Analysis by Energy Workforce President Tim Tarpley
Late last week, the EPA released the final details of their implementation for the coming methane fee mandated by the Inflation Reduction Act, which passed last year. This year, the fee will begin to be assessed for larger emitting sources, facilities that release more than 25,000 metric tons of carbon dioxide equivalent per year to the EPA’s Greenhouse Gas Reporting Program.
The fee will start at $900 per metric ton this year, rising to $1,200 in 2025 and reaching $1,500 in 2026 and going forward. Facility owners can avoid paying the fee when there has been an unreasonable delay in permitting infrastructure necessary to mitigate emissions and when wells are permanently plugged. This carve-out may be of increased importance as the efforts to pass permitting reform this Congress seem to be hopelessly stalled. Without permitting reform, it will be very difficult for some facilities to meet this new mandate, as pipeline capacity and other infrastructure is very difficult, if not impossible, to get permitted in many areas.
To complicate the implementation and understanding of this new fee structure to the industry, it comes right on the heels of the newly finalized EPA requirements for methane emissions, which kick in later this decade. These rules will hit existing oil and gas infrastructure as states develop their own regulatory plans for enforcement and submit them to EPA in a process that will take up to five years. Oil and gas facilities that comply with these new regulations will be exempt from the fee, so there is an incentive for states to speed up the process, as the exemptions will only begin once the standards are in force across all of the affected states.
Energy Workforce has opposed the implementation of this new fee, as we believe it will raise the cost of producing energy in the United States and is duplicative considering the separate mandates on the EPA methane regulation. The EPA has countered this criticism and contends that even with full implementation, they believe the effect on energy production will be marginal; they believe it will only lower natural gas output by .03% in 2026 and raise costs by .052%.
However, we believe those estimates may not be taking the full picture into account, and given the continuing conflict in Ukraine and the prospect for further destabilization in the Middle East, even small decreases in U.S. energy production could be very impactful.
We also believe these EPA estimates may not be fully taking into account the dramatic effects this fee could have on smaller producers which could lead to some significant market effects in some areas. Energy Workforce Members are leading the way in methane leak detection and mitigation technology and ultimately, we believe this technology and innovation will lead us to the shared goal of lowering methane emissions much quicker than a new tax or fee on American energy production will.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.