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Cover Me, Part 2 - Inflation Reduction Act's New Methane Charge Takes Aim at Emissions

The recently passed Inflation Reduction Act (IRA) offers a lot of incentives, mostly in the way of tax credits, to advance the Biden administration’s clean-energy initiatives and reduce greenhouse gas (GHG) emissions. There are inducements for everything from carbon capture and electric vehicles to renewable energy and hydrogen production, but very few penalties. One exception is included in the new law’s Methane Emissions Reduction Program (MERP), which features the federal government’s first-ever fee on the emissions of any GHG. In today’s RBN blog, we look at recent attempts to mitigate methane emissions, how the new methane charge will work, and how it could one day be replaced by new federal rules.

GHG emissions have become a frequent topic at RBN over the past couple of years. Quite often the focus has been on carbon dioxide (CO2), the most prevalent GHG, from a focus on cleaner transportation fuels (see our Come Clean series) to the increasing investment into large-scale carbon-capture projects (see our Way Down in the Hole series) in an effort to efficiently lower GHG emissions. Methane is an important part of those discussions because it’s a particularly potent GHG, with a Global Warming Potential (GWP) that is 25-36 times that of CO2 when normalized to a 100-year timeline. (But methane emissions are neutralized in the atmosphere at a much quicker pace, meaning that their initial GWP is much higher, more like 86 times that of CO2 if normalized to a 20-year timeline.) A tricky part of the problem is that the actual level (and sources) of methane emissions can be hard to accurately identify and quantify, in large part because estimates can vary greatly depending on how they’re conducted, as we discussed in Part 1 of this series.

Recent attempts to regulate emissions at the federal level began under President Obama in 2016. That year the Environmental Protection Agency (EPA) adopted New Source Performance Standards (NSPS) that were designed to mitigate methane emissions from new oil and natural gas facilities (those constructed after September 2015), including production, processing, transportation and storage. The EPA estimated the new rules would cut methane emissions by 11 million metric tons of CO2 equivalent (MMtCO2e; 581 MMcf/d) in 2025. The EPA then began work on regulations on existing facilities, but that ended when President Trump took office in 2017. Instead, the Trump administration began a review of the NSPS, which was rescinded in 2020. The U.S. approach to methane regulations reversed again when President Biden was inaugurated in January 2021. Congress passed a resolution that essentially reinstated the NSPS rules and later that year the EPA announced plans to bolster the NSPS and establish regulations for existing facilities as well. That proposal has not been finalized, however, so this is where the IRA comes into play.

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