Oil and gas companies that emit large quantities of waste methane are set to face first-time fees on emissions above 25,000 metric tons a year of carbon dioxide equivalent under a rule proposed by the U.S. Environmental Protection Agency.

The Jan. 12 proposal, which has been published in the Federal Register, follows a final rule the agency issued in December that set technology standards for methane reduction, with the fees meant to encourage companies to install those technologies before the new standards take effect, the agency said.

The fees, which start at $900 per metric ton, increase to $1,200 per ton in 2025 and $1,500 per ton in 2026 and beyond.

The fees are required by the Inflation Reduction Act’s Methane Emissions Reduction Program. 

The proposal includes fee exemptions for facilities in compliance with final Clean Air Act standards for oil and gas operations. There is also an exemption for permitting delays for new transmission or gathering infrastructure needed to accommodate increased volumes caused by methane emission mitigation efforts.

The proposed fees, along with funding in the law will incentivize industry to promptly deploy the technologies, EPA Administrator Michael Regan said in a statement, although he added that leading oil and gas producers already meet or exceed performance levels set under the law so will likely not have to pay the proposed fee.

Congress provided more than $1 billion in the law enacted in 2022 for financial and technical assistance to accelerate oil and gas operation transition to low and non-emitting technologies to help reduce methane emissions.

Compliance Group

Besides onshore and offshore production and gathering operations subject to the methane reduction rules, natural gas pipelines, underground natural gas storage facilities, liquefied natural gas import and export equipment and liquefied natural gas storage also must comply.

Methane is responsible for about one-third of greenhouse gas emissions globally—with the oil and natural gas sector considered the largest industrial source of emissions in the U.S., according to the Environmental Defense Fund. Quick reduction of emissions is one of the most important and cost effective actions to slow the rate of rapidly rising global temperatures, the environmental group said.

The waste fee creates important incentives for operators to take near-term actions to reduce their methane pollution, Environmental Defense Fund attorney Grace Smith said. “EPA delivered a fair, practical and effective proposal to implement [the Methane Emissions Reduction] program."

The American Petroleum Institute, the U.S. oil and gas trade association, said it supports smart federal methane reduction but called the proposed fee a “punitive tax” that will stifle innovation and undermine industry ability to meet rising energy demand. “We look forward to working with Congress to repeal the IRA’s misguided new tax on American energy,” the group said in a statement.

'Underreported'

In a report issued last year, non profit research firm Rocky Mountain Institute noted that self-reported emission inventories by large U.S. oil and gas operators "are significantly underreported." It called for "increased monitoring and use of empirical data [to] guide operators to fix their largest emissions sources while rewarding operators with the lowest methane intensities." 

The institute stressed that “by putting a price on methane, emissions reduction can be factored into [energy sector] economic decisionmaking. Given the highly competitive nature of the O&G industry, accurately pricing methane will make it matter in the marketplace." 

EPA also is boosting research into more accurate measures of methane emitted by U.S. landfills, which it says accounts for more than 15% of emissions produced by humans. The agency in November awarded five universities about $4.6 million to research measurement accuracy, including how weather patterns can affect the level of methane leaks.  

“Methane is a potent climate pollutant, which is why improving our understanding of the impacts of methane and other pollution from landfills is crucial to our efforts to address climate change,” said Chris Frey, EPA assistant administrator for research and development, adding that historically there has been limited ability to understand and quantify landfill gas emissions. 

EPA enforcement also is up against non compliant landfill owners, with the agency and U.S. Justice Dept. announcing a recent court settlement with one in New York that included a proposed civil penalty of about $675,000, said attorneys at Spancer Fane in a Jan. 12 post.