                                    Seattle
                                     $280
                                     $680
                                     $720
                                     $530
                                     $550
                                     $390
                                     $890
                                     $500
                                     $330
                                     $420
                                     $550
                                     $450
                                     $110
                                     $330
                               National average
                                    $1,200
                                    $3,000
                                    $3,200
                                    $2,400
                                    $2,400
                                    $1,700
                                    $3,900
                                    $2,200
                                    $1,400
                                    $1,800
                                    $2,400
                                    $1,900
                                     $490
                                    $1,800

* These estimates assume a 50 percent reduction in VOC emissions, an analysis year of 2015, and a 3 percent discount rate.  All estimates are rounded to two significant digits.  These estimates have been updated from Fann, Fulcher, and Hubbell (2009) to reflect a more recent currency year and EPA's current VSL estimate.  Using a discount rate of 7 percent, the benefit-per-ton estimates would be approximately 9 percent lower.  Assuming a 75 percent reduction in VOC emissions would increase the benefit-per-ton estimates by approximately 4 percent to 52 percent.  Assuming a 25 percent reduction in VOC emissions would decrease the benefit-per-ton estimates by 5 percent to 52 percent.  EPA generally presents a range of benefits estimates derived from Pope et al. (2002) to Laden et al. (2006) and provides the benefits estimates derived from the expert functions from Roman et al. (2008) as a characterization of uncertainty.

Organic PM welfare effects
      According to the residual risk assessment for this sector (U.S. EPA, 2011a), persistent and bioaccumulative HAP reported as emissions from oil and gas operations include polycyclic organic matter (POM).  POM defines a broad class of compounds that includes the polycyclic aromatic hydrocarbon compounds (PAHs).  Several significant ecological effects are associated with deposition of organic particles, including persistent organic pollutants, and PAHs (U.S. EPA, 2009a).
      PAHs can accumulate in sediments and bioaccumulate in freshwater, flora, and fauna.  The uptake of organics depends on the plant species, site of deposition, physical and chemical properties of the organic compound and prevailing environmental conditions (U.S. EPA, 2009a). PAHs can accumulate to high enough concentrations in some coastal environments to pose an environmental health threat that includes cancer in fish populations, toxicity to organisms living in the sediment and risks to those (e.g., migratory birds) that consume these organisms. Atmospheric deposition of particles is thought to be the major source of PAHs to the sediments of coastal areas of the U.S.  Deposition of PM to surfaces in urban settings increases the metal and organic component of storm water runoff.  This atmospherically-associated pollutant burden can then be toxic to aquatic biota.  The contribution of atmospherically deposited PAHs to aquatic food webs was demonstrated in high elevation mountain lakes with no other anthropogenic contaminant sources.
      The recently completed Western Airborne Contaminants Assessment Project (WACAP) is the most comprehensive database on contaminant transport and PM depositional effects on sensitive ecosystems in the Western U.S. (Landers et al., 2008).  In this project, the transport, fate, and ecological impacts of anthropogenic contaminants from atmospheric sources were assessed from 2002 to 2007 in seven ecosystem components (air, snow, water, sediment, lichen, conifer needles, and fish) in eight core national parks.  The study concluded that bioaccumulation of semi-volatile organic compounds occurred throughout park ecosystems, an elevational gradient in PM deposition exists with greater accumulation in higher altitude areas, and contaminants accumulate in proximity to individual agriculture and industry sources, which is counter to the original working hypothesis that most of the contaminants would originate from Eastern Europe and Asia.
Visibility Effects
      Reducing secondary formation of PM2.5 would improve visibility throughout the U.S. Fine particles with significant light-extinction efficiencies include sulfates, nitrates, organic carbon, elemental carbon, and soil (Sisler, 1996). Suspended particles and gases degrade visibility by scattering and absorbing light. Higher visibility impairment levels in the East are due to generally higher concentrations of fine particles, particularly sulfates, and higher average relative humidity levels.  Visibility has direct significance to people's enjoyment of daily activities and their overall sense of wellbeing.  Good visibility increases the quality of life where individuals live and work, and where they engage in recreational activities. Previous analyses (U.S. EPA, 2006b; U.S. EPA, 2011g; U.S. EPA, 2011a) show that visibility benefits are a significant welfare benefit category.  Without air quality modeling, we are unable to estimate visibility related benefits, nor are we able to determine whether VOC emission reductions would be likely to have a significant impact on visibility in urban areas or Class I areas.
VOC as an Ozone Precursor
      This rulemaking would reduce emissions of VOC, which are also precursors to secondary formation of ozone.  Ozone is not emitted directly into the air, but is created when its two primary components, volatile organic compounds (VOC) and oxides of nitrogen (NOx), combine in the presence of sunlight.  In urban areas, compounds representing all classes of VOC and CO are important compounds for ozone formation, but biogenic VOC emitted from vegetation tend to be more important compounds in non-urban vegetated areas (U.S. EPA, 2006a).  Therefore, reducing these emissions would reduce ozone formation, human exposure to ozone, and the incidence of ozone-related health effects.  However, we have not quantified the ozone-related benefits in this analysis for several reasons.  First, previous rules have shown that the monetized benefits associated with reducing ozone exposure are generally smaller than PM-related benefits, even when ozone is the pollutant targeted for control (U.S. EPA, 2010a).  Second, the complex non-linear chemistry of ozone formation introduces uncertainty to the development and application of a benefit-per-ton estimate.  Third, the impact of reducing VOC emissions is spatially heterogeneous depending on local air chemistry.  Urban areas with a high population concentration are often VOC-limited, which means that ozone is most effectively reduced by lowering VOC.  Rural areas and downwind suburban areas are often NOx-limited, which means that ozone concentrations are most effectively reduced by lowering NOx emissions, rather than lowering emissions of VOC.  Between these areas, ozone is relatively insensitive to marginal changes in both NOx and VOC.
      Due to time limitations under the court-ordered schedule and data limitations, we were unable to perform air quality modeling for this rule.  Due to the high degree of variability in the responsiveness of ozone formation to VOC emission reductions and data limitations regarding the location of new well completions, we are unable to estimate the effect that reducing VOC will have on ambient ozone concentrations without air quality modeling.
Ozone health effects and valuation
      Reducing ambient ozone concentrations is associated with significant human health benefits, including mortality and respiratory morbidity (U.S. EPA, 2010a).  Epidemiological researchers have associated ozone exposure with adverse health effects in numerous toxicological, clinical and epidemiological studies (U.S. EPA, 2006c).  When adequate data and resources are available, EPA generally quantifies several health effects associated with exposure to ozone (e.g., U.S. EPA, 2010a; U.S. EPA, 2011a).  These health effects include respiratory morbidity such as asthma attacks, hospital and emergency department visits, school loss days, as well as premature mortality. Although EPA has not quantified these effects in benefits analyses previously, the scientific literature is suggestive that exposure to ozone is also associated with chronic respiratory damage and premature aging of the lungs.
      In a recent EPA analysis, EPA estimated that reducing 15,000 tons of VOC from industrial boilers resulted in $3.6 to $15 million of monetized benefits from reduced ozone exposure (U.S. EPA, 2011b).  This implies a benefit-per-ton for ozone reductions of $240 to $1,000 per ton of VOC reduced.  While these ranges of benefit-per-ton estimates provide useful context, the geographic distribution of VOC emissions from the oil and gas sector are not consistent with emissions modeled in the boiler analysis.  Therefore, we do not believe that those estimates to provide useful estimates of the monetized benefits of these rules, even as a bounding exercise.
Ozone vegetation effects
Exposure to ozone has been associated with a wide array of vegetation and ecosystem effects in the published literature (U.S. EPA, 2006a).  Sensitivity to ozone is highly variable across species, with over 65 plan species identified as "ozone-sensitive", many of which occur in state and national parks and forests.  These effects include those that damage or impair the intended use of the plant or ecosystem.  Such effects are considered adverse to the public welfare and can include reduced growth and/or biomass production in sensitive plant species, including forest trees, reduced crop yields, visible foliar injury, reduced plant vigor (e.g., increased susceptibility to harsh weather, disease, insect pest infestation, and competition), species composition shift, and changes in ecosystems and associated ecosystem services.
Ozone climate effects
      Ozone is a well-known short-lived climate forcing (SLCF) greenhouse gas (GHG) (U.S. EPA, 2006a).  Stratospheric ozone (the upper ozone layer) is beneficial because it protects life on Earth from the sun's harmful ultraviolet (UV) radiation.  In contrast, tropospheric ozone (ozone in the lower atmosphere) is a harmful air pollutant that adversely affects human health and the environment and contributes significantly to regional and global climate change.  Due to its short atmospheric lifetime, tropospheric ozone concentrations exhibit large spatial and temporal variability (U.S. EPA, 2009b). A recent United Nations Environment Programme (UNEP) study reports that the threefold increase in ground level ozone during the past 100 years makes it the third most important contributor to human contributed climate change behind CO2 and methane.  This discernable influence of ground level ozone on climate leads to increases in global surface temperature and changes in hydrological cycles.
Methane (CH4)
Methane climate effects and valuation
      Methane is the principal component of natural gas.  Methane is also a potent greenhouse gas (GHG) that once emitted into the atmosphere absorbs terrestrial infrared radiation that contributes to increased global warming and continuing climate change.  Methane reacts in the atmosphere to form ozone and ozone also impacts global temperatures.  Methane, in addition to other GHG emissions, contributes to warming of the atmosphere, which over time leads to increased air and ocean temperatures, changes in precipitation patterns, melting and thawing of global glaciers and ice, increasingly severe weather events, such as hurricanes of greater intensity, and sea level rise, among other impacts.
      According to the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (2007), changes in methane concentrations since 1750 contributed 0.48 W/m[2] of forcing, which is about 18% of all global forcing due to increases in anthropogenic GHG concentrations, and which makes methane the second leading long-lived climate forcer after CO2. However, after accounting for changes in other greenhouse substances such as ozone and stratospheric water vapor due to chemical reactions of methane in the atmosphere, historical methane emissions were estimated to have contributed to 0.86 W/m[2] of forcing today, which is about 30% of the forcing due to historical greenhouse gas emissions.
      Processes in the oil and gas category emit significant amounts of methane. The Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2009 (published April 2011) estimates 2009 methane emissions from Petroleum and Natural Gas Systems (not including petroleum refineries and petroleum transportation) to be 251.55 (MMtCO2-e).  In 2009, total methane emissions from the oil and gas industry represented nearly 40 percent of the total methane emissions from all sources and account for about 5 percent of all CO2-equivalent (CO2-e) emissions in the U.S., with natural gas systems being the single largest contributor to U.S. anthropogenic methane  emissions (U.S. EPA, 2011b, Table ES-2).  It is important to note that the 2009 emissions estimates from well completions and recompletions exclude a significant number of wells completed in tight sand plays and the Marcellus Shale, due to availability of data when the 2009 Inventory was developed.  The estimate in this final rule includes an adjustment for tight sand plays and the Marcellus Shale, and such an adjustment is also being considered as a planned improvement in next year's Inventory. This adjustment would increase the 2009 Inventory estimate by about 80 MMtCO2-e. The total methane emissions from Petroleum and Natural Gas Systems based on the 2009 Inventory, adjusted for tight sand plays and the Marcellus Shale, is approximately 330 MMtCO2-e.
      This rulemaking finalizes emission control technologies and regulatory alternatives that will significantly decrease methane emissions from the oil and natural gas sector in the United States.  The NSPS is expected to reduce methane emissions annually by about 1.0 million short tons or approximately 19 million metric tons CO2-e.  These reductions represent about 7 percent of the GHG emissions for this sector reported in the 1990-2009 U.S. GHG Inventory (251.55 MMTCO2-e).  This annual CO2-e reduction becomes about 18 million metric tons when the secondary impacts associated with increased combustion and supplemental energy use on the producer side and CO2-e emissions from changes in consumption patterns previously discussed are considered.  However, it is important to note the emissions reductions are based upon predicted activities in 2015; EPA did not forecast sector-level emissions to 2015 for this rulemaking.  The climate co-benefit from these reductions are equivalent of taking approximately 4 million typical passenger cars off the road or eliminating electricity use from about 2 million typical homes each year.
      EPA estimates the social benefits of regulatory actions that have a small or "marginal" impact on cumulative global CO2 emissions using the "social cost of carbon" (SCC).  The SCC is an estimate of the net present value of the flow of monetized damages from a one metric ton increase in CO2 emissions in a given year (or from the alternative perspective, the benefit to society of reducing CO2 emissions by one ton). The SCC includes (but is not limited to) climate damages due to changes in net agricultural productivity, human health, property damages from flood risk, and ecosystem services due to climate change. The SCC estimates currently used by the Agency were developed through an interagency process that included EPA and other executive branch entities, and concluded in February 2010. The Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 for the final joint EPA/Department of Transportation Rulemaking to establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards provides a complete discussion of the methods used to develop the SCC estimates (Interagency Working Group on Social Cost of Carbon, 2010).
	To estimate global social benefits of reduced CO2 emissions, the interagency group selected four SCC values for use in regulatory analyses: $6, $25, $40, and $76 per metric ton of CO2 emissions in 2015, in 2008 dollars.  The first three values are based on the average SCC estimated using three integrated assessment models (IAMs), at discount rates of 5.0, 3.0, and 2.5 percent, respectively.  When valuing the impacts of climate change, IAMs couple economic and climate systems into a single model to capture important interactions between the components. SCCs estimated using different discount rates are included because the literature shows that the SCC is quite sensitive to assumptions about the discount rate, and because no consensus exists on the appropriate rate to use in an intergenerational context. The fourth value is the 95th percentile of the distribution of SCC estimates from all three models at a 3.0 percent discount rate. It is included to represent higher-than-expected damages from temperature change further out in the tails of the SCC distribution.
      The interagency group noted a number of limitations to the SCC analysis, including the incomplete way in which the integrated assessment models capture catastrophic and non-catastrophic impacts, their incomplete treatment of adaptation and technological change, uncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. The limited amount of research linking climate impacts to economic damages makes estimating damages from climate change even more difficult.  The interagency group hopes that over time researchers and modelers will work to fill these gaps and that the SCC estimates used for regulatory analysis by the Federal government will continue to evolve with improvements in modeling. Additional details on these limitations are discussed in the SCC TSD.
      A significant limitation of the aforementioned interagency process particularly relevant to this rulemaking is that the social costs of non-CO2 GHG emissions were not estimated.  Specifically, the interagency group did not directly estimate the social cost of non-CO2 GHGs using the three models.  Moreover, the group determined that it would not transform the CO2 estimates into estimates for non-CO2 GHGs using global warming potentials (GWPs), which measure the ability of different gases to trap heat in the atmosphere (i.e., radiative forcing per unit of mass) over a particular timeframe relative to CO2.  One potential method for approximating the value of marginal non-CO2 GHG emission reductions is to convert the reductions to CO2-equivalents which may then be valued using the SCC.  Conversion to CO2-e is typically done using the GWPs for the non-CO2 gas.  The GWP is an aggregate measure that approximates the additional energy trapped in the atmosphere over a given timeframe from a perturbation of a non-CO2 gas relative to CO2.  The time horizon most commonly used is 100 years.  One potential problem with utilizing temporally aggregated statistics, such as the GWPs, is that the additional radiative forcing from the GHG perturbation is not constant over time and any differences in temporal dynamics between gases will be lost.  This is a potentially confounding issue given that the social cost of GHGs is based on a discounted stream of damages that are non-linear in temperature. For example, methane has an expected adjusted atmospheric lifetime of about 12 years and associated GWP of 21 (IPCC Second Assessment Report (SAR) 100-year GWP estimate).  Gases with a relatively shorter lifetime, such as methane, have impacts that occur primarily in the near term and thus are not discounted as heavily as those caused by longer-lived gases such as CO2, while the GWP treats additional forcing the same independent of when it occurs in time.  Furthermore, the baseline temperature change is lower in the near term and therefore the additional warming from relatively short lived gases will have a lower marginal impact relative to longer lived gases that have an impact further out in the future when baseline warming is higher.  The GWP also relies on an arbitrary time horizon and constant concentration scenario.  Both of which are inconsistent with the assumptions used by the SCC interagency workgroup. Finally, impacts other than temperature change also vary across gases in ways that are not captured by GWP.  For instance, CO2 emissions, unlike methane will result in CO2 passive fertilization to plants.
	The EPA recognizes that the methane reductions finalized in this rule will provide significant economic climate co-benefits to society.  However, the 2009-2010 Interagency Social Cost of Carbon Work Group did not produce directly modeled estimates of the social cost of methane.  In the absence of direct model estimates from the interagency analysis, EPA has used a "global warming potential (GWP) approach" to estimate the dollar value of this rule's methane co-benefits.  Specifically, EPA of converted methane to CO2 equivalents using the GWP of methane, then multiplied these CO2-equivalent emission reductions by the social cost of carbon developed by the Interagency Social Cost of Carbon Work Group.
      EPA requested comments from interested parties and the public about this interim approach specifically and more broadly about appropriate methods to monetize the climate co-benefits of methane reductions.  EPA's response to these comments, as well as a summary of the public comments sent in response to this request, is provided in the response to comments document.
      Applying the GWP approach, these co-benefits equate to a range of approximately $130 to $1,600 per metric ton of methane reduced depending upon the discount rate assumed, with an estimate of $840 per ton using the mean SCC at the 3 percent discount rate.   When including expected methane emission reductions from the NESHAP Amendments and NSPS and considering secondary impacts of the oil and gas rule, the 2015 co-benefits vary by discount rate and range from about $100 million to about $1.3 billion; the mean SCC at the 3 percent discount rate ($25 per metric ton) results in an estimate of $440 million in 2015 (Table 4-7).

Table 4-7	Climate Methane Benefits Using `GWP' Approach
    SCC Value for 2015 emission reductions ($/ton CO2 in 2008 dollars) [1]
      Total Benefits based on 100 year GWP adjustment[2] (millions 2008$)

                                  Final NSPS
                            Final NESHAP Amendments
$6 (mean 5% discount rate)
                                     $100
                                     $0.05
$25 (mean 3% discount rate)
                                     $440
                                     $0.20
$40 (mean 2.5% discount rate)
                                     $700
                                     $0.32
$76 (95[th] percentile at 3% discount rate)
                                    $1,300
                                     $0.60
Methane Emission Reductions [3] (MMT CO2-e)
                                     17.6
                                     0.008
[1] SCC values for 2015 from the SCC TSD in the light duty vehicle rule adjusted to reflect 2008$ using the CPI-U from the Bureau of Labor Statistics.
[2] Estimates are given for illustrative purposes and  represent the CO2-e estimate of methane reductions multiplied by the SCC estimates ("GWP approach").CO2-e calculated using the GWP of 21 (SAR).  These co-benefit estimates are not the same as would be derived using a social cost of methane directly computed from integrated assessment models. See Marten and Newbold (2011) for discussion of the limitations of the GWP approach.
3 Estimates include methane reductions from the NSPS and NESHAP Amendments respectively and consider secondary impacts from Table 4-4.
  Note: Results reflect independent rounding.

	As previously stated, these co-benefit estimates are not the same as would be derived using a directly computed social cost of methane (using the integrated assessment models employed to develop the SCC estimates) for a variety of reasons including the shorter atmospheric lifetime of methane relative to CO2 (about 12 years compared to CO2 whose concentrations in the atmosphere decay on timescales of decades to millennia).  The climate impacts also differ between the pollutants for reasons other than the radiative forcing profiles and atmospheric lifetimes of these gases.  Methane is a precursor to ozone and ozone is a short-lived climate forcer (details below). This use of the SAR GWP to approximate benefits may underestimate the direct radiative forcing benefits of reduced ozone levels, and does not capture any secondary climate co-benefits involved with ozone-ecosystem interactions.  In addition, a recent NCEE working paper suggests that this quick `GWP approach' to benefits estimation will likely understate the climate benefits of methane reductions in most cases (Marten and Newbold, 2011).  This conclusion is reached using the 100 year GWP for methane of 25 as put forth in the IPCC Fourth Assessment Report as opposed to the lower value of 21 used in this analysis. Using the higher GWP estimate of 25 would increase these reported methane climate co-benefit estimates by about 19 percent.  Although the IPCC Fourth Assessment Report suggested a GWP of 25, EPA has used GWP of 21 consistent with the IPCC SAR to estimate the methane climate co-benefits for this oil and gas rule.  The use of the SAR GWP values allows comparability of data collected in this final rule to the national GHG inventory that EPA compiles annually to meet U.S. commitments to the United Nations Framework Convention on Climate Change (UNFCCC). To comply with international reporting standards under the UNFCCC, official emission estimates are to be reported by the U.S. and other countries using SAR GWP values. The UNFCCC reporting guidelines for national inventories were updated in 2002 but continue to require the use of GWPs from the SAR. The parties to the UNFCCC have also agreed to use GWPs based upon a 100-year time horizon although other time horizon values are available.  The SAR GWP value for methane is also currently used to establish GHG reporting requirements as mandated by the GHG Reporting Rule (2010e) and is used by the EPA to determine Title V and Prevention of Significant Deterioration GHG permitting requirements as modified by the GHG Tailoring Rule (2010f).
	EPA also undertook a literature search for estimates of the marginal social cost of methane.  A range of marginal social cost of methane benefit estimates are available in published literature (Fankhauser (1994), Kandlikar (1995), Hammitt et al. (1996), Tol et al. (2003), Tol, et al. (2006), Hope (2005) and Hope and Newberry (2006).  Most of these estimates are based upon modeling assumptions that are dated and inconsistent with the current SCC estimates.  Some of these studies focused on marginal methane reductions in the 1990s and early 2000s and report estimates for only the single year of interest specific to the study.  The assumptions underlying the social cost of methane estimates available in the literature differ from those agreed upon by the SCC interagency group and in many cases use older versions of the IAMs.  Without additional analysis, the methane climate benefit estimates available in the current literature are not acceptable to use to value the methane reductions finalized in this rulemaking.
	Given the uncertainties with both the `GWP approach' estimates presented and estimates available in the literature, EPA chooses not to compare these co-benefit estimates to the costs of the rule for this final rule.  Rather, the EPA presents the `GWP approach' climate co-benefit estimates as an interim method to produce estimates until the interagency group develops values for non-CO2 GHGs.
Methane as an ozone precursor
      This rulemaking would reduce emissions of methane, a GHG and also a precursor to ozone.  In remote areas, methane is a dominant precursor to tropospheric ozone formation (U.S. EPA, 2006a).  Approximately 40% of the global annual mean ozone increase since preindustrial times is believed to be due to anthropogenic methane (HTAP, 2010).  Projections of future emissions also indicate that methane is likely to be a key contributor to ozone concentrations in the future (HTAP, 2010). Unlike NOx and VOC, which affect ozone concentrations regionally and at hourly time scales, methane emissions affect ozone concentrations globally and on decadal time scales given methane's relatively long atmospheric lifetime (HTAP, 2010).  Reducing methane emissions, therefore, can reduce global background ozone concentrations, human exposure to ozone, and the incidence of ozone-related health effects (West et al., 2006, Anenberg  et al., 2009).  These benefits are global and occur in both urban and rural areas.  Reductions in background ozone concentrations can also have benefits for agriculture and ecosystems (UNEP/WMO, 2011). Studies show that controlling methane emissions can reduce global ozone concentrations and climate change simultaneously, but controlling other shorter-lived ozone precursors such as NOx, carbon monoxide, or non-methane VOC may have larger local health benefits from greater reductions in ozone concentrations (West and Fiore, 2005; West et al., 2006, 2007; Fiore et al. 2008; Dentener et al., 2005; Shindell et al., 2005, 2012; UNEP/WMO, 2011).VOC The health, welfare, and climate effects associated with ozone are described in the preceding sections.  Without air quality modeling, we are unable to estimate the effect that reducing methane will have on ozone concentrations at particular locations.
Combined methane and ozone effects
      A recent United Nations Environment Programme (UNEP) assessment provides the most comprehensive analysis to date of the health, climate, and agricultural benefits of measures to reduce methane, as well as black carbon, a component of fine particulate matter that absorbs radiation (UNEP/WMO, 2011; Shindell et al., 2012). The UNEP assessment found that while reducing longer-lived GHGs such as CO2 is necessary to protect against long-term climate change, reducing global methane and black carbon emissions would have global health benefits by reducing exposure to ozone and PM2.5 as well as potentially slowing the rate of climate change within the first half of this century. Relative to a business as usual reference scenario, implementing methane mitigation measures that achieve approximately 40% reductions in global methane emissions were estimated to avoid approximately 0.3° C globally averaged warming in 2050 (including the impacts of both methane itself and subsequently formed ozone) and 47,000 ozone-related premature deaths and 27 million metric tons of ozone-related crop yield losses globally in 2030 (Shindell et al., 2012). These benefits, including global climate impacts of methane and resulting ozone changes, and global ozone-related health and agricultural impacts, were valued at $700 to $5,000 per metric ton. The methane measures examined include extended methane recovery/utilization and reduced fugitive emissions from oil and gas production, which contributed the greatest climate benefit of all methane mitigation measures in North America and Europe (UNEP, 2011).
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Statutory and Executive Order Reviews
Executive Order 12866, Regulatory Planning and Review and Executive Order 13563, Improving Regulation and Regulatory Review
      Under section 3(f)(1) Executive Order 12866 (58 FR 51735, October 4, 1993), this action is an "economically significant regulatory action" because it is likely to have an annual effect on the economy of $100 million or more. Accordingly, the EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any changes made in response to OMB recommendations have been documented in the docket for this action.  Table 5-1 shows the results of the cost and benefits analysis for these final rules.

Table 5-1	Summary of the Monetized Benefits, Costs, and Net Benefits for the Final Oil and Natural Gas NSPS and NESHAP Amendments in 2015[1]

                                     NSPS
                               NESHAP Amendments
                      NSPS and NESHAP Amendments Combined
Total Monetized Benefits[2]
                                      N/A
                                      N/A
                                      N/A
Total Costs[3]
                                 -$15 million
                                 $3.5 million
                                 -$11 million
Net Benefits
                                      N/A
                                      N/A
                                      N/A
Non-monetized Benefits[6]
                              11,000 tons of HAP
                                670 tons of HAP
                              12,000 tons of HAP

                              190,000 tons of VOC
                               1,200 tons of VOC
                              190,000 tons of VOC

                          1.0 million tons of methane
                              420 tons of methane
                          1.0 million tons of methane

                       Health effects of HAP exposure[5]
                        Health effects of HAP exposure
                        Health effects of HAP exposure

                  Health effects of PM2.5 and ozone exposure
                  Health effects of PM2.5 and ozone exposure
                  Health effects of PM2.5 and ozone exposure

                             Visibility impairment
                             Visibility impairment
                             Visibility impairment

                              Vegetation effects
                              Vegetation effects
                              Vegetation effects

                              Climate effects[5]
                              Climate effects[5]
                              Climate effects[5]

1 All estimates are for the implementation year (2015) and include estimated revenue from additional natural gas product recovery as a result of the NSPS.

2 While we expect that these avoided emissions will result in improvements in air quality and reductions in health effects associated with HAP, ozone, and particulate matter (PM) as well as climate effects associated with methane, we have determined that quantification of those benefits and co-benefits cannot be accomplished for this rule in a defensible way.  This is not to imply that there are no benefits or co-benefits of the rules; rather, it is a reflection of the difficulties in modeling the direct and indirect impacts of the reductions in emissions for this industrial sector with the data currently available.

3 The engineering compliance costs are annualized using a 7 percent discount rate.

4 The negative cost for the NSPS reflects the inclusion of revenues from additional natural gas and hydrocarbon condensate recovery that are estimated as a result of the final NSPS.  Possible explanations for why there appear to be negative cost control technologies are discussed in the engineering costs analysis section in the RIA.

[5] For the NSPS, reduced exposure to HAP and climate effects are co-benefits. For the NESHAP, reduced VOC emissions, PM2.5 and ozone exposure, visibility and vegetation effects and climate effects are co-benefits.

[6] The specific control technologies for the final NSPS are anticipated to have minor secondary disbenefits, including an increase of 1.1 million tons of carbon dioxide (CO2), 550 tons of nitrogen oxides NOx, 19 tons of PM, 3,000 tons of CO, and 1,100 tons of total hydrocarbons (THC) as well as emission reductions associated with the energy system impacts.  The specific control technologies for the NESHAP are anticipated to have minor secondary disbenefits but EPA was unable to estimate these secondary disbenefits.  The net CO2-equivalent emission reductions are 18 million metric tons.
Paperwork Reduction Act
      The information collection requirements in this rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501, et seq. The information collection requirements are not enforceable until OMB approves them.
      The ICR documents prepared by the EPA have been assigned EPA ICR numbers 2437.01, 2438.01, 2439.01 and 2440.01. The information requirements are based on notification, recordkeeping and reporting requirements in the NESHAP General Provisions (40 CFR part 63, subpart A), which are mandatory for all operators subject to national emission standards. These recordkeeping and reporting requirements are specifically authorized by CAA section 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for which a claim of confidentiality is made is safeguarded according to Agency policies set forth in 40 CFR part 2, subpart B. This final rule requires maintenance inspections of the control devices but would not require any notifications or reports beyond those required by the General Provisions. The recordkeeping requirements require only the specific information needed to determine compliance.
      When a malfunction occurs, sources must report them according to the applicable reporting requirements of 40 CFR part 63, subpart HH or 40 CFR part 63, subpart HHH. An affirmative defense to civil penalties for exceedances of emission limits that are caused by malfunctions is available to a source if it can demonstrate that certain criteria and requirements are satisfied. The criteria ensure that the affirmative defense is available only where the event that causes an exceedance of the emission limit meets the narrow definition of malfunction in 40 CFR 63.2 (sudden, infrequent, not reasonable preventable, and not caused by poor maintenance and or careless operation) and where the source took necessary actions to minimize emissions. In addition, the source must meet certain notification and reporting requirements. For example, the source must prepare a written root cause analysis and submit a written report to the Administrator documenting that it has met the conditions and requirements for assertion of the affirmative defense.
      For this rule, the EPA is adding affirmative defense to the estimate of burden in the ICR. To provide the public with an estimate of the relative magnitude of the burden associated with an assertion of the affirmative defense position adopted by a source, the EPA has provided administrative adjustments to this ICR that shows what the notification, recordkeeping and reporting requirements associated with the assertion of the affirmative defense might entail. The EPA's estimate for the required notification, reports, and records, including the root cause analysis, associated with a single incident totals approximately totals $3,141 and is based on the time and effort required of a source to review relevant data, interview plant employees, and document the events surrounding a malfunction that has caused an exceedance of an emission limit. The estimate also includes time to produce and retain the record and reports for submission to the EPA. The EPA provides this illustrative estimate of this burden, because these costs are only incurred if there has been a violation, and a source chooses to take advantage of the affirmative defense.
      The EPA provides this illustrative estimate of this burden because these costs are only incurred if there has been a violation and a source chooses to take advantage of the affirmative defense. Given the variety of circumstances under which malfunctions could occur, as well as differences among sources' operation and maintenance practices, we cannot reliably predict the severity and frequency of malfunction-related excess emissions events for a particular source. It is important to note that the EPA has no basis currently for estimating the number of malfunctions that would qualify for an affirmative defense. Current historical records would be an inappropriate basis, as source owners or operators previously operated their facilities in recognition that they were exempt from the requirement to comply with emissions standards during malfunctions. Of the number of excess emissions events reported by source operators, only a small number would be expected to result from a malfunction (based on the definition above), and only a subset of excess emissions caused by malfunctions would result in the source choosing to assert the affirmative defense. Thus, we believe the number of instances in which source operators might be expected to avail themselves of the affirmative defense will be extremely small.
      For this reason, we estimate a total of 39 such occurrences for all sources subject to 40 CFR part 63, subpart HH, a total of three such occurrences for all sources subject to 40 CFR part 63, subpart HHH, and a total of 6 such occurrences for all sources subject to 40 CFR part 60, subparts KKK and LLL over the 3-year period covered by this ICR. We expect to gather information on such events in the future, and will revise this estimate as better information becomes available.
      The annual monitoring, reporting, and recordkeeping burden for this collection (averaged over the first 3 years after the effective date of the standards) is estimated to be $20.1 million. This includes 384,866 labor hours per year at a total labor cost of $19.5 million per year, and annualized capital costs of $0.36 million, and annual operating and maintenance costs of $0.20 million. This estimate includes initial and annual performance tests, semiannual excess emission reports, developing a monitoring plan, notifications, and recordkeeping. All burden estimates are in 2008 dollars and represent the most cost effective monitoring approach for affected facilities. Burden is defined at 5 CFR 1320.3(b).
	An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA's regulations in 40 CFR are listed in 40 CFR part 9. When these ICR are approved by OMB, the agency will publish a technical amendment to 40 CFR part 9 in the Federal Register to display the OMB control numbers for the approved information collection requirements contained in the final rule.
Regulatory Flexibility Act
	The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (SISNOSE). Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impact of this rule on small entities, a small entity is defined as: (1) A small business as defined by NAICS codes 211111, 211112, 221210, 486110 and 486210; whose parent company has no more than 500 employees (or revenues of less than $7 million for firms that transport natural gas via pipeline); (2) a small governmental jurisdiction that is a government of a city, county, town, school district, or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.
	For the final NSPS, the EPA performed an analysis for impacts on a sample of expected affected small entities by comparing compliance costs to entity revenues. The baseline used in this analysis takes into account RECs conducted pursuant to state regulations covering these operations and estimates of RECs performed voluntarily.  To account for RECs performed in regulated states, EPA subsumed emissions reductions and compliance costs in states where these completion-related emissions are already controlled into the baseline.  Additionally, based on public comments and reports to EPA's Natural Gas STAR program, EPA recognizes that some producers conduct well completions using REC techniques voluntarily for economic and/or environmental objectives as a normal part of business. To account for emissions reductions and costs arising from voluntary implementation of pollution controls EPA used information on total emission reductions reported to the EPA by partners of the EPA Natural Gas STAR. This estimate of this voluntary REC activity in the absence of regulation is also included in the baseline. More detailed discussion on the derivation of the baseline is presented in a technical memorandum in the docket.
	When revenue from additional natural gas product recovered is not included, we estimate that 123 of the 127 small firms analyzed (97 percent) are likely to have impacts less than 1 percent in terms of the ratio of annualized compliance costs to revenues. Meanwhile, four firms (3 percent) are likely to have impacts greater than 1 percent. Three of these four firms are likely to have impacts greater than 3 percent. However, when revenue from additional natural gas product recovery is included, we estimate that none of the analyzed firms will have an impact greater than 1 percent.
	For the final NESHAP Amendments, we estimate that 11 of the 35 firms (31 percent) that own potentially affected facilities are small entities. The EPA performed an analysis for impacts on all expected affected small entities by comparing compliance costs to entity revenues. Among the small firms, none are likely to have impacts greater than 1 percent in terms of the ratio of annualized compliance costs to revenues.
	After considering the economic impact of the combined NSPS and NESHAP amendments on small entities, I certify this action will not have a significant impact on a substantial number of small entities (SISNOSE). While both the NSPS and NESHAP amendment would individually result in a no SISNOSE finding, the EPA performed an additional analysis in order to certify the rule in its entirety. This analysis compared compliance costs to entity revenues for the total of all the entities affected by the NESHAP amendments and the sample of entities analyzed for the NSPS. When revenues from additional natural gas product sales are not included, 132 of the 136 small firms (97 percent) in the sample are likely to have impacts of less than 1 percent in terms of the ratio of annualized compliance costs to revenues. Meanwhile, four firms (3 percent) are likely to have impacts greater than 1 percent. Three of these four firms are likely to have impacts greater than 3 percent. When revenues from additional natural gas product sales are included, none of the 136 small firms (100 percent) are likely to have impacts of greater than 1 percent.
	Our determination is informed by the fact that many affected firms are expected to receive revenues from the additional natural gas and condensate recovery engendered by the implementation of the controls evaluated in this RIA. As much of the additional natural gas recovery is estimated to arise from completion-related activities, we expect the impact on well-related compliance costs to be significantly mitigated. This conclusion is enhanced because the returns to REC activities occur without a significant time lag between implementing the control and obtaining the recovered product, unlike many control options where the emissions reductions accumulate over long periods of time; the reduced emission completions occur over a short span of time, during which the additional product recovery is also accomplished and payments for recovered products are settled.
	Although this final rule will not impact a substantial number of small entities, the EPA, nonetheless, has tried to reduce the impact of this rule on small entities by setting the final emissions limits at the MACT floor, the least stringent level allowed by law.
Unfunded Mandates Reform Act
      This final action does not contain a federal mandate under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538 for state, local, and tribal governments, in the aggregate, or to the private sector. The action would not result in expenditures of $100 million or more for state, local, and tribal governments, in the aggregate, or to the private sector in any 1 year. Thus, this final rule is not subject to the requirements of sections 202 or 205 of UMRA.
      This final rule is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments because it contains no requirements that apply to such governments nor does it impose obligations upon them.
Executive Order 13132:  Federalism
      This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. These final rules primarily affect private industry, and do not impose significant economic costs on state or local governments. Thus, Executive Order 13132 does not apply to this action.
Executive Order 13175:  Consultation and Coordination with Indian Tribal Governments
	Subject to the Executive Order 13175 (65 FR 67249, November 9, 2000) the EPA may not issue a regulation that has tribal implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by tribal governments, or the EPA consults with tribal officials early in the process of developing the proposed regulation and develops a tribal summary impact statement.
	The EPA has concluded that this action will not have tribal implications because it doesn't impose a significant cost to the tribal government. However, there are significant tribal interests because of the growth of the oil and gas production industry in Indian country.
	The EPA initiated a consultation process with tribal officials early in the process of developing this regulation to permit them to have meaningful and timely input into its development. During the consultation process, the EPA conducted outreach and information meetings prior to the proposal in 2010.  The EPA met with the Inter Tribal Environmental Council, which include many of the Region VI tribes, The Tribal leadership summit in Region X, and Tribal Energy Conference hosted by Ft. Belknap, and the National Tribal Forum.
	After the proposal was published, letters were sent to all tribal leaders offering to consult on a government-to-government basis on the rule. As part of the consultation process and in response to these letters, an outreach call was held on October 12, 2011. Tribes that participated on this call were:  Fond du Lac Band of Lake Superior Chippewa, Fort Belknap Indian Community, Forest County Potawatomi Community, Southern Ute Indian Tribe, and Pueblo of Santa Clara.