Biden’s proposed deal includes first-time fees on methane

Image: Calscan Solutions

Oil and gas companies would be forced to pay for excess methane leaking from wells, storage sites and pipelines under a draft of President Joe Biden’s climate-and-social-spending plan. 

Under the measure released Wednesday, fees of as much as $1,500 per ton would be imposed on an array of oil and gas infrastructure — from wells and pipelines to the terminals that process natural gas for export around the globe. 

The proposed charge in the U.S. House bill, which is still subject to change, comes amid increasing scrutiny of methane.

The proposed fees would be part of a new $775 million Environmental Protection Agency program of grants, rebates, loans and other incentives to help oil and gas companies report and mitigate their methane emissions. 

The current House language has been dialed back in ways that could satisfy Democrats from energy-producing states, including Texans in the House and Senator Joe Manchin, a West Virginia Democrat and key swing vote in his chamber.

Manchin has spoken critically of the fees previously and it’s unclear whether the changes — including a longer phase-in time — would be sufficient to resolve his concerns. A spokeswoman for Manchin didn’t respond to an email seeking comment on the proposal.

An earlier Senate plan would have put the Treasury Department in charge of assessing the fees and would start them at $1,800 per ton, with calculations tied to on regional averages of methane emissions. 

Under the latest version, the fees would begin at $900 per ton of excess methane emissions in 2023, increase to $1,200 in 2024 and rise to $1,500 in 2025 and subsequent years. It also would be tailored to individual sites, by setting a threshold for leaks and imposing fees on emissions that exceed it. At natural gas production operations, for instance, the fees would be imposed on reported methane emissions that exceed 0.2 per cent of the natural gas sold from the site. 

That approach is meant to encourage companies to plug leaks so that emissions are kept below the acceptable level.

Oil and gas industry groups have warned any methane payment is likely to translate into higher electricity and home heating costs for consumers. The American Gas Association said it was still analyzing the potential impact of the latest proposal on some 180 million Americans and 5.5 million businesses that use natural gas. 

“If it raises their bills — an unconscionable move amidst rising energy prices — we will oppose it,” the group said in an emailed statement.

The fees would come alongside separate EPA efforts to limits methane emissions, including forthcoming proposals to strengthen requirements for companies to seek out and plug leaks at hundreds of thousands of oil and gas wells. Those measures are set to be proposed within days.

Anne Bradbury, CEO of the American Exploration and Production Council, said that together, the fee and EPA mandates would amount to a double whammy of “additional costs and punitive taxes that would disadvantage American producers, increase Americans’ energy costs and cause 90,000 jobs lost across the country.”

The payments would apply to onshore and offshore oil and gas production as well as to underground natural gas storage facilities, pipelines, liquefied natural gas export terminals and other sites.

“Most emitters of methane are not going to have to pay a fee because their emissions are so small,” said Senator Tom Carper, a Delaware Democrat who chairs the Senate Environment and Public Works Committee.

The emission reduction from a $1,500-per-ton methane fee could, by 2050, be the equivalent of removing 36 million internal combustion vehicles from the roads, according to an analysis conducted by Energy Innovation, a nonpartisan energy and environmental policy firm.  

© 2021 Bloomberg L.P.

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