Methane fee is good for U.S. oil and gas
Many are touting the
Inflation Reduction Act that President Joe Biden recently signed as historic for its investments in clean energy. But a big impact of the new act is likely to come from a littlediscussed provision: an increasing fee on methane emissions from oil and gas operations.
The Inflation Reduction Act imposes a fee of $900 per metric ton of methane starting in 2024 — this is roughly twice the current record-high price of natural gas and five times the average price of natural gas in 2020.
These high fees present a strong incentive to reduce methane emissions. In the run-up to the vote on the act, some industry groups opposed the methane provisions in the bill, arguing that it is redundant, considering upcoming U.S. Environmental Protection Agency regulations.
Those industry groups are wrong. The fee will be good for the industry’s bottom lines.
The oil and gas industry needs to embrace the methane fee in the Inflation Reduction Act. At a time when climateconscious Europe and Asia are growing customers of U.S. natural gas, the methane fee presents an opportunity to demonstrate that the United States has the world’s cleanest supply of natural gas.
Addressing methane emissions from the oil and gas industry is a global challenge. Over 100 countries recently signed the Global Methane Pledge, aiming to reduce methane emissions by 30 percent by 2030.
The United Nations Environment Program launched the International Methane Emissions Observatory at the G-20 Summit in 2021, to serve as a global hub for methane emissions data and coordinate mitigation actions. Domestic policies such as the methane fee and EPA regulations serve to clearly demonstrate U.S. leadership in this field.
Not all oil and gas are created equal. Research from 2018 has shown that methane emissions can vary quite significantly between companies and geographic regions.
For example, while natural gas from the Marcellus Basin in Pennsylvania has one of the lowest methane emissions intensity in the U.S., the Permian Basin in Texas have shown worryingly high levels of methane flaring and venting. Even as we transition to zero-carbon sources, it is important that the natural gas we consume comes from the cleanest possible source with the lowest possible emissions.
The market demand for low-methane leakage natural gas or responsible natural gas is also expanding.
In 2020, the French government blocked a deal for U.S. liquefied natural gas, citing high methane emissions in the Permian Basin. The ban was recently reversed after assurances of actions to reduce emissions from the U.S. exporter.
As the largest exporter of natural gas, the U.S. is also more exposed to energy policies in other parts of the world. The methane fee could shield U.S. producers and exporters of natural gas from Europe’s border adjustment fees through demonstrated lower emissions.
Major energy providers, including utilities such as Minnesota-based Xcel Energy, have announced plans to purchase only certified low-leakage natural gas by 2030 as part of their net-zero emissions plans.
Some investors, in a bid to reduce climate risk, are demanding oil and gas companies act to reduce methane emissions. The methane fee, coupled with EPA regulations, will accelerate the race toward lower emissions and differentiation across the industry.
The methane fee will also unleash U.S. technological advancement in methane monitoring systems — from new satellites to extensive ground sensor networks that promise better, faster and cheaper methane leak detection. My own research in this space finds that these new technologies can be cost-effective even for smaller oil and gas operators.
After years of testing and field research, many oil and gas companies are deploying new technologies to quickly detect large methane leaks. Collectively, these technologies promise to make the U.S. natural gas industry one of the cleanest producers in the world.
In addition, several of these technologies have been developed in the U.S., creating thousands of well-paying, high-tech jobs. States such as Colorado have been leading the effort in allowing oil and gas operators to accelerate deployment of these technologies through flexible and smart state regulations.
And while climate change is an urgent global issue, addressing methane emissions is less a climate-driven solution than it is a business-driven one. As the impact of the Russian invasion of Ukraine continues to keep gas prices high, every ton of methane not released into the atmosphere is a ton of methane that can be consumed, reducing energy costs.
The industry would do well to embrace it. In a recent tweet commenting on the Biden administration’s cancellation of the Alaska oil and gas lease sale, Rep. Blake Moore, R-Utah, wrote: “The US produces the cleanest energy in the world, so there is no reason to do this. We need to unleash our domestic energy supply now.”
No, the U.S. can’t claim the “cleanest energy” title just yet. But the tools to achieve it are within reach.