Oil and natural gas companies, for the first time, would have to pay a fee for methane emissions that exceed certain levels under a rule proposed Friday by the Biden administration.
The proposed Environmental Protection Agency rule follows through on a directive from Congress included in the 2022 climate law. The new fee is intended to encourage industry to adopt best practices that reduce emissions of methane and thereby avoid paying.
Methane is a climate “super pollutant” that is more potent in the short term than carbon dioxide and is responsible for about one-third of greenhouse gas emissions. The oil and natural gas sector is the largest industrial source of methane emissions in the United States, and advocates say the reduction of methane emissions is an important way to slow climate change.
Excess methane produced this year would result in a fee of $900 per ton, with fees rising to $1,500 per ton by 2026.
EPA Administrator Michael Regan said the proposed fee would work in tandem with a final rule on methane emissions EPA announced last month. The fee, formally known as the Methane Emissions Reduction Program, will encourage early deployment of available technologies to reduce methane emissions and other harmful air pollutants before the new standards take effect, he said.
The rule announced in December includes a two-year phase-in period for companies to eliminate routine flaring of natural gas from new oil wells.
“EPA is delivering on a comprehensive strategy to reduce wasteful methane emissions that endanger communities and fuel the climate crisis,” Regan said in a statement. When finalized later this year, the proposed methane fee will set technology standards that will “incentivize industry innovation” and spur action to reduce pollution, he said.
Leading oil and gas companies already meet or exceed performance levels set by Congress under the climate law, meaning they will not have to pay the proposed fee, Regan and other officials said.
Sen. Tom Carper, chairman of the Senate Environment and Public Works Committee, said he was pleased the administration was moving forward with the methane fee as directed by Congress.
“We know methane is over 80 times more potent than carbon dioxide at trapping heat in our atmosphere in the short term,” said Carper, D-Del. He said the program “will incentivize producers to cut wasteful and excessive methane emissions during oil and gas production.”
New Jersey Rep. Frank Pallone, the top Democrat on the House Energy and Commerce Committee, said oil and gas companies have long calculated that it’s cheaper to waste methane through flaring and other techniques than to make necessary upgrades to prevent leaks.
“Wasted methane never makes its way to consumers, but they are nevertheless stuck with the bill,” Pallone said. The proposed methane fee “will ensure consumers no longer pay for wasted energy or the harm its emissions can cause.”
Republicans call the methane fee a tax that could raise the price of natural gas. “This proposal means increased costs for employers and higher energy bills for millions of Americans,” said Sen. Shelley Moore Capito, R-West Virginia.
Industry group calls the rule a “punitive tax increase”
The American Petroleum Institute, the oil and gas industry’s largest lobbying group, slammed the proposal Friday and called for Congress to repeal it.
“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,” said Dustin Meyer, API’s senior vice president of policy, economics and regulatory affairs.
While the group supports “smart” federal methane regulation, the EPA proposal “creates an incoherent, confusing regulatory regime that will only stifle innovation and undermine our ability to meet rising energy demand,” Meyer said. “We look forward to working with Congress to repeal the IRA’s misguided new tax on American energy.”
Fred Krupp, president of the Environmental Defense Fund, called the proposed fee “common sense,” adding that oil and gas companies should be held accountable for methane pollution, a primary source of global warming.
In a related development, EPA said it is working with industry and others to improve how methane emissions are reported, citing numerous studies showing that and oil and gas companies have significantly underreported their methane emissions to the EPA under the agency’s Greenhouse Gas Reporting Program.
The climate law, formally known as the Inflation Reduction Act, established a waste-emissions charge for methane from oil and gas facilities that report emissions of more than 25,000 metric tons of carbon dioxide equivalent per year to the EPA. The proposal announced Friday sets out details of how the fee will be implemented, including how exemptions will be applied.
The agency said it expects that over time, fewer oil and gas sites will be charged as they reduce their emissions in compliance with the rule.
