Essay by Eric Worrall
Think Gasoline is expensive now? From 2024, US Oil and gas companies will face impossible operating conditions, with the US EPA promising to impose a $900 / ton methane release fee, rising to $1500 per ton by 2026.
Methane supercharges climate change. The U.S. has a new plan to slash it.
Under the Inflation Reduction Act, the U.S. can make the oil and gas sector pay for methane leaks—but the law leaves out a controversial source of the pollutant.
PUBLISHED AUGUST 19, 2022
The Inflation Reduction Act is the most significant investment the U.S. government has made in fighting climate change, putting more than $369 billion toward projects that will reduce planet-warming emissions.
Cutting the amount of methane released into the atmosphere is one of the easiest and most effective ways to fight climate change, according to a U.N. report released last year.
What the new bill does
Environmentalists have long advocated for placing a fee on greenhouse gas emissions, and addressing methane ultimately could save oil and gas companies money, says Shindell. When CO2 is released, it’s a byproduct of burning fossil fuels and no longer valuable to companies. Methane, however, is still in a viable form when it leaks out of oil and gas facilities; if it could be captured it could be used for energy. That means preventing leaks would save companies money.
To address domestic methane emissions, the IRA will impose a $900 fee per metric ton of methane starting in 2024. By 2026, that fee per metric ton increases to $1,500. Notably, the fee will only affect larger oil and gas facilities, leaving out about 60 percent of the industries responsible for methane, Kleinberg estimates.
The EPA is set to publish updated methane regulations early next year. These rules will dictate the point at which methane emissions from a single facility are subject to the fee.
Obviously the USA has a few opportunities to vote for politicians who will repeal the misleadingly named Biden Inflation Act, before these punitive penalties are imposed.
Methane release is a fact of life if you run an oil or gas facility, there is no avoiding it. But the threat of major penalties is an enormous operational risk, which will have to be insured – a substantial and completely unnecessary addition to operational costs, which will be passed on to consumers.
It is impossible to stop methane leaks altogether. Gas pipes crack unexpectedly from time to time because unrefined hydrocarbons embrittle the pipe metal. Rigorous inspection helps, but at any moment a very small, overlooked defect can abruptly propagate right through the pipe wall, leading to many tons of product gushing through the crack before the problem is noticed. The problem cannot be eliminated – but attempting to minimise the problem will impose enormous costs on producers.
In my opinion this methane leak penalty is a punitive tax created by people who want to sabotage the entire domestic US hydrocarbon extraction industry, but haven’t got the balls to come clean and simply shut it down.
Even the possibility such penalties could be imposed will have a chilling effect on domestic US oil and gas investment, which in turn could put further upward pressure on gasoline and home heating prices.