Understanding the IRA’s Methane Fee
This training reviews the role of methane in the climate crisis and explores the U.S. methane regulations and the new methane fee in the Inflation Reduction Act with the goal of helping forecast what we can expect from these policy changes and how it connects to our advocacy for carbon pricing.
Methane’s role in climate change
Since 1984, methane has consistently accounted for just about nine percent of global warming. (C02 accounts for 75 percent and nitrous oxide 16 percent ) Those percentages are based on a calculation of the Global Warming Potential (GWP) of greenhouse gasses over a 100 year time frame. Over a 20 year time frame, the contribution of methane would be much higher - about 25 percent. And methane also contributes to ground-level ozone, which has negative public health impacts.
Methane’s half-life and impact
Methane reacts with oxygen in the atmosphere, breaking down into CO2 and water. Its estimated “half-life” – meaning the time it takes for half of it to decompose – is about 9 years. That means only half of methane emitted today will still be around in 9 years, and it will be essentially gone in a few decades, while CO2 persists in the atmosphere for hundreds of years. Methane does absorb much more infrared energy than CO2, making it a much more potent greenhouse gas than CO2 when it’s first emitted. But because the total quantity of methane emissions is much less than CO2 and its effect is relatively short-lived, CO2 accounts for a far greater share of global warming.
Image: Muller, R.A. and Muller, E.A. Geinfor Geostat (2017)
What are the sources of global methane emissions?
The top sources are natural:
- Wetlands ~ 30%
- Animals, mostly livestock ~18%
- Biomass burning, wildfires and intentional burning to clear land for farming ~12%
- Landfills ~ 9%
- Oil and gas production ~8%
- Rice farming ~8%
- Wastewater facilities ~ 7%
- Coal mining ~6%
U.S. methane emissions versus global methane emissions
The U.S. has about four percent of the world population and about four percent of the methane emissions. However, the source of U.S. methane emission is different. Fossil-fuel- based methane emissions, as a percentage of total U.S. emissions, are nearly twice as large as the rest of the world. That’s because there are fewer wetlands emissions in the U.S. compared with global wetlands methane emissions.
In the U.S. methane emissions from fossil fuel production comprises about a third of the total, farms and cows are another third, and the last third is split between wetlands and wastes.
Key facts about methane and global warming
- Methane is a potent but short-lived greenhouse gas
- Most methane comes from natural and agricultural sources
- Reducing fossil methane emissions is important for respiratory health, environmental justice, and short-term global warming
Where are the methane emissions (leaks) in U.S. natural gas production?
Based on 2020 EPA estimates, annual methane emissions from natural gas production totals 9.84 million metric tons. Here’s how that leakage breaks down:
- Gas wells, oil wells, and coal mines (some methane escapes from coal seams) – 7160 million
- Gas processing - removing contaminants to make the gas pipeline quality – 480 million
- High pressure gas transmission pipelines, which feed liquid natural gas facilities, large industrial plants, and natural gas power plants –1640 million
- Gateway facilities, which reduce gas pressure and distribute it for residential and commercial use – 560 million
About three-quarter of the emissions are in the production fields, and the other significant contributor is transmission pipelines. There are specific types of equipment where these leaks occur, such as tanks, compressors, valves, and pressure controllers. Eliminating leaks is mainly a matter of fixing plumbing, replacing some types of control equipment with other types that don’t leak or vent gas, and doing strict maintenance on compressors. .
U.S. methane emissions regulations for oil and gas production
Environmental Protection Agency regulations put in place under the Clean Air Act.:
- 40 CFR (Code of Federal Regulations) 60 Subpart OOOO, colloquially known as ‘Quad-O’
- OOOO (2012) covered VOC’s like benzene in new facilities only
- OOOOa (2016) added methane to covered emissions
- OOOOb (pending) tightens up regulations for new facilities - most likely will not take effect until 2026
- OOOOc (pending) expands coverage to existing facilities - - most likely will not take effect until 2026
Bureau of Land Management regulations
- Restricts venting and flaring on public lands
LDAR (leak detection and repair) rules stipulate what kind of monitoring instruments and procedures are allowed.
There have been different rules promulgated for new versus existing sources of emissions. And there are also state-level regulations governing venting and flaring of methane-rich gasses.
How do the Quad-O rules work?
In gas or oil production many pieces of equipment leak gas – some by design, others through wear and tear, and still others during specific events. The EPA rules are very detailed and thorough, requiring some items, like flow and pressure controllers, to be substituted with no-bleed models. Others, like compressors, have to be tested on a regular schedule and have seals and gaskets replaced to get leaks below a prescribed level. Others, like storage tanks, have to be modified or have certain flows directed to a recovery system or to a flare, instead of venting gas to the atmosphere.
Regulated equipment
- Equipment
- Flow & pressure controllers
- Compressor stations
- Pneumatic pumps
- Storage tanks
In other cases procedures have to be changed, such as when a well is drilled and then connected permanently to a production line. There are ways of doing that with minimal gas leakage, sometimes called a “green completion.” After that, an operating well has to go through the LDAR protocol – leak detection and repair – to find and fix leaky valves, flanges, and pipes. Leaked gas must be either stopped or routed to a recovery system. The system has to be monitored periodically using EPA-approved detection equipment. For companies to comply with all the rules, they have to follow many different protocols for each type of equipment or procedure, each of which has different scheduling rules. Rules also may be different depending on the size of the operation.
Procedures
- Well completions
- Leak detection and repair
- Periodic monitoring
Emissions impact of Quad-O rules
In October 2022, just before issuing their proposal for the new Quad-O rules, the EPA issued a regulatory impact analysis for the period 2023 - 2035. They assumed the 0000b rules will go into effect in 2023, but the 0000c rules for existing facilities will take an additional three years because they will require each state to develop an implementation plan. Thus the 0000c rules, which actually have a bigger impact on emissions, won’t start until 2026.
EPA Regulatory Impact Analysis conclusions:
- 36.9 million metric tons of methane avoided over 13 years
- Cumulative reduction – 35%
- Annual reduction by 2035 – 40%
- Climate benefits outweigh compliance costs by $48 billion over 13 years
Note that the benefits do not include associated respiratory health benefits .
IRA (Inflation Reduction Act) Methane Fee
In the Inflation Reduction Act, one high-visibility provision is the methane fee. Originally proposed, but omitted from the Build Back Better act, this provision was included in the IRA, albeit with a compromise to make it acceptable to fossil fuel state senators.
That compromise was successful in helping get the IRA passed, but it created some complex interactions between the IRA and EPA regulations.
In the IRA, the methane fee is called a “waste emissions charge.” It is levied on methane emissions in excess of a small allowance that depends on the type of operation. The charge is quite substantial: $900 per metric ton of methane in 2024, $1200 in 2025, and $1500 in 2026 and thereafter.
Emissions below 0.20% of methane production for wells, 0.05% of methane output from processing plants, and 0.11% of methane flowing through transmission pipelines are exempted from the fee. However, those exempted leakages are all far below the current estimated leakage of somewhere between 1.1 and 1.8% of gas produced.
But there are two more important exemptions. First, only operations that report greenhouse gas emissions above 25,000 tons of CO2-equivalent would be subject to the charge. And, more importantly, only facilities that are out of compliance with the pending Quad-O rules will be charged a methane fee.
What this means is that if facilities are following the required schedule for replacing controllers, testing leakage at compressor stations, fixing leaks, and so forth, no fee would be levied, even if their total emissions are above what is expected by following Quad-O rules.
Also, another exemption is that the charge only applies if the Quad-O rules “have been approved and are in effect in all states.” This is very limiting. It suggests that no methane fee will be imposed until 2026, which is when the EPA rules on existing facilities will be completed, and also that no one will pay it until the year after they have been found to be out of compliance.
Impact of IRA Methane Fee
In August 2022, the Congressional Research Service estimated that about 32 percent of methane emissions from oil and gas facilities would be subject to the methane fee in 2026 when all states have approved the Quad-O rules, but this would drop to eleven percent by 2031. Presumably the drop would be due to facilities coming into compliance with the Quad-O rules.
Thus while the methane fee in the IRA is an important political step forward because it is the first nationwide fee on a greenhouse gas, in effect it will really function as a non-compliance penalty for oil and gas facilities that are subject to the Quad-O regulations. It seems likely that only a small number of operations will ultimately have to pay the fee, given the incentive to avoid its steep charges and also given that the IRA provides substantial EPA grant money to pay for emissions reduction measures.
Conclusions
- Methane is a potent greenhouse gas but decomposes in the atmosphere in just a few decades.
- About a third of U.S. methane emissions come from fossil fuel operations, mainly oil and gas production.
- Pending EPA Quad-O regulations are expected to gradually cut methane emissions from leakage by about 40 percent, mostly after 2026.
- The Inflation Reduction Act methane fee will serve as a financial incentive for fossil fuel companies to comply with the Quad-O regulations, assisted by an EPA grant program to help pay for emission reduction equipment and procedures.
- CCL should support measures to reduce methane emissions, as it is an important greenhouse gas as well as a public health problem, but our focus should remain on measures to cut carbon dioxide emissions so we can achieve the goal of a 50 percent reduction below 2005 greenhouse gas emissions by 2030 and net zero by 2050.
- (0:00) Intro & Agenda
- (2:56) Methane’s role in climate change
- (6:51) Where it comes from
- (10:35) U.S. methane regulations
- (23:24) The IRA methane fee
- (32:11) How it fits in our advocacy
- Rick Knight
- (0:00) Intro & Agenda
- (2:56) Methane’s role in climate change
- (6:51) Where it comes from
- (10:35) U.S. methane regulations
- (23:24) The IRA methane fee
- (32:11) How it fits in our advocacy
- Rick Knight