News & Insights

Climate Act Imposes New Fees On Methane Emissions From Oil And Gas Wells

On August 12, 2022, Congress passed the Inflation Reduction Act, which includes $369 billion in spending on climate action. The Act introduces a “waste emissions charge,” which makes companies who produce, transport, or store oil and gas pay for methane that leaks from their facilities into the atmosphere. The charge will start at $900.00 per metric ton of methane and rise to $1,500.00 per metric ton by 2026. The Act is the first time the federal government has directly imposed a charge, fee, or tax on greenhouse gas emissions.

Methane is a greenhouse gas that frequently leaks from oil and gas pipelines as a waste product and is the primary component of natural gas. While methane dissipates more quickly than carbon dioxide, it is more than 72 times more potent than carbon dioxide as a greenhouse gas over a 20-year period. The US oil and gas industry is the largest source of methane emissions and emit 16 million metric tons annually. The Act aims to force oil and gas companies to plug leaks and stop deliberate venting of methane, resulting in an estimated reduction of methane leakage from 1.9% to somewhere between 0.4% and 1.1%.

The Act includes an exemption for companies that emit less than 25,000 metric tons of carbon dioxide equivalent per year. This effectively exempts around 60% of emissions. The Act also exempts distribution facilities that bring natural gas to homes and businesses. Additionally, companies that comply with the EPA’s forthcoming methane rules would be exempted from the fee. The rules require companies to upgrade equipment, monitor leaks, and clean them.

The Act provides supplemental appropriations of $850 million to the EPA to provide grants to facilities subject to the methane charge for a range of objectives, including improving and deploying industrial equipment and processes that reduce methane emissions. Another $700 million of supplemental appropriations is set aside for “marginal conventional wells” that serve the same purpose. The oil and gas industry are expected to lobby for states not to oppose implementation of the EPA’s regulations so that they can comply with the regulations, receive equipment grants, and avoid paying a fine.