IRA’s Methane Fees and Clean Energy Incentives

As expected, the Inflation Reduction Act passed the house and was signed by President Biden. The bill means big things for climate tech and emissions reduction, including penalties for excess methane emissions. 

From NRDC

Sounds great, right? 

As with most legislation, there are pros and cons. 

The new law puts into place what’s being called a “methane fee.” Oil and gas facilities releasing more than a certain threshold of methane will be charged a fee per ton of excess. And there is about $1.5 billion set aside to promote methane detection and  measurement. 

But the regulations come with a whole bunch of asterisks. 

Exemptions

Industry experts say the version of the bill that passed—after concessions for Senators with close ties to big oil and gas companies—will exclude roughly 60% of the industry’s emissions. Only companies that emit 25,000 metric tons of CO2 equivalent per year or more are subject to the fees.

Companies would also be exempt if they comply with the EPA's forthcoming methane rules, due later this year. In theory, complying with the rules will equal reduced emissions, but we all know that’s not a straight-line assumption. 

Also exempt from the “methane fee” are distribution facilities that bring natural gas to homes and businesses as well as some pipelines and gathering facilities. These stages of the process are expected to benefit from the $1.5 billion in financial incentives for cleaning up production. Stick, meet this very large carrot. 

Reporting Standards

Right now, there is enough ambiguity in methane emissions reporting that companies could potentially work around regulations and avoid fees by choosing between EPA calculations vs. actual measurement. Third-party measurements show that self-reported methane data misses a huge percentage of emissions. 

Will this law push us toward more advances and accuracy in methane detection technology? Or will companies take an ignorance-is-bliss approach and stick to current voluntary reporting practices (sometimes using unorthodox methods of calculating/reporting that dramatically, and instantly, reduce methane emissions below 25k tons…at least on paper) that miss a big chunk of emissions? 

Mixed Feelings

As with most legislation, we don’t know how it will play out until it does. The most optimistic of analyses hope the regulations will encourage continued industry-wide efforts to reduce methane emissions. The pessimists among us foresee reporting issues and loopholes ahead. Some even worry that producers will reduce their emissions by simply reducing production—an outcome that doesn’t mesh with growing energy demand. 

The effectiveness of these regulations will come down to implementation by the EPA. Which is TBD.