Methane mitigation takes a big step forward
September 12, 2022
September 12, 2022
The United States has not placed a federal tax on carbon. The recently passed Inflation Reduction Act (IRA), however, could likely be seen as the United States beginning to test financial mechanisms as a way to address climate change. The legislation—which targets difficult-to-defend methane emissions and levies charges against the largest emitters—places accountability for methane action (and inaction) at the top of c-suites’ agendas.
Accenture analysis suggests the total cost imposed on the industry by the IRA’s methane charge would exceed $2.5 billion by 2024 and $4.2 billion by 2026. A majority of the cost would be incurred by the top 20 producers; starting in 2024, three of them could face levies exceeding $100 million per year based on their current reported emissions. Once the IRA is implemented, 90% of the business case to act on methane would focus on limiting such charges, and 10% would relate to the sale of the gas that would otherwise be lost. That’s a 180-degree pivot from how the energy industry thinks about methane today.
Methane has contributed to over 40% of the increase in global temperatures. That equals 0.4° Celsius of the 1.5° limit to temperature increases proposed in the Paris Agreement. The gas has a warming factor of 84X compared to CO2 over 20 years on a per-ton basis.
The oil and gas industry accounts for 13% of methane emissions globally. The irony is that this lethal gas is, in fact, commercially monetizable. But lack of access to markets and the cost of specialized equipment and monitoring has led oil and gas companies to “design in” the practice of emitting methane to today’s assets and operating practices. The industry has accommodated the methane problem; they haven’t addressed it in any meaningful ways.
The methane challenge is particularly pernicious in the United States. The International Energy Association’s (IEA) Methane Tracker ranks the US as second globally for methane emissions from the oil and gas industry. Slightly more than 70% of reported North American oil and gas methane emissions are “vented.” That means they are released during maintenance activities by valves and blowdown vent stacks to limit pressure on the system. Another 10% occur during flaring events due to incomplete combustion. The remaining 20% of emissions are so-called fugitives, expelled via leaks across the infrastructure.
There are over 3,700 oil and gas operators in North America, many of which have limited (if any) capabilities to understand and manage their methane emissions. At the other end of the scale are the twelve members of the Oil and Gas Climate Initiative (OGCI)—three of which are headquartered in North America. These companies committed in March 2022 to achieve “near-zero methane” from their operations by 2030.
The IRA would levy charges only against those energy facilities emitting more than the equivalent of 25,000 tons of methane. That implicitly excludes more than 90% of operators (and, incidentally, more than 50% of total methane emissions). Charges on methane for large emitters would equal $900 per ton in 2024, $1200 per ton in 2025, and $1500 per ton in 2026 and thereafter.
Additionally, the IRA has set aside $1 billion for improved mitigation and reporting of methane. This is sorely needed. Satellite-based surveys often reveal up to 60% more of the gas than is reported via companies’ annual submissions to the Environmental Protection Agency (EPA). Further, hard-to-detect super-emitter events, which may comprise 80% of emissions, have in some cases been halved overnight when companies change their reporting methodologies.
The EPA has been given two years to approve new methane-detection solutions beyond optical gas imaging camera surveys. These new solutions would undoubtedly take advantage of the proliferation of emerging technologies, including satellite, drone and fixed wing monitoring tools.
By putting a price on methane and laying the groundwork for improved reporting, the IRA is creating a future of methane management that would be very different from the past. With less than two years before charges would be levied, oil and gas companies are already thinking about how they can position themselves as leaders in methane elimination. We believe they can stay ahead of the curve by:
The IRA will certainly not be the last word on methane. But, for the first time, it establishes consequences for inaction. By implicitly asking the industry’s leaders to come together to solve the challenge and deliver clean, methane-free gas, the legislation is ushering in a new era of methane management.