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New Version of Reconciliation Package Reworks Proposed Methane Fees; Includes Sharp Increase in Federal Lands Royalties

SVP Government Affairs Tim Tarpley
Tim Tarpley, SVP Government Affairs & Counsel

Analysis by Energy Workforce SVP Government Affairs & Counsel Tim Tarpley

Last week, the Biden Administration and his allies in the House released new draft text of the $1.75 trillion “Build Back Better” reconciliation package in a last-ditch effort to salvage the legislative proposal. There were major changes to the package from prior versions. 

Of particular note was the dramatic change in methane fee language. Previously, the per basin estimate would have allowed the EPA to charge operators of oil and gas facilities a fee based on the average of the basin they were operating in.

In the new language, the fee would be levied on a facility basis, with a staggered increase over the next three years. Under the new formula, companies would begin reporting in 2023 with fees increasing each year until 2025 — $900/ton for 2023, $1,200/ton in 2024 and $1,500/ton in 2025.

The Bill requires companies to invest in monitoring and mitigation technology and includes $775 million in incentives for operator’s investment in these areas. The methane threshold would remain at 0.2% for reporting, but producers would be exempt from emissions that were a result of unreasonable delay in environmental permitting.

Additionally, despite rising energy prices around the world, the new language retains many provisions to increase the cost of production on U.S. federal lands both offshore and onshore. The legislation includes:

  • Increased royalties for new onshore oil, gas and coal leases to 18.75%, from the current 12.5%
  • Minimum bids for oil and gas leasing would rise to $10/acre, from $2/acre
  • New offshore oil and gas leases in shallow waters would see royalties increase to 14%, from 12.5%
  • Current 18.75% royalties for deepwater Gulf of Mexico leases would remain in place

The bill would also ban new oil and gas leases in federal waters off the entire Pacific and Atlantic coasts, as well as the eastern Gulf of Mexico.  It would require oil and gas leaseholders to show proof of an adequate bond to restore any lands or water damaged after the end of oil and gas operations.

Late last week, it appeared that there could potentially be a consensus forming around this new language among the divergent wings of the Democratic majority. However, on Monday, Sen. Joe Manchin held a press conference which threw some cold water on the process. In very clear terms, Sen. Manchin said he was not yet supportive of the package and needed more time to review it. He also felt that budget gimmicks were being used to create the perception that the package was fully paid for, and in his view it was not.

Sen. Manchin also said he would not support holding the bipartisan infrastructure package until a vote on the reconciliation package occurred. This firm statement has thrown the prospects for the entire process into disarray. While the White House and the President’s allies on the Hill continue to push forward, appearing to assume that a vote is possible this week, the likelihood of this actually occurring is slim.  

Methane Regulation Text Released by EPA

In addition to the potential for legislative action on methane in the reconciliation package, the Biden Administration is also moving forward with long planned regulatory action on the issue.  The major component of the regulatory efforts will come through EPA in the form of two major rules released on Tuesday.

The EPA estimates this action would reduce emissions from the U.S. oil and gas sector by about three-quarters by the end of this decade. However, the oil and gas industry only represents about 30% of U.S. methane emissions — much of the rest is from waste disposal and the agricultural industries. 

The rules, which are expected to be finalized by the end of next year, would apply to new sources of emissions as well as existing oil and gas operations. The regulation would include the regulation of associated gas.

The rules would mandate that companies operating oil or gas wells estimated to emit more than three tons of methane annually must search for leaks quarterly, or every two months if advanced technological systems were used. They would allow operators a choice in what technology they employ as long as it meets minimum standards — a concession that many in the industry have asked to be granted. EPA will ask for public comment on whether it should allow the operators with smaller estimated emissions to forgo monitoring if they have proven any existing leaks were fixed.

The new rules would also require that all the natural gas brought out of a well would be either transported to market or burned on site instead of released into the air. If pipelines do not have adequate capacity or natural gas prices are too low to make selling the gas profitable, companies would either have to use it to generate electricity on site or burn it in a way that ensures 95% of the methane is destroyed before reaching the atmosphere.  

The Council will continue to monitor the development of this rule closely and plans to make comments on the rule. If your company has a particular interest on the development of this rule, contact SVP Government Affairs Tim Tarpley

Tim Tarpley, SVP Government Affairs & Counsel, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Council’s newsletter, which highlights sector-specific issues, best practices, Council activities and more.


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