Inflation reduction act introduces methane emissions charge for the oil and gas sector

On August 16, 2022, President Biden signed the Inflation Reduction Act (IRA: H.R. 5376) into law. Among other climate related provisions, IRA includes charges on methane emissions for the oil and gas industry.

These excess emission charges will only apply to methane emissions from specific types of oil and gas facilities required to report their greenhouse gas (GHG) emissions to the Environmental Protection Agency’s (EPA) Greenhouse Gas Emissions Reporting Program (GHGRP).

The Congressional Budget Office estimates that the methane fee will generate gross revenue of approximately $1.1 billion in 2026 and will reach the maximum limit of $1.9 billion in 2028.

The charge would apply only to petroleum and natural gas system facilities required to report GHG emissions under 40 CFR Part 98, Subpart W or facilities emitting 25,000 metric tons of CO2 equivalent (mtCO2e) or more per year. Facilities in the following industry operations are subject to the change^[1]:

• offshore petroleum and natural gas production
• onshore petroleum and natural gas production
• onshore natural gas processing
• onshore natural gas transmission compression
• underground natural gas storage
• liquefied natural gas storage
• liquefied natural gas import and export equipment
• onshore petroleum and natural gas gathering and - boosting

• onshore natural gas transmission pipelines
  
  Natural gas distribution facilities and facilities the EPA describes as “other oil and gas combustion facilities” reporting emissions under Subpart W will not be subject to the methane charge.
  
  In the IRA, the emissions subject to the charge would be based on the facility’s reported emissions under EPA’s GHGRP, noting that the emissions threshold is dependent on the type of facility:
• For petroleum and natural gas production facilities, the charge applies to the number of reported tons of methane exceeding 0.2% of the natural gas sent to sale from the facility.
• For facilities that send oil to sale (not natural gas), the charge applies to quantities exceeding 10 metric tons of methane per million barrels of oil sent to sale from the facility.
• For nonproduction facilities, such as gathering and boosting facilities, the charge applies to methane emissions exceeding 0.05% of the natural gas sent for sale from the facility.
• For natural gas transmission facilities, the charge applies to methane emissions exceeding 0.11% of the natural gas sent for sale from the facility.
  
  These thresholds allow for some amount of methane to be released from these facilities without being subject to the charge.

The IRA methane emissions charge starts in calendar year 2024 at $900 per metric ton of methane, increasing to $1,200 in 2025 and $1,500 in 2026. The charge remains at $1,500 in subsequent years.

IRA provides exemptions from the Methane Charges in some circumstances that will be further codified in the Clean Air Act, including:

• Determination by the Administrator that there is a delay in permitting of new infrastructure that prevents an Operator from complying in time
• Determination by the Administrator that a facility is complying with requirements that will achieve the same or greater emissions reductions than this new charge rule
• Wells that are shut in and plugged in the previous year according to closure requirements

Finally, the IRA includes supplemental appropriations of $850 million to the EPA to provide grants, rebates, loans and other assistance to facilities subject to the methane charge for a range of objectives, including “improving and deploying industrial equipment and processes” reducing methane emission, and $700 million for “marginal conventional wells” for the same purposes.

For further information to discuss the impact of methane charge provisions, please reach out to GHD.

About GHD

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