Matthew Brown/AP Photo
A flare to burn methane from oil production is seen on a well pad near Watford City, North Dakota, August 26, 2021.
Most of the Inflation Reduction Act’s energy measures involve carrots to industry to build new green technologies to reduce carbon emissions. But there’s one major stick intended to prevent one of the most harmful greenhouse gases. A historic new measure empowers the Environmental Protection Agency (EPA) to charge oil and gas companies for excess methane emissions.
The fee, a world first, is designed to push fossil fuel companies to reduce emissions by adopting better equipment, plugging up leaking wells, and implementing emerging carbon capture tech. These are necessary steps due to the rapid increase in methane emissions over the past two decades. Methane carries over 80 times as much global warming potential over 20 years, as compared to carbon dioxide.
But there are two major problems with the fee. It only covers 40 percent of the methane emissions produced by the oil and gas industry, and the companies that are covered report their own emissions. Many firms already undercount their emissions to greenwash their operations; the fee gives them another reason to fudge numbers.
An IRA provision requiring revision of EPA emission reporting requirements, and new EPA rules already in the works, may be able to address these shortcomings to give the fee real teeth. But as things stand, many smaller players in the oil and gas industry won’t have to pay any excess methane fee. It will only apply to facilities that self-report more than the equivalent of 25,000 metric tons of carbon dioxide, leaving the majority of methane emissions untouched. Distributional facilities, which rank third in emissions by facility type, are also excluded from the charge. Qualifying thresholds for “excess methane” mean that oil and gas facilities that are subject to the fee can emit large quantities of methane before being subject to the fee, leaving 35 percent of reported emissions from facilities free of charge.
Companies that are subject to the new regulation must pay $900 for every ton in excess of a threshold set by the EPA, incrementally rising to $1,500 by 2026. However, under EPA’s Greenhouse Gas Reporting Program (GHGRP), its current method of tabulating emissions, companies are not required to directly measure methane leaks and venting; rather, emissions are calculated through a convoluted series of equations that are largely based on equipment used.
In order to calculate the emissions from natural gas–driven methane-intensive pneumatic pump venting, one must only multiply the total number of pneumatic pumps, select “population emissions factors” (basically, how much gas is released per hour) from a premade table, a predefined concentration of methane, and the average estimated hours the pump was operational (with a default value of 8,740 hours if you can’t be bothered to collect that data). The only real piece of data the company needs to know is the number of pumps it has. With differences in equipment and operating conditions, and ways for companies to fiddle with the numbers, results of these calculations are known to be inaccurate.
In fact, very inaccurate. According to an analysis of methane emissions from the oil and gas supply chain in 2015, the actual numbers are around 60 percent greater than the EPA’s official count, which uses the bad data provided by the energy industry. “A tremendous amount of the ostensible reductions that we’ve had since 2005, due to the switch from coal to natural gas, are really hinged on these methane numbers which we know are wrong,” said Brad Johnson, author of Hill Heat, a newsletter dedicated to climate policy.
Many firms already undercount their emissions to greenwash their operations; the fee gives them another reason to fudge numbers.
It is unclear how undercounting methane affects the expected greenhouse gas emissions reduction in the IRA. The three groups that modeled the effects of the IRA—the Rhodium Group, the REPEAT Project, and Energy Innovation—did not respond to the Prospect’s emailed questions regarding how and if their methodologies accounted for systemic underreporting of methane emissions by press time. However, each group used an industry-standard 100-year global warming potential, which underestimates short-run warming caused by methane by a factor of five.
Inaccurate measurements and overly optimistic modeling conventions aren’t the only obstacles to getting a clear picture of the problem. Companies find ways to lie about their emissions. As Zachary Mider of Bloomberg reported, several companies like Range Resources Corp. exploit EPA’s reporting system to make nearly all of their emissions disappear from the record. Going back to the pneumatic venting calculation, these companies reduce total operational hours of the vents to minutes, despite functioning all day, year-round. With the additional incentive to avoid the waste emissions charge, it’s likely that more companies will adopt these creative accounting methods without stricter oversight.
“[Companies] can just say, ‘Oh, we don’t emit that much’ so [they] don’t need to pay the fee,” said professor Amy Townsend-Small, who researches methane emissions from the energy industry.
Many methane emissions cannot be measured directly due to safety concerns, but more can with existing technology than are currently collected. Companies can choose to adopt methane-monitoring tech on their own, but will likely avoid that if they can because of the sheer number of sites that need to be monitored and the cost. “There’s over a million wells,” explained Townsend-Small. “The companies push back on [doing the measurement themselves]. They say it’s too expensive.”
There are also several carrots in the IRA for companies to reduce their methane emissions, including $850 million in incentives for “methane mitigation and monitoring,” and $700 million for “methane mitigation from conventional wells,” which are smaller, marginal wells that together account for about half of total methane well emissions. Regulators may hope that better equipment and operating standards will be adopted out of fear of potential taxation. But without the real threat of the methane fee, companies that can already lowball self-reported emissions numbers may find it easier and more profitable to continue with the status quo.
The IRA does leave room for the Biden administration to put teeth into the methane fee. The EPA could require more facilities to report by lowering the emissions threshold for required reporting, impose measurement protocols that are accurate, and close loopholes that companies exploit to artificially reduce their reported emissions. The law requires the EPA to revise its reporting requirements for oil and gas facilities no later than two years from the IRA’s enactment to ensure “calculations [of emissions] are based on empirical data,” and “accurately reflect the total methane emissions of the applicable facilities.” These two criteria are not met by current self-reporting protocols.
Much of the hoped-for methane emissions reductions will depend on the full scope of the finalized EPA rules, as well as anticipated methane regulations. The IRA leaves it to the EPA to exempt facilities from the methane fee if they are in compliance. And if the EPA rules model as more effective in reducing emissions than the methane fee, all facilities could be made exempt.
Whatever the final configuration of rules, the Supreme Court will probably not be able to curtail these regulations in the same way it did to limit the EPA’s authority over power plant emissions. In West Virginia v. EPA, the Court ruled that Congress didn’t specifically lay out its policy intentions for cutting climate pollution at power plants, but the IRA expressly instructs the EPA to finalize rules that aim to reduce methane emissions.
The current proposal contains provisions that would enhance methane reductions in the gas and oil industry by requiring companies to find and fix methane leaks at new and existing wells, and improve monitoring efforts at likely sources of large emissions, reinstating and strengthening Obama-era rules the Trump administration eliminated. The bipartisan infrastructure law also contained billions in funding to cap orphan oil and gas wells, which some critics say cleans up the industry’s mess at government expense.
If the EPA rule changes can be paired with measures that strengthen the methane fee, and improve oversight on smaller facilities like marginal wells, the changes could really affect the release of methane into the atmosphere. In any case, we’ll know if measurements are being kept accurately by whether the touted emission reductions actually happen.
