The oil and natural gas industries are pushing back on a plan by U.S. Congressional Democrats to place a fee on planet-warming methane emissions as part of the $3.5 trillion budget reconciliation bill.

Industry groups warned lawmakers that a methane emissions fee would have adverse economic impacts, burden low-income Americans and complicate the goal of reducing emissions. The groups stressed that the U.S. Environmental Protection Agency and U.S. Pipeline and Hazardous Materials Safety Administration are preparing to implement regulations to reduce methane emissions.

"The imposition of a methane fee in addition to federal rules to reduce methane emissions, therefore, would be duplicative," the American Gas Association said in a Sept. 7 letter to congressional leaders, signed by nearly 30 other organizations. "Our understanding is that the proposed methane fee may penalize companies regardless of their compliance with these new regulations."

Democrats have model for methane emissions fee

A methane emissions fee would deliver roughly 9% of the anticipated greenhouse gas emissions reductions from measures in the infrastructure bill and budget resolution instructions, according to an analysis by Senate Democrats. Together, these measures put the U.S. on pace to reduce economywide greenhouse gas emissions by 45% from 2005 levels by 2030, nearly achieving U.S. President Joe Biden's commitment to halving emissions by the end of the decade, according to the analysis.

Democrats are still developing legislation to implement the budget, but industry groups focused on the plan in the Methane Emissions Reduction Act of 2021, which was introduced in March by U.S. Sens. Sheldon Whitehouse, D-R.I.; Cory Booker, D-N.J.; and Brian Schatz, D-Hawaii. The bill directed the U.S. Treasury Department, the EPA, and the National Oceanic and Atmospheric Administration to develop a program to measure methane emissions from oil and gas basins. The Treasury would then assess a fee for each production, gathering, processing or transmission company within the basin.

The legislation proposed a fee based on a company's production or midstream volume within the basin, the basin's annual methane emissions rate, and a methane pollution price based on the social cost of carbon developed during the Obama administration, starting at $1,800 per ton in 2023 and increasing each year. To incentivize voluntary emissions reductions, operators that boast below-average emissions intensity would be allowed to instead measure their own emissions, provided they submit data for peer review and take several other steps to control emissions.

Direct methane regulation is best method, industry says

The American Petroleum Institute, or API, said the formula-based approach is complicated and would unfairly punish high-production facilities with low emissions intensities while potentially disincentivizing operators with higher-than-average emissions intensities from reducing leaks. The self-tracking option would likely be costly and burdensome, API said in a letter to the leaders of the Senate Committee on Environment and Public Works, which has responsibility for developing the policy.

"If the objective is to reduce methane emissions, direct regulation of methane is the best method to implement such a government policy and do so in an equitable manner that is tied to actual emissions," the API said in the letter signed by 130 industry and labor groups.

API warned that a methane fee could increase natural gas costs, resulting in a shift to electric power generation from higher-emitting sources. The basin-focused approach could also cause producers to shift activity to lower-emissions basins, with negative results for state governments that rely on extraction taxes, API said.

In places where the methane fee increases retail gas prices, the plan would disproportionately impact financially vulnerable Americans, potentially raising the average customer's annual bill by more than $100, AGA said.

This would amount to a regressive tax on low- and fixed-income citizens and violate Biden's promise to fund reconciliation without placing new taxes on the working class, API said.

Resources for the Future released an analysis Sept. 9 that suggested a moderate methane emissions fee could substantially reduce leaks at little cost, though higher fees would have diminishing returns. A $500/ton fee would increase wholesale gas prices by 7-10 cents/MMBtu and halve the leak rate from U.S. basins, according to economic modeling by Resources for the Future Fellow Brian Prest. A $2,000/ton fee would increase prices by 18-26 cents/MMBtu and cut leak rates by 70%, the economist projected.