The Biden-Harris administration’s Environmental Protection Agency (EPA) has finalized a federal methane tax for oil and gas drilling operations, set to take effect next year. This rule is part of the broader Inflation Reduction Act, which was passed by Democrats and saw Vice President Harris casting the decisive vote. The new regulation imposes a fee on oil and gas producers who exceed a certain methane emission threshold by venting or flaring the gas rather than capturing it. While the industry would prefer to capture the methane, they are often hindered by infrastructure limitations, such as insufficient pipeline capacity. This shortage is primarily due to the challenges of securing federal permits, which forces companies to flare the methane. If the necessary permits were granted and pipelines built, this issue could be resolved, potentially preventing any increase in consumer costs.
According to the EPA, methane emissions exceeding the threshold in 2024 could trigger a federal fee of $900 per ton, with the fee rising to $1,200 per ton in 2025 and $1,500 per ton by 2026. The rule applies to oil and gas facilities reporting annual methane emissions greater than 25,000 metric tons of CO2 equivalent. Industry organizations are expected to challenge the rule, especially any attempt to impose retroactive fees.
EPA Administrator Michael Regan has stated that the new fee, formally called the Waste Emissions Charge, will complement a separate methane rule introduced earlier this year. The goal of this fee is to encourage the early adoption of technologies that can reduce methane emissions. However, industry groups and some states have contested the earlier methane regulations in court, arguing that the EPA overstepped its authority and set unattainably high standards. These challenges were rejected by the Supreme Court, which refused to block the rule while the case continues in lower courts. According to the American Petroleum Institute, the fee “hampers our ability to meet the growing energy needs of American families and businesses and fails to advance meaningful emissions reduction.” Fees incurred by the industry will be passed on to consumers, who will pay more for energy through this backdoor tax.
Many large oil and gas companies already meet or exceed methane-performance levels set by Congress under the Inflation Reduction Act, so they are unlikely to be assessed the new fee. Despite that, the Biden-Harris EPA estimates that the rule will result in cumulative emissions reductions of 1.2 million metric tons of methane (34 million metric tons of carbon dioxide equivalent) through 2035.
The incoming Trump administration will likely want to weaken or eliminate the fees as the regulation adds a burden on American families by increasing energy costs. An option for changing the methane fee regulation might be through the Congressional Review Act, which allows lawmakers to overturn a regulation or rule within 60 days of it being finalized. With the regulation repealed, the Trump administration would not be required to collect the fee. Congress could then work to repeal the law as the Inflation Reduction Act would still require specific fees and fines to be imposed on companies that emit methane above the threshold.
There may be other reasons, however, to limit methane releases. During the UN’s COP 28, more than 150 countries pledged to reduce methane pollution by at least 30% by the end of the decade. As such, the European Union, the world’s largest gas importer, established methane import standards. The Biden-Harris administration expects the United States to begin a program that would use satellite data and other tools to spot large leaks of methane and alert companies. Methane is not only emitted via operations of the oil and gas industry. It is also emitted from livestock and landfills, and a large portion occurs naturally in wetlands.
Conclusion
The Biden-Harris EPA finalized a rule that imposes a fee on oil and gas producers that exceed thresholds for venting or flaring methane rather than capturing the gas. Companies violating the new rule will start paying penalties next year based on methane emissions reported in the calendar year 2024. The tax will increase in 2026. The regulation can be overturned by the Congressional Review Act, but legislation would be required to overturn the requirement as the rule is part of the Democrat-passed Inflation Reduction Act. Oil and gas operators would prefer to sell their excess methane but are often hampered by other federal regulations that limit their ability to get the gas to market, such as pipeline availability.
