Illustration; Source: API

US comes up with new emissions fee for oil & gas industry in methane clampdown

The U.S. Environmental Protection Agency (EPA) has set out to curb methane emissions from the oil and gas industry with a new proposed rule in line with the Biden-Harris administration’s Inflation Reduction Act (IRA), which turbocharged clean energy deployment, taking steps to incentivize adoption of industry best practices that reduce pollution.

Illustration; Source: API

According to the EPA, the proposed rule will entail a charge on certain large emitters of methane from the oil and gas industry that exceed emissions intensity levels set by Congress. The proposed waste emissions charge is expected to encourage the early deployment of available technologies and best practices to reduce the methane footprint and other harmful air pollutants before the new standards take effect, working in tandem with the funding secured by President Joe Biden under the IRA and recently finalized technology standards for the industry issued in December 2023.

Michael S. Regan, EPA Administrator, commented: “Today’s proposal, when finalized, will support a complementary set of technology standards and historic resources from the Inflation Reduction Act, to incentivize industry innovation and prompt action. We are laser-focused on working collectively with companies, states, and communities to ensure that America leads in deploying technologies and innovations that aid in the development of a clean energy economy.”

Furthermore, the IRA established a waste emissions charge for methane from certain oil and gas facilities that report emissions of more than 25,000 metric tons of carbon dioxide equivalent per year to the Greenhouse Gas Reporting Program. As directed by Congress, this fee starts at $900 per metric ton of wasteful emissions in 2024, increasing to $1,200 for 2025, and $1,500 for 2026 and beyond, but only applies to emissions that exceed the statutorily specified levels.

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Senator Carper, Chairman of the Senate Environment and Public Works Committee, remarked: “We know methane is over 80 times more potent than carbon dioxide at trapping heat in our atmosphere in the short term. Thankfully, the Methane Emissions Reduction Program – which Congress adopted as part of the Inflation Reduction Act – will incentivize producers to cut wasteful and excessive methane emissions during oil and gas production.”

Moreover, EPA’s proposed rule explains how the charge will be implemented, including the calculation of the charge and how exemptions from the charge will be applied. Based on this, the facilities in compliance with the recently finalized Clean Air Act standards for oil and gas operations would be exempt from the charge after certain criteria set by Congress are met. Over time, fewer facilities are anticipated to face the charge as emissions are curtailed and more facilities become eligible for this regulatory compliance exemption. 

Rep. Frank Pallone, Jr., Ranking Member of the House Energy and Commerce Committee, stated: “For too long it has been cheaper for oil and gas operators to waste methane rather than make the necessary upgrades to prevent leaks and flaring. Wasted methane never makes its way to consumers, but they are nevertheless stuck with the bill.

The Methane Emissions Reduction Program and the proposed waste emissions charge will ensure consumers no longer pay for wasted energy or the harm its emissions can cause. I commend EPA for taking the next step to hold the largest polluters accountable and protect American families from dangerous methane pollution.”

Three steps taken to tackle the methane menace

Methane is believed to be more potent than carbon dioxide and responsible for around one-third of the warming from greenhouse gases. Research shows that the largest industrial source of methane emissions in the U.S. is the oil and natural gas industry, thus, a fast reduction of these emissions is perceived to be “one of the most important and cost-effective” actions the United States can take in the short term to slow the rate of rapidly rising global temperatures, in the EPA’s view.

As a result, the agency issued a final rule in December 2023 to slash methane emissions and other harmful air pollution from new and existing oil and gas operations. The EPA is also working to implement the three-part framework of the IRA’s Methane Emissions Reduction Program.

As a first step, the agency is partnering with the U.S. Department of Energy (DOE) to utilize resources provided by Congress in the IRA to provide over $1 billion in financial and technical assistance to speed up the transition to no- and low-emitting oil and gas technologies, including funds for activities associated with low-producing conventional wells, support for methane monitoring, and funding to help downsize methane emissions from oil and gas operations.

The EPA’s second step entails working with industry and other stakeholders to improve the Greenhouse Gas Reporting Program and boost the accuracy of reported methane emissions. The third step is encapsulated in the new methane rule proposal through which the EPA is seeking to encourage facilities with high methane emissions to meet or exceed the levels of performance set by Congress and already reached by leading oil and gas companies.

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Therefore, the agency is convinced that the waste emissions charge will help encourage the oil and gas industry to stay on target to lower emissions by deploying readily available technologies to reduce them. The EPA is under the impression that this program will help level the playing field for industry leaders already employing best practices and drive near-term opportunities for more widespread methane reductions while the agency and states work toward full implementation of the Clean Air Act standards.

Fred Krupp, President of the Environmental Defense Fund, said: “EPA’s proposal for a fee on oil and gas methane pollution implements the clean air protections for Americans that were part of the Inflation Reduction Act. It’s common sense to hold oil and gas companies accountable for this pollution. Proven solutions to cut oil and gas methane and to avoid the fee are being used by leading companies in states across the country.”

The EPA’s proposed rule on methane has not been endorsed by the American Petroleum Institute (API), which called on Congress to repeal the IRA’s methane fee. While API underlines that it has worked with the administration to craft policies that maximize emissions reduction at the lowest cost to society, it also emphasizes its concerns about the so-called lack of coordination between policymakers shaping various methane regulations.

The American Petroleum Institute elaborates that these regulations include the methane rule that sets the standards for emissions reductions, the reporting rule that will determine what companies may pay under the methane fee, and the methane fee rule that could result in regulatory “incoherence.”

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Dustin Meyer, API’s Senior Vice President of Policy, Economics and Regulatory Affairs, highlighted: “As the world looks to U.S. energy producers to provide stability in an increasingly unstable world, this punitive tax increase is a serious misstep that undermines America’s energy advantage. While we support smart federal methane regulation, this proposal creates an incoherent, confusing regulatory regime that will only stifle innovation and undermine our ability to meet rising energy demand. We look forward to working with Congress to repeal the IRA’s misguided new tax on American energy.”

API claims that these complex rules can work cohesively only with “meaningful coordination” both within EPA and between federal regulators and the industry throughout the rulemaking process. The American Petroleum Institute underscores that the U.S. natural gas and oil industry is taking action to reduce methane emissions while continuing to produce “affordable, reliable energy,” as shown by a decline in average methane emissions intensity of nearly 66% across all seven major producing regions from 2011 to 2021.

However, the EPA is adamant that the Clean Air Act rule and the three Inflation Reduction Act provisions will advance the adoption of “clean, cost-effective technologies, reduce wasteful practices, and yield significant economic and environmental benefits while driving continued innovation in methane detection, monitoring, and mitigation techniques.”