Methane Fee Would Weaken Economy, U.S. Security and Hinder Environmental Progress

Lem Smith
Posted September 9, 2021

Levying a fee on the methane emissions of the U.S. natural gas and oil industry, under consideration as part of the reconciliation package in Congress, is the wrong way to address emissions and could hinder the U.S. economy, national security and environmental progress.

This week API and dozens of organizations representing producers, distributors and users of natural gas, oil and natural gas liquids opposed the “Methane Emissions Reduction Act of 2021” in a letter to Senate Environment and Public Works Committee Chair Tom Carper (D-DE) and Ranking Member Shelley Moore Capito (R-WV).

Three reasons why a methane fee should be rejected by lawmakers on both sides of the aisle:

• Energy and the Economy – New fees on the industry, possibly totaling more than $14 billion in the first year, could discourage new investment and development of natural gas and oil, which supply nearly 70% of the energy Americans use every day. This could ripple across the economy at a time when inflation already is hitting Americans. The legislation’s import fee, based on the emissions rates of foreign suppliers, could raise consumer costs, distort markets and incentivize retaliatory actions from our trading partners.
• U.S. Security – Domestic natural gas and oil is critically important to ensuring that Americans can access affordable, reliable energy. Disincentives to homegrown energy could increase U.S. reliance on imported oil and weaken overall security, even with the legislation’s import fee.
• Environment – Discouraging U.S. production, potentially increasing the cost of natural gas, could mean the use of other sources in power generation, amounting to a retreat from recent emissions reductions in the power sector that have largely resulted from increased use of natural gas.

Methane emissions should be regulated, not taxed. API supports the Biden Administration’s plan to regulate methane emissions from new and existing sources through the EPA.

A methane fee on natural gas and oil, which is more about finding revenues to help pay for the broader reconciliation package than reducing emissions, would be punitive – ignoring emissions from agriculture, the No. 1 total source of U.S. methane emissions and landfills (No. 3).

Unless companies engage in costly monitoring, the proposal would tax companies based on the amount of natural gas and oil they produce or handle, not their actual emissions. This could have the perverse effect of discouraging emissions reductions from facilities with higher emissions intensities while punishing operators with lower emissions intensities.

In addition to potentially detrimental environmental outcomes, the “Methane Emissions Reduction Act” could have adverse and disproportionate economic impacts nationwide. Again, the potential direct cost of the bill to the economy – not including import fees – could initially be as high as $14.4 billion, increasing 5% above inflation annually. As many as 155,000 jobs could be impacted by the tax, with the largest impacts concentrated in the health care and social assistance industries.

API’s Climate Action Framework details cost-effective actions to reduce emissions without punishing energy production, job creation and economic growth. The framework dovetails with the actions of industry initiatives such as The Environmental Partnership (see its newly released annual report) to collaborate on technologies and sound practices that target specific emissions sources, including flare management. Recent progress in reducing emissions, while also developing the energy our country needs, should be supported and encouraged – not sidetracked by this unreasonable taxation proposal.