Why Biden’s methane fee could backfire

In today’s edition, we have an exclusive on Senate Democrats pressing the Treasury Department on climate risks in the insurance industry. But first:

Biden will put a fee on methane emissions, but oil companies are underreporting them

President Biden’s signature climate law, the Inflation Reduction Act, largely offers carrots for polluting industries to cut their emissions. But it also has a powerful stick: the Methane Emissions Reduction Program. 

Starting next year, the program will require oil and gas companies to pay the first-ever federal fee for their emissions of methane, a potent greenhouse gas. The charge starts in 2024 at $900 per ton of methane, increasing over time to $1,500 per ton by 2026.

Yet for years, oil and gas companies have significantly underreported their methane emissions to the Environmental Protection Agency, according to numerous scientific studies and a recent congressional report.

If not implemented properly, the program could incentivize companies to continue underreporting their emissions to avoid hefty fees, environmentalists say.

“It’s inevitable that companies will have an incentive to underreport from a purely financial perspective,” said Hannah Story Brown, a senior researcher who co-leads the Revolving Door Project’s climate and environmental work.

Josh Eisenfeld, corporate accountability communications manager at Earthworks, agreed. “Why would a company not underreport if it meant saving them tens of thousands or hundreds of thousands of dollars?” he said.

The EPA says it is working to address these concerns. The agency in July proposed changes to its emissions reporting requirements for oil and gas systems that it says will improve the accuracy of emissions data.

“The Biden-Harris Administration is moving urgently to reduce climate pollution, and EPA is working to ensure science leads the way with the most accurate emissions data possible,” Joseph Goffman, principal deputy assistant administrator for the EPA’s Office of Air and Radiation, said in a July statement.

The Methane Emissions Reduction Program will impose a fee on oil and gas companies that already disclose their methane emissions to the EPA under the Greenhouse Gas Reporting Program.

Yet in a 2021 study published in the journal Nature Communications, researchers found that field measurements of methane emissions from U.S. oil and gas operations were 1.5 to two times greater than EPA estimates.

A report released last year by Democratic staff on the House Science, Space and Technology Committee similarly found that oil and gas companies have internal data showing that their methane emissions in the vast Permian Basin “are likely significantly higher than official data” reported to the EPA.

• The report focused on the Permian Basin in West Texas and southeastern New Mexico because it accounted for 42.6 percent of U.S. oil production and 16.7 percent of U.S. natural gas production in 2021.
• The committee relied on anonymous responses from 10 companies, including Admiral Permian Resources, Ameredev II, Chevron, ConocoPhillips, Coterra Energy, Devon Energy, ExxonMobil, Mewbourne Oil, Occidental Petroleum and Pioneer Natural Resources.

Jennifer Brice, a spokeswoman for Occidental, one of the largest producers in the Permian, said in an email that the company “is committed to responsible environmental performance and proactively manages greenhouse gas emissions using innovative technologies to reduce flaring and methane emissions.”

Dustin Meyer, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute, said in an emailed statement that the industry has worked to curb its climate impact, noting that “methane emissions intensity has declined by nearly 66 percent across all major producing regions.”

The EPA’s proposed rule, which was mandated by the Inflation Reduction Act, would take “important steps to address potential gaps in methane emissions reporting,” agency spokesman Nick Conger said in an email.

• The proposal emphasizes the importance of new methane monitoring technologies, such as satellites and aerial flyovers.
• In addition, the proposal would require oil and gas companies to report certain “large emission events,” which could include massive methane leaks known as “super emitters.” 
• Cracking down on super emitters could be a relatively quick way to slow global warming, scientists say, since methane is roughly 80 times more effective at trapping heat during its first 20 years in the atmosphere.

“With the super emitter phenomenon, the majority of emissions are due to a few large sources,” said Jeff Rutherford, director of research and development at Highwood Emissions Management, an oil and gas data startup.

The EPA’s proposed changes are “quite encouraging,” said Rutherford, who was the lead author of the 2021 study on methane measurements as a PhD student at Stanford University.

Senate Environment and Public Works Committee Chair Thomas R. Carper (D-Del.), whose panel crafted the methane program, applauded the agency’s quest for more accurate data.

“We included the first-ever fee on excess methane pollution from the oil and gas sector in the Inflation Reduction Act because reducing methane emissions is a critical part of meeting our climate goals and slowing global warming,” Carper said in an emailed statement. “Still, you can’t manage what you can’t measure.”

Exclusive: Senate Democrats press Treasury on insurance industry and climate

Democratic Sens. Elizabeth Warren (Mass.), Chris Van Hollen (Md.) and Sheldon Whitehouse (R.I.) yesterday urged the Treasury Department to collect comprehensive data on how climate change is upending the insurance industry, according to a letter shared exclusively with The Climate 202.

In the letter to Treasury Secretary Janet L. Yellen and Federal Insurance Office Director Steven Seitz, the lawmakers pointed to recent decisions by insurance companies to reduce coverage in disaster-prone areas, saying they could leave consumers more vulnerable to climate-related financial risks.

“Despite recent climate disasters highlighting the risks of skyrocketing insurance costs and insurer retreat, the Treasury Department’s Federal Insurance Office (FIO) has, to date, failed to collect comprehensive and transparent data about the impact of climate change on the insurance industry, leaving vulnerable communities, consumers, and the economy at greater risk from the climate crisis,” the senators wrote.

The Democrats asked the agency to respond to a list of questions by the end of the month about its plan to solicit data from major insurers “to better assess the impact of climate change on insurance availability and affordability, including in communities that are most vulnerable to the effects of climate change.”

The push comes ahead of a Senate Banking, Housing and Urban Affairs Committee hearing on insurance today. Treasury did not immediately respond to a request for comment on the letter.

Exclusive: Clean-energy leaders ask Congress to restore R&D tax deduction

A group of 210 business leaders in the clean-energy sector is calling on Congress to reinstate a lapsed provision in the tax code that allowed companies conducting research and development to fully deduct those expenses in the year they were incurred, according to details shared exclusively with The Climate 202. 

In a letter that will be sent to every congressional office today, the business leaders write that “this new policy change runs counter to the major public-private investments the U.S. is making in clean tech innovation through recently-enacted policies and will have a dampening effect on market pull.”

The provision lapsed in 2022 because of a budgetary adjustment in the 2017 Republican-led tax bill. Bipartisan bills in the Senate and House would restore the provision, although they have not yet passed. The most likely vehicle would be an end-of-year tax package.

If the provision is not restored before the next tax season, clean-energy companies could be forced to lay off employees, delay projects or even shut down, the letter says. “We call on Congress to address this issue with the urgency our small business leaders deserve,” it says.

Biden to block oil drilling in ‘irreplaceable’ Alaskan wild lands

The Biden administration yesterday moved to protect more than 10 million acres of Alaska’s North Slope from development, prohibiting oil drilling across large swaths of the National Petroleum Reserve-Alaska and canceling all seven outstanding leases in the Arctic National Wildlife Refuge that were issued under President Donald Trump, The Washington Post’s Timothy Puko reports. 

On a call with reporters yesterday, administration officials said they found that the Trump administration failed to meet requirements under the National Environmental Policy Act to analyze alternatives or to quantify greenhouse gas emissions from development on the refuge, which had been protected for decades before Congress ordered lease sales there in 2017. 

The separate proposal to protect the reserve, which is the nation’s largest expanse of public land and is home to an array of Arctic wildlife, effectively bans oil and gas production across 10.6 million acres. But it leaves 2.4 million acres open for future drilling and would do nothing to halt ConocoPhillips’s Willow project, which the Biden administration approved there this year under intense political pressure. That project is estimated to produce 576 million barrels of oil over the next 30 years, locking in decades of planet-warming pollution.