House Dems' methane fee would expand emissions reporting, set intensity targets

A new plan by U.S. House Democrats to place a fee on climate-warming methane emissions as part of the $3.5 trillion budget reconciliation bill would significantly expand the number of companies required to report emissions data to federal regulators and potentially subject them to hundreds of millions of dollars in annual fines starting for the year 2022.

The proposal released Sept. 9 by the House Energy and Commerce Committee would build off the U.S. Environmental Protection Agency's Greenhouse Gas Reporting Program, which requires about 8,000 large emissions sources to report their annual emissions. The plan would direct the EPA to lower the emissions threshold for companies to report emissions from 25,000 tonnes of CO2 equivalent per year to 10,000 tonnes of CO2 equivalent per year. It would also set methane emissions intensity targets that companies would need to hit in order to avoid penalties.

For oil and gas producers, that threshold would be methane emissions exceeding 0.2% of natural gas sold from a facility covered under the program. But the threshold would be lowered to 0.05% for operators of natural gas infrastructure downstream such as pipelines, gathering and storage facilities and LNG export terminals. Companies would be fined $60/tonne of CO2 equivalent emissions for excess emissions beyond the targeted intensity figure. That works out to about $1,500 per physical tonne of methane emitted, according to the Environmental Defense Fund.

Some supporters of the plan including the EDF described the proposed methane emissions fee as an important tool for supporting regulations that the EPA and U.S. Pipeline and Hazardous Materials Safety Administration are preparing to curb methane emissions.

"The priority for this administration is and should be the strongest possible EPA rules," Matt Watson, vice president of energy at EDF, said in an interview. "And this methane fee could serve as an important backstop to those rules."

Oil, gas industry pushes back

Oil and gas industry representatives panned the proposal as punitive to energy companies, saying it would also drive up energy costs for consumers. Groups including the American Petroleum Institute, or API, and the Interstate Natural Gas Association of America, or INGAA emphasized the forthcoming agency regulations as a better alternative.

"The direct regulation of methane is the most efficient and effective policy path for further reducing methane emissions, which continue to trend downward relative to production in key producing regions," Frank Macchiarola, API's senior vice president of policy, economics and regulatory affairs, said in a statement. "This is simply a punitive way to target American energy production rather than focusing on real solutions to achieve meaningful emissions reductions and tackle the climate challenge."

INGAA said the new methane fee proposal "would impose a new tax on natural gas and would increase the utility bills of families and businesses across our country."

"INGAA supports durable federal methane regulations and industry-driven innovation to continue driving down methane emissions, not adding new taxes or fees to natural gas and electric bills," the group said in a statement. "In addition to driving up natural gas and electric bills, this natural gas tax would duplicate (and could conflict with) EPA's and PHMSA's ongoing methane regulatory efforts and divert valuable resources away from our members' efforts to implement and invest in new initiatives to drive down greenhouse gas emissions."

House takes more straightforward approach

The latest proposal for a methane fee differed significantly from the plan outlined in the Methane Emissions Reduction Act of 2021, which was introduced in March by U.S. Sens. Sheldon Whitehouse, D-R.I.; Cory Booker, D-N.J.; and Brian Schatz, D-Hawaii. The oil and gas industries have also pushed back against that plan, which would direct the U.S. Treasury Department, the EPA, and the National Oceanic and Atmospheric Administration to develop a program to measure methane emissions from oil and gas basins. The methane fee would be assessed based on a company's production and midstream handling volumes within a basin and the total annual methane emissions rate of all companies within the basin

The plan in the new bill, which is scheduled for a committee mark-up at 11 a.m. Sept. 13, took a more streamlined approach in part because it would rely on an existing emissions reporting system.

It was not immediately clear how authors of the latest proposal arrived at the emissions intensity threshold. But the Environmental Defense Fund and Resources for the Future said that the 0.2% threshold proposed for upstream companies aligns with a voluntary 2025 target set by the Oil and Gas Climate Initiative, or OGCI — a CEO-led consortium of oil and gas companies that account for almost a third of global oil production. The proposed fee would essentially pressure OGCI members and other oil and gas producers to hit that target faster.

"The logic is that the coalition of major oil and gas companies on this already have leak rates of 0.2% as their goal," Resources for the Future Fellow Brian Prest said in an email. "So they don't have to get to zero, just to achieve their current goals, and if they do they don't have to pay anything."

Resources for the Future released an analysis Sept. 9 that suggested a moderate methane emissions fee could substantially reduce leaks at little cost, though higher fees would have diminishing returns. A $500/ton fee would increase wholesale gas prices by 7-10 cents/MMBtu and halve the leak rate from U.S. basins, according to economic modeling by Prest. A $2,000/ton fee would increase prices by 18-26 cents/MMBtu and cut leak rates by 70%, Prest projected.

Meanwhile, the 0.05% methane threshold is well below the most recent emissions intensity levels reported for parts of the midstream sector by the ONE Future Coalition, a group of natural gas companies working to reduce methane emissions across the industry using EPA-approved reporting protocols. The coalition in November 2020 reported an intensity rate for the transmission and storage sector of 0.112%, which reflected reporting from 24 member companies for the year 2019. For distribution, the intensity rate was 0.092%, while figures for the gathering and boosting and processing sectors fell below the proposed 0.05% threshold outlined in the new bill.

"My read on this is that they are trying to set thresholds that are roughly proportionate to the leakage across the supply chain," Watson said.