The Inflation Reduction Act (IRA) would make significant strides in limiting and cutting methane pollution. Methane has proven to be a significant part of the climate problem; the United Nations’ Environment Programme (UNEP) notes that over a 20-year period, methane is 80 times more potent at warming than carbon dioxide. Studies by the National Oceanic and Atmosphere Administration (NOAA) further show that the rate of methane emissions is only worsening, with 2020 recording the largest annual increase since 1983. By implementing a Methane Emissions Reduction Program, the IRA takes a significant step towards reducing methane-related warming. This program implements a carrot-and-stick regulatory regime, whereby the Environmental Protection Agency (EPA) rewards methane reduction efforts with financial assistance, and penalizes excess methane waste with a set fee.
The IRA is the latest in a series of efforts by the United States to reduce methane emissions from the petroleum and natural gas sectors. Since taking office, the Biden Administration has recognized the challenges posed by methane emissions and prioritized cutting their emissions. In advance of the 2021 UN Climate Change Conference in Glasgow (COP 26), the United States and the European Union jointly launched the Global Methane Pledge, which asked countries to band together and commit to a collective goal of reducing global methane emissions at least 30% from 2020 levels by 2030. As of this summer, the State Department has announced that 120 countries have joined the pledge. In November of 2021, the Biden Administration further announced a series of regulatory actions to tackle methane emissions, from the oil and gas sector, landfills, abandoned coal mines, and agriculture.
The Methane Emissions Reduction Program complements each of these efforts and is the next significant step in the country’s attempt to tackle methane-related warming. It would reduce methane emissions through two key mechanisms. IRA § 60113. First, it would provide $1.5 billion for EPA to support emissions monitoring and methane reduction efforts in petroleum and natural gas systems, through grants, rebates, contracts, loans and other forms of financial support. Id. These funds are directed at permanently shutting in and plugging wells on non-federal lands, to improving and deploying equipment that reduces methane emissions, and to supporting innovation in reducing methane emissions. Id.
Second, these incentives are coupled with a methane waste emissions fee applied to petroleum and natural gas systems emitting more than 25,000 metric tons of carbon dioxide equivalent gas. The fee will be calculated by multiplying the metric tons of methane emissions exceeding waste emissions thresholds by: (a) $900 for emissions in 2024; (b) $1,200 for emission in 2025; and (c) $1,500 for emissions in 2026 and each year thereafter. Id. Fees will only be imposed on emissions above a certain waste emissions threshold, which vary by industry segment and represent the leakage rate from well-designed and maintained systems in that segment, in turn providing an incentive for oil and gas systems to reduce methane leakage.
The Methane Emissions Reduction Program further promotes EPA’s regulatory authority under the Clean Air Act, by exempting from the payment requirement any facilities that are in compliance with methane emissions requirements established for new and existing sources, so long as standards and plans have been approved and are in effect in all States and compliance with the requirements imposed by those standards and plans will result in equivalent or greater emissions reductions than can be achieved by EPA’s November 2021 proposed rule to reduce methane in the oil and natural gas industry. This is a powerful floor; EPA has claimed that its 2021 proposal would “[r]educe methane emissions by approximately 41 million tons through 2035 . . . more than the amount of carbon dioxide emitted in 2019 from all U.S. passenger cars and commercial aircraft combined.” By imposing a tax on emitters that are lagging behind and providing an exemption once all States are enforcing requirements that would achieve equivalent or greater reductions, the IRA’s Methane Emissions Reduction Program creates strong incentives for both States and industry to adopt and comply with strong methane emissions standards.
As noted in another blog post, the Rhodium Group has estimated the IRA, if enacted, would cut domestic greenhouse emissions 44% from 2005 levels. In an earlier study of the emissions reductions associated with a prior iteration of the IRA, Rhodium described the methane emissions fee as one of six “big-ticket items that stand out” for its impact on reducing emissions. That the Methane Emissions Reduction Program is just one of many, game-changing provisions in the IRA underscores the potential impact of this bill for the energy sector and for achieving our nation’s climate objectives.