(Oil Price) – Oil and gas producers in the United States will no longer be obliged to pay a fee for the methane they emit in the course of their operations after Congress voted to axe one of the most celebrated moves of the Biden administration in the energy space.
With a 52-47 vote, senators repealed the fee, and now all that’s left is for President Trump to sign it, likely adding more fuel to environmentalist organizations’ frustrations with the new federal government.
The offensive against methane began early in President Biden’s term. Widely considered a much more potent greenhouse gas than carbon dioxide even though its effect is much more short-lived, methane got into the crosshairs of the federal government as a target in its transition policies. Oil and gas companies were the natural prime target for climate regulation in this respect, and the regulation promptly came, mandating financial penalties for so-called methane leaks.
The Environmental Protection Agency acted as the executive body in the matter, setting methane emission limits and penalizing any exceeding of these limits. The oil and gas industry, perhaps surprisingly, was on board with this. The American Petroleum Institute voiced its support for the methane rule, with its chief executive saying that, “This is a new position for API, but we think given where the industry is at this time and the continued importance of reducing methane, it was critical we update this position as the administration changes.”
Interestingly, the same American Petroleum Institute is now applauding the axing of the methane rule, saying that it was a “duplicative, punitive tax on American energy production that stifles innovation,” according to the AP.
Big Oil has also been on board with the methane regulations—because they can afford to invest in infrastructure upgrades to reduce methane leaks and because they have a reputational interest in doing so, in a world that has lately become quite hostile to the industry. Smaller oil and gas producers, however, would have been hit hard by the rule.
As the AP noted in its report on the news, “Most major oil and gas companies do not release enough methane to trigger the fee, which is $900 per ton, an amount that would increase to $1,500 by 2026.” This is why they were in support of the fee and this is why they probably wouldn’t care much about its repealment. Environmentalists will, however.
Last year, the Environmental Defense Fund published a report saying that methane emissions from the U.S. oil and gas industry were eight times above the target that the industry had set for itself. The report cited data showing that some 1.6% of gas produced in the U.S. was released into the atmosphere in methane leaks, which was eight times higher than what oil and gas operators had pledged in the Oil and Gas Climate Initiative and the Oil & Gas Decarbonization Chapter.
“It’s a sorry testament to the influence of Big Oil on Capitol Hill that one of the top priorities of Congress is a blatant handout to the worst actors in the fossil fuel industry,” the director of the energy program of Public Citizen told the AP.
“Republicans are helping out the absolutely worst offenders of methane leakage,’’ Sen. Sheldon Whitehouse, head of the Senate’s environment panel said. “The companies only pay the methane fee if they don’t meet their own industry standard for … avoiding leaks of a dangerous, explosive, poisonous greenhouse gas.” It bears noting methane is what natural gas is mostly made of. Sen. Whitehouse also said, as quoted by Reuters, that the scrapping of the rule would raise energy prices and “weaken environmental quality for consumers.”
“We should be expanding natural gas production, not restricting it. Instead, the natural gas tax will constrain American natural gas production, leading to increased energy prices and providing a boost to the production of natural gas in Russia,” the chair of the Senate Committee on Energy and Public Works told the AP.
“The Biden administration and Democrats in Congress passed the methane tax to single out and punish the oil and natural gas industry despite its already burdensome EPA regulatory framework,” said the president of the Independent Petroleum Association of America, Jeff Eshelman.
Once the methane rule is officially scrapped after President Trump signs the bill, the reaction that would be interesting to see would be that of the European Union. The EU, like the Biden admin, is on an offensive against methane emissions and has devised a regulation on the methane emissions print of energy imports, meaning natural gas imports. During his term, President Biden asked the EU to consider U.S. LNG imports complying with his methane rule as compliant with EU regulation but now that the rule is gone, the compliance will automatically be over—and the EU needs U.S. liquefied gas.
By Charles Kennedy for Oilprice.com
