House energy panel gives nod to climate plan, methane fee backed by Democrats

The House Energy and Commerce Committee approved a piece of a sprawling $3.5 trillion budget reconciliation package in a marathon markup, advancing measures aimed at reducing power sector emissions and hitting fossil fuel companies' bottom lines if they fail to keep pace with the move to a net-zero economy.

Committee members worked late into the night to meet a Sept. 15 deadline to report out the panel's $456 billion section of the reconciliation bill, with a final morning session expected to allow lawmakers to meet that deadline.

Air pollution and hazardous materials subtitles voted out Sept. 13 included a new plan to place a fee on climate-warming methane emissions, $27.5 billion for a Greenhouse Gas Reduction Fund, billions of dollars for environmental justice grants, and millions of dollars for transitioning to clean heavy-duty vehicles and zero-emissions equipment at ports.

Committee Democrats also advanced an energy subtitle Sept. 14 in a 30-27 vote, paving way for a program inspired by calls for a national clean electricity standard to help reach President Joe Biden's target for the US to generate 80% of its electricity from carbon-free sources by 2030. Through that $150 billion Clean Electricity Performance Program (CEPP), the Department of Energy would issue grants to and collect payments from retail electricity suppliers from 2023 to 2030. The grants would be passed on to ratepayers, while the penalties would be paid by shareholders.

CEPP

Retail power providers would have to increase their clean electricity generation share by 4 percentage points year over year to receive a grant. Once an entity hits that threshold, it would receive $150/MWh for clean power supplied that exceeds 101.5% of the previous year's, according to S&P Global Platts Analytics. Utilities that fail to meet the 4-percentage-point increase threshold would have to pay a penalty of $40/MWh on the deficiency. That fee would be comparable to a roughly $30 clean energy production tax credit, "assuming it is a tax-deductible expense with state/federal tax rate of 25%," Platts Analytics said.

"Pressure to increase clean energy share beyond 4 percentage points would come from public utility commissions, consumers and/or co-op members," Platts Analytics said. "In the case of a utility with 2,000 MW of load (17.5 million MWh) and a 50% baseline clear energy share, the last MWh that gets it to 4 percentage points would be worth about $85 million, which would also provide a strong incentive to reduce loads."

The program would exclude electricity generators with a carbon intensity of more than 0.1, likely excluding natural gas plants without carbon capture systems, experts said. However, some gas plants with carbon capture technology may qualify for the CEPP.

Dubbing the program the "Democrats China Electricity Payment Program," committee Republicans claimed the proposal would make energy more expensive, threaten grid reliability and make the US more dependent on China for critical minerals.

Democrats shot down more than a dozen Republican amendments during the two-day markup on the energy subtitle, including proposals to kill the CEPP and insert a section declaring nuclear energy the "largest, most reliable and safest carbon-free source of baseload energy" in the country.

Representative Bobby Rush, an Illinois Democrat who chairs the committee's subcommittee on energy, said the bill also invests in revitalizing the grid, weatherization assistance programs and rebates for home retrofits to reduce energy costs.

"Individually, each of these investments would be invaluable," Rush said. "Together, they are transformative."

Methane fee advances

Debate for much of Sept. 13 centered on the methane fee, drawing several amendment requests from GOP lawmakers seeking to nix the program or exempt certain industries from it. All of those were defeated, with the air pollution subtitle housing the measure approved in a 31-26 vote.

The methane fee builds on the Environmental Protection Agency's Greenhouse Gas Reporting Program, which requires about 8,000 large emissions sources to report their annual emissions.

The new legislation would direct the EPA, within two years, to lower the emissions threshold for companies to report emissions from 25,000 mt of CO2 equivalent per year to 10,000 mt of CO2 equivalent per year.

It would also set methane emissions intensity targets that companies would need to meet to avoid paying $1,500/mt of methane produced in excess of the threshold. Fee collection would begin in 2023.

Republicans throughout the day called the provision a "natural gas tax," arguing that its costs would be passed to consumers and conflict with Biden's commitment to not raise taxes on anyone making less than $400,000 a year. They also charged that it would diminish domestic oil and gas production and harm US energy independence.

Democrats during the markup scoffed at assertions of higher prices and diminished production, stressing that the measure targets leakage and waste that can be reduced with existing technologies.

"The smart players in the natural gas industry know how to prevent waste, and they want to prevent waste because they can capitalize on it to make money," Representative Diana DeGette, a Colorado Democrat, said. "Customers won't be paying a fee on the natural gas delivered to them. The only fee will be paid on what doesn't make it to the consumer."

Oil and gas industry groups have strongly opposed the measure, pointing to likely increases in consumers' gas and electric bills and duplicative federal methane regulatory efforts that could divert private sector resources away from reducing GHG emissions.

Methane emissions from oil and gas producers that exceed 0.2% of gas sent for sale would trigger the fee, as would emissions surpassing 0.11% of gas sent for sale for gas pipelines and associated transmission and compression facilities. A fee threshold of 0.05% of gas sent to sale would be applied to all other downstream facilities, including LNG terminals and gathering and storage facilities.

"Operators' methane intensity has been declining in recent years, but many would still likely exceed the 0.2% threshold by 2023 and be required to pay some fees on production," Platts Analytics analyst Parker Fawcett said. "There would then be supply risk for both oil and gas production on some higher intensity stripper wells (roughly 750,000 b/d and roughly 9 Bcf/d), which could still be shut in in order to reduce an operator's methane intensity rather than pay the fee on those emissions."

He added that smaller producers incorporated into the program through the lowered reporting threshold would feel the majority of the burden.

"Headwinds to future oil growth would also occur in basins like the Bakken, which already has gas infrastructure constraints," Fawcett said. "This could frustrate operators that are largely reliant on midstream companies to build out more infrastructure to handle those volumes when they are also facing similar headwinds under the current administration."

'More nuanced, reasonable'

The House committee's methane fee boasts significant changes from a recent proposal pushed by Senate Democrats.

By targeting the aggregate average methane intensity across a basin for a producer rather than each single well or well pad, the House panel tailored its proposal in a manner "where attainment is possible, something that the Senate bill does not do," Representative Lizzie Fletcher, a Texas Democrat with many constituents working in the oil and gas field, said during the markup.

Platts Analytics' Fawcett also called the House's version "much more nuanced and reasonable," because it allows an operator's compliance costs to "be strategically shared across their production portfolio, where investing in methane-reducing technologies and infrastructure for some production but not others could see a larger return on investment, both economically and environmentally."

Fletcher voted in favor of the measure as a superior alternative to the Senate proposal, but whether a final bill can garner her support will hinge on whether House leaders make good on commitments to respond to her additional concerns with the methane fee. She also suggested broadening application of the fee to non-energy sources of methane emissions, such as those produced by the agricultural sector.