Proposed methane fee for now remains intact in US Senate's draft reconciliation bill

A proposal to impose a fee on methane emissions has thus far survived lawmakers' wrangling over the Build Back Better Act, as Democrats on the US Senate Environment and Public Works Committee included it in draft text of their portion of the party's $1.75 trillion economic and climate plan unveiled Dec. 16.

The Build Back Better Act, passed by the US House of Representatives last month, is central to President Joe Biden's goal of cutting the nation's greenhouse gas emissions in half by 2030 measured against 2005 levels and zeroing out economywide emissions by midcentury.

Roughly a quarter of the warming occurring now is driven by methane, and the oil and gas sector is the single largest source of those emissions in the US. As such, attention paid to reducing the sector's methane emissions has intensified with proposed regulations and global climate pledges in addition to legislative proposals.

Funding in the Senate committee's draft text to address air pollution would set aside $20 million for the Environmental Protection Agency to award grants for monitoring emissions of methane. An additional $775 million would be made available for grants, loans and other incentives to assist communities adversely impacted by pollution from oil and gas operations; monitor and cut emissions; and help oil and gas facilities prepare and submit GHG reports.

Same language

A portion of those funds would also cover the costs of implementing the proposed methane fee. The Senate's draft text includes provisions for that program that are the same as the measure passed by the House, but negotiations are continuing. The committee acknowledged in its press release that the text could change in the coming days following conversations with other senators.

For now, the proposal would set methane emissions intensity targets above which companies would pay a fee of $900/mt of methane produced starting in 2023. That fee would ratchet up to $1,200/mt in 2024 and $1,500/mt by 2025.

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.

Methane emissions from oil and gas producers that exceed 0.2% of gas sent for sale would trigger the fee, as would 10 mt of methane per million barrels of oil sent to sale if the facility sent no gas to sale.

Gas pipelines, associated transmission and compression facilities and underground gas storage with pay the fee for emissions surpassing 0.11% of gas sent for sale. A fee threshold of 0.05% of gas sent to sale would be applied to all other downstream facilities, including LNG terminals, LNG storage and processing and gathering facilities.

Republicans have blasted the provision, calling it a "natural gas tax" that would diminish domestic oil and gas production and harm US energy independence. Democrats, however, have scoffed at GOP assertions of higher prices and diminished production, stressing that the measure targets leakage and waste that can be reduced with existing technologies.

While several major oil and gas industry groups have more recently lent support for cost-effective regulation in general terms, tentatively backing tougher methane regulations proposed by the EPA Nov. 2, they have vehemently opposed inclusion of the methane fee in the Build Back Better Act.

The American Petroleum Institute and Interstate Natural Gas Association of America, for instance, have argued the methane fee would likely increase consumers' gas and electric bills and would be duplicative of the EPA's regulatory efforts, diverting private sector resources away from reducing GHG emissions.

Timing, prospects unclear

Senate Majority Leader Chuck Schumer, Democrat-New York, had hoped to hold a full vote on the legislation before Christmas, but the likelihood of that happening is waning with each new report of friction with moderate Senator Joe Manchin, Democrat-West Virginia, who helms the Senate Energy and Natural Resources Committee.

The coal-state senator's vote is needed to pass the Build Back Better Act under budget reconciliation rules in the evenly divided chamber, and there is growing conviction among Washington insiders that garnering his buy-in may slip to 2022.

On the methane fee, ClearView Energy Partners suggested in a research note that "Manchin might be willing to accept a methane fee because Appalachian gas production could turn out to be a relative winner on methane intensity (read: less production in leakier regions drives demand for West Virginia gas)."

But ClearView also noted other climate-forward provisions that have drawn Manchin's pushback as well as issues outside of his jurisdiction, like child tax credits, that have become sticking points.