What the Inflation Reduction Act Means for Oil and Gas

The Inflation Reduction Act was the USA policy surprise of the summer. Signed into law by President Biden on August 16, it is broad ranging and includes historic investments in decarbonization. According to the authors, it puts the USA on a path to reduce carbon emissions by roughly 40% by 2030.

Section 60113 of the act introduces a methane tax on the oil and gas industry. The new methane tax, which comes into effect in 2024, taxes oil and gas facility methane emissions above certain thresholds.

How much is the tax?

The tax starts in 2024 at $900 per ton of methane and increases to $1,500 per ton by 2026.

  • $900 / metric ton of methane in 2024
  • $1,200 / metric ton of methane in 2025
  • $1,500 / metric ton of methane in 2026+

This sounds high but consider that one ton of methane has 26 times the global warming potential (GWP) of CO2, according to the IPCC. This means that on a CO2 equivalent basis, the tax is around $36 per tCO2e in 2024 rising to $58 per tCO2e. This puts in on par with, but below current carbon tax levels in Canada.

Which facilities are covered?

Applicable ‘facilities’ are those that report more than 25,000 metric tons of CO2e of greenhouse gases per year.

The significance of this comes in how EPA subpart W defines the word ‘facilities’. The definition notes that all onshore petroleum and natural gas production equipment associated with all wells that an entity owns or operates in a basin are considered one facility.

By this definition, most oil and gas producers will be impacted by the methane tax. If you are a US oil and gas producer, check here to see if your operations exceeded the 25,000 tCO2e threshold in 2020 based on a report we ran using EPA’s GHG Flight tool.

What are the thresholds?

Reported methane emissions from each ‘Facility’ above the following thresholds will be taxed:

  1. For offshore or onshore upstream production, either
      • 0.2% of natural gas sold from the facility or
      • 10 metric tons of methane per million barrels of oil if no natural gas was sold.
  2. For natural gas compression, transmission, and storage, 0.11% of natural gas sold from the facility
  3. For natural gas gathering and processing and LNG facilities, 0.05% of natural gas sold from the facility

How are the emissions measured?

Methane emission values will be those reported through the EPA’s greenhouse gas reporting program (GHGRP). This data is currently reported using inventories and emissions factors rather than empirical measurements. The data is available to the public and can be accessed through the EPA’s GHG Flight Tool.

The Act specifies that 2 years after the date of enactment, the EPA must revise reporting requirements such that methane emissions (and calculation of methane tax) are based on empirical data.

What can be done to reduce methane emissions?

The IEA estimates there are around 9,500 kt of methane emissions that have abatement potential in the USA. The top three abatement opportunities are fixing upstream leaks (22%), fixing downstream leaks (21%), and fixing gas emitting pneumatic devices (22%).Methane abatement potential in oil and gas – USA

IEA (2022), Methane Tracker Data Explorer, IEA, Paris https://www.iea.org/articles/methane-tracker-data-explorer

There are plenty of great service providers who assist with leak detection using handheld cameras, drones, airplanes, and even satellites.

Westgen is the North American leader in eliminating methane emissions from pneumatic devices. Each EPOD deployed reduces emissions from the pneumatic system by around 99.5%. A typical EPOD installation eliminates around 40 tons of methane emissions per year. At $1500 per ton, a single EPOD has the potential to reduce your tax burden by around $60,000 per year.

For more information contact us for a free ranked site by site economic assessment of your options to eliminate menthane emissions and reduce tax – Call us at 1 (888)-609-3763

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