EPA sets out rules for proposed ‘methane fee’ for waste generated by oil and natural gas companies

WASHINGTON — Oil and natural gas companies would for the first time have to pay fees for methane emissions that exceed certain levels, under a rule proposed by the Biden administration on Friday.

The Environmental Protection Agency’s proposed rule follows a Congressional directive included in the 2022 Climate Act. The new fee is intended to encourage industry to adopt best practices that reduce methane emissions and thereby don’t have to pay.

Methane is a climate “super pollutant” that is more potent than carbon dioxide in the short term and is responsible for about a 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 reducing methane emissions is an important way to slow climate change.

Excess methane production this year would result in a fee of $900 per tonne, with fees rising to $1,500 per tonne by 2026.

EPA Administrator Michael Regan said the proposed fee would work in conjunction with a final rule on methane emissions that EPA announced last month. The fee, formally known as the Methane Emissions Reduction Program, will encourage early deployment of available technologies to reduce emissions of methane gas 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 a comprehensive strategy to reduce the wasteful methane emissions that endanger communities and fuel the climate crisis,” Regan said in a statement. When the proposed methane tax is finalized later this year, it will set technology standards that will “spur 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.

Senator Tom Carper, chairman of the Senate Environment and Public Works Committee, said he was pleased the administration was making progress on the methane tax as directed by Congress.

“We know that methane is more than 80 times more powerful 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 reduce wasteful and excessive methane emissions during oil and gas production.”

New Jersey Representative Frank Pallone, the top Democrat on the House Energy and Commerce Committee, said oil and gas companies have long calculated that it is cheaper to waste methane through flaring and other techniques than to make the necessary upgrades to prevent leaks.

“Wasted methane never reaches consumers, but they are still stuck with the bill,” says Pallone. The proposed methane tax “will ensure that consumers no longer have to pay for wasted energy or the damage its emissions can cause.”

Republicans call the methane tax a tax that could increase the price of natural gas. “This proposal means higher costs for employers and higher energy bills for millions of Americans,” said Sen. Shelley Moore Capito, R-West Virginia.

The American Petroleum Institute, the oil and gas industry’s largest lobbying group, rejected the proposal on Friday and called on Congress to repeal it.

“As the world looks to U.S. energy producers to provide stability in an increasingly volatile 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 regulation.

Although the group supports “smart” federal methane regulation, the EPA proposal “creates a disjointed, confusing regulatory regime that will only undermine innovation and undermine our ability to meet rising energy demands,” Meyer said. “We look forward to working with Congress to repeal the IRA’s misleading new tax on American energy.”

Fred Krupp, chairman of the Environmental Defense Fund, called the proposed fee “common sense,” adding that oil and gas companies should be held responsible for methane pollution, a primary source of global warming.

In a related development, EPA said it is working with industry and others to improve the way methane emissions are reported, citing numerous studies showing that 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 tax on 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 includes details on how the fee will be implemented, including how waivers will be applied.

The agency said it expects fewer oil and gas sites to be charged over time as they reduce their emissions in accordance with the rule.