US proposes rules for methane fee on oil, gas

More than 2,000 oil and gas facilities across the US may have to start paying a fee this year for excess "waste" of methane lost to equipment leaks and flaring, under a newly proposed rule.

The rule would for the first time put a direct financial penalty on oil and gas operators that are emitting vast amounts of methane — a highly potent greenhouse gas — into the atmosphere. The new fee, which will start to apply to methane released this year, is being created as part of a "waste emissions charge" mandated under the Inflation Reduction Act

The US Environmental Protection Agency (EPA) expects the fee, which is expected to cost operators $750mn this year, will encourage industry to cut emissions before recently finalized methane rules fully take effect. EPA anticipates the fee will fall to just $13mn/yr by 2027, under the assumption that the methane rules will be fully in force.

The new fee, when finalized, will "incentivize industry innovation and prompt action" to cut methane emissions, EPA administrator Michael Regan said.

The oil and gas sector has strongly opposed the methane fee, which they say will be complicated to implement and raise production costs. The fee is a "misguided new tax on American energy," American Petroleum Institute regulatory affairs vice president Dustin Meyer said. The trade group said it will urge the US Congress to repeal the fee, which is only likely to occur if a Republican wins control of the White House.

By law the fee will only apply to oil and gas facilities that report annual greenhouse gas emissions under EPA's "subpart W" greenhouse gas reporting program, which now covers more than 2,000 facility owners that release more than 25,000 t of CO2 equivalent each year. The fee will start this year at $900/metric tonne (t) of methane emitted above a fixed amount, before rising to $1,200/t in 2025 and $1,500/t for all subsequent years.

By law, EPA will only collect the fee on methane above a "waste emission threshold" that ranges from 0.2pc of gas sent to sale from a gas facility to as little as 0.05pc of gas sent through a gas processing plant. EPA's proposal will allow facility operators to use "netting" to average their emissions across different facilities, providing credit for high-performing facilities. Oil and gas facilities in states that are complying with EPA's methane rules will be exempt from the fee, according to the proposal.

The proposed rule will also create a fee exemption for facilities affected by an "unreasonable" delay in the permitting of gas offtake infastructure. But EPA said the exemption, which was required by law, will only apply emissions related to gas flaring, and only if there has been permitting delays for infrastructure lasting at least 30-42 months.

The ultimate stringency of the methane fee will depend in part on a pending update to subpart W emission reporting rules that EPA does not expect to finalize for at least three more months. For the purpose of calculating the fee in 2024, EPA said operators should rely on the existing subpart W rules, avoiding the need to change their calculation methods this year.

EPA said operators will need to submit data related to their methane emissions in 2024, along with any exemption claims, by 31 March 2025. The payments from the fee will go to the US Treasury.

By Chris Knight