Inflation Reduction Act Tackles Methane Emissions

One of the least discussed, but potentially most significant, climate aspects of the proposed Inflation Reduction Act is a fee it would place on methane emissions from oil and gas operations. The bill would charge companies for methane that they leak or vent into the atmosphere, with the fee starting at $900 per ton in 2024 and increasing to $1500 per ton by 2026.

Climate scientists and policy experts widely view the rapid curbing of methane emissions as one of the least expensive and fastest ways to tackle climate change. Methane is 81 times more potent as a greenhouse gas than carbon dioxide over the near term and, unlike CO2, methane only stays in the atmosphere for a short time.

The U.S. oil and gas industry emits 16 million metric tons of methane annually, with the same near-term climate impact as 350 coal-fired power plants, according to a 2019 assessment by the Environmental Defense Fund. Significantly reducing methane emissions going forward would quickly reduce the concentration of the gas in the atmosphere and, as a result, its climate impact.

The bill would also provide hundreds of millions of dollars to oil and gas companies to help them reduce their methane emissions. This carrot and stick approach would dovetail with pending methane regulations for the oil and gas industry, a final version of which the Environmental Protection Agency is expected to publish early next year.

“It will provide an important incentive to curb methane emissions and to comply with EPA’s forthcoming rules,” David Doniger of the Natural Resources Defense Council said of the bill.

Arvind Ravikumar, who heads the Sustainable Energy Transitions Lab at the University of Texas at Austin, said the fee, which would start at roughly twice the market price of natural gas, would spur companies to do all they can to quickly reduce emissions.

The fee would only apply to companies that are not in compliance with EPA regulations, including the comprehensive methane regulations that the agency seeks to finalize early next year.

While the new regulations should soon be finalized by the EPA, the implementation of these rules could be delayed by states who oppose the rules and may seek to challenge them in court.

David Lyon, a senior scientist with the Environmental Defense Fund, said the methane fee in the current bill could result in oil and gas companies pressuring states to quickly implement EPA’s methane regulations so that companies can comply with the rules and avoid the costly methane fee.

Methane emissions have been much in the news lately. AP reported that a 2021 aerial survey of the Permian Basin conducted by Carbon Mapper, a partnership of university researchers and NASA’s Jet Propulsion Laboratory, “documented massive amounts of methane venting into the atmosphere from oil and gas operations across the Permian.”

The EPA has proposed new rules to reduce methane emissions, requiring increased leak monitoring and repair, new controllers at facilities to have zero emissions, and eliminating 95% of emissions from tank batteries. Producers would have to send gas to a sales line if available, or use the gas for power on site, or route it to a flare that reduces methane and VOCs by 95 percent. And the EPA is continuing flights over the Permian to detect leaks.

The Act also greatly increases incentives for Carbon Capture and Storage (CCS). The Act increases the 45Q tax credit to $85 per ton and decreases the size of projects that can qualify for the credit. The Act also provides for “direct pay” of the tax credit; the taxpayer can claim the value of the credit through a tax refund as if it were an over-payment of taxes. Direct-pay will allow project developers to reap more benefits of the credit instead of having to share those benefits with financial institutions with significant tax appetites. And the Act creates a new tax credit for direct air capture of CO2 of $180 per ton.