Hidden at the bottom of the more than 700 pages of the recently passed Inflation Reduction Act (IRA) is a brand new provision intended to give the Environmental Protection Agency (EPA) the power to reduce greenhouse gas (GHG) emissions.
Specifically, the IRA establishes the “Methane Emissions Reduction Program” under a new section of the Clean Air Act, allowing the EPA to impose a charge on certain “climate pollution”.
Crucially, this is the first time the federal government has imposed a charge on any GHG emissions and it’s part of congressional efforts to bolster the EPA’s power to deal with the “climate crisis.”
Congress sends a message
In June, the United States Supreme Court ruled in West Virginia v. Environmental Protection Agency that the EPA did not have the authority under the Clean Air Act or the Clean Power Plan to essentially force power plants to switch more to wind and solar.
Additionally, SCOTUS determined that the question of interpretation raised under the Clean Power Plan fell under the “major issues doctrine,” which states that Congress must make a “clear statement” if it wants to delegate authority.” of this magnitude to regulate a fundamental sector of the economy.”
Notably, the ruling expressly limited the EPA’s ability to regulate carbon emissions from power plants, which President Joe Biden called “devastating.”
Biden further added that he plans to “find ways in which we can, under federal law, continue to protect Americans from harmful pollution, including pollution that causes climate change.”
Enter the “clear statement” from the IRA and Congress on what it wants the EPA to do.
Indeed, the Environmental Defense Fund (EDF) said Congress’s passage of the IRA had “modernized” the Clean Air Act and established the EPA’s authority “to protect American families from the climate and air pollution”.
Additionally, via the IRA, Congress reaffirmed that GHGs are “air pollutants” and clarified that the term “greenhouse gases” includes the air pollutants “carbon dioxide, hydrofluorocarbons, methane, nitrogen, perfluorocarbons and sulfur hexafluoride”.
“These new sections of the Clean Air Act and new provisions that build on the Clean Air Act reinvigorate the EPA’s responsibilities under the law to address the longstanding climate crisis and inequality with new tools, new solutions, unprecedented investments, additional policies and with great urgency. », concludes EDF.
Incentives and Penalties
The IRA includes several tax credits, incentives and grants, totaling $369 billion for “energy security and climate change investments”.
And the investments above include more than $1.5 billion to the EPA for “grants, rebates, contracts, loans” and “other activities” to reduce GHG emissions in the natural gas and petroleum sector. .
But incentives are not the only tool used by the IRA regarding the oil and gas sector.
According to a Congressional Research Service (CRS) report, the methane emissions reduction program applies to specific types of facilities that report their GHG emissions to the US Greenhouse Gas Emissions Reporting Program. EPA.
More specifically, the facilities to which the charge applies include:
“Offshore and onshore oil and natural gas production, onshore natural gas transmission processing and compression, underground natural gas storage, liquefied natural gas storage, liquefied natural gas imports and exports, oil gathering and boosting and natural gas onshore, and finally, natural gas onshore transmission pipelines.
In other words, the EPA now has the authority to impose royalties on oil and gas-fired power plants, thereby fulfilling the above SCOTUS requirement.
Most importantly, facilities that fall into one or more of the above categories and exceed a specific methane threshold (thresholds vary by facility type), will be required to pay $900 per metric ton of methane from 2024.
In 2025, the fee increases to $1,200, and in 2026 and beyond, the cost is $1,500.
The Congressional Budget Office estimates, based on 2019 data, that the new fees will raise $1.1 billion in fiscal year 2026 and nearly $1.9 billion by fiscal year 2028. Revenues from CBO projects will subsequently decline as facilities implement methane reduction strategies.
EPA powers up
Methane is the main component of natural gas, and the EPA reports that methane emissions accounted for 11% of total US GHG emissions in 2020. Carbon dioxide (CO2) accounted for 79%.
However, methane is considered more “potent” than CO2, with some experts estimating its “climate change impact” to be 25 to 72 times greater than the equivalent mass of CO2. Therefore, reducing methane emissions is “one of the best opportunities to reduce in the short term [global] warming,” reports the CRS.
Furthermore, Biden has made it clear that by 2030, he wants GHG emissions to be reduced by 40% from 2005 levels. And reduction levels of that amount require significant transformation.
Passing the IRA and implementing a charge on methane put Biden’s goals within reach.
Indeed, the Department of Energy reports that thanks to the IRA, the United States will not only meet the 40% reduction target, but exceed it, as it now projects GHG emissions at 50-52% below 2005 levels.
Interestingly, according to the EPA, the primary source of methane emissions isn’t natural gas or oil, it’s livestock.