Federal Government Imposes First-of-Its-Kind Fee on Greenhouse Gas Emissions

Hidden deep within the over 700 pages of the recently passed Inflation Reduction Act (IRA) is a brand-new provision intended to give the Environmental Protection Agency (EPA) power to cut greenhouse gas (GHG) emissions.

Specifically, the IRA establishes the “Methane Emission Reduction Program” under a new section in the Clean Air Act, allowing the EPA to impose a fee on certain “climate pollutions.”

Importantly, this is the first time the federal government has ever imposed a fee on any GHG emission and is part of Congress’ effort to bolster the EPA’s power to address the “climate crisis.”

Congress Sends a Message

In June, the U.S. Supreme Court ruled in West Virginia v. Environmental Protection Agency that the EPA didn’t have the authority under the Clean Air Act or the Clean Power Plan to essentially force power plants to transition more towards wind and solar.

Moreover, SCOTUS determined that the interpretive question raised under the Clean Power Plan fell under the “major questions doctrine,” which states that Congress must make a “clear statement” if it wants to delegate authority “of this breadth to regulate a fundamental sector of the economy.”

Notably, the ruling expressly limited the EPA’s ability to regulate carbon emissions from power plants, which President Joe Biden called “devastating.”

Biden further added that he planned to “find ways that we can, under federal law, continue protecting Americans from harmful pollution, including pollution that causes climate change.”

Enter the IRA and Congress’ “clear statement” on what it wants the EPA to do.

Indeed, the Environmental Defense Fund (EDF) said Congress’ passing of the IRA “modernized” the Clean Air Act and established the EPA’s authority “to protect American families from climate and air pollution.”

Additionally, via the IRA, Congress reaffirmed that GHGs are “air pollutants” and further specified that the term “greenhouse gas” includes the air pollutants “carbon dioxide, hydrofluorocarbons, methane, nitrous oxide, perfluorocarbons, and sulfur hexafluoride.”

“These new Clean Air Act sections and the new provisions that rely on the Clean Air Act reinvigorate EPA’s responsibilities under the law addressing the climate crisis and long-standing inequities with new tools, new solutions, unprecedented investments, additional policies, and with great urgency,” EDF concludes.

Incentives and Penalties

The IRA includes several tax credits, incentives, and grants, totaling $369 billion for “Energy Security and Climate Change investments.”

And the above investments include over $1.5 billion to the EPA for “grants, rebates, contracts, loans” and “other activities” to reduce GHG emissions in the natural gas and oil sector.

But incentives aren’t the only tool the IRA utilizes regarding the oil and gas sector.

According to a report from the Congressional Research Service (CRS), the Methane Emissions Reduction Program applies to specific types of facilities that report their GHG emissions to the EPA’s Greenhouse Gas Emission Reporting Program.

Specifically, the facilities that the charge applies to include:

“Offshore and onshore petroleum and natural gas production, onshore natural gas processing and transmission compression, underground natural gas storage, liquified natural gas storage, liquified natural gas imports and exports, onshore petroleum and natural gas gathering and boosting, and finally, onshore natural gas transmission pipelines.”

In other words, the EPA now has the authority to impose charges on oil and gas power plants, fulfilling SCOTUS’ above requirement.

More importantly, facilities that fall under one or more of the above categories, and exceed a specific methane threshold (thresholds vary by facility type), will have to pay $900 per metric ton of methane starting in 2024.

In 2025, the charge increases to $1,200, and in 2026 and beyond, the cost is $1,500.

The Congressional Budget Office estimates, based on 2019 data, that the new fees will raise $1.1 billion in fiscal year 2026, and almost $1.9 billion by FY2028. CBO projects revenues will decrease after that as facilities implement methane reduction strategies.

EPA Powers Up

Methane is the primary component of natural gas, and the EPA reports that methane emissions accounted for 11 percent of total U.S. GHG emissions in 2020. Carbon Dioxide (CO2) accounted for 79 percent.

However, methane is considered more “potent” than CO2, with some experts putting its “climate change impact” at 25 to 72 times greater than the equivalent mass of CO2. Consequently, reducing methane emissions is “one of the best opportunities for reducing near term [global] warming,” CRS reports.

Further, Biden made it clear that by 2030, he wants GHG emissions reduced by 40 percent compared to 2005 levels. And reduction levels of that amount require significant transformation.

The IRA’s passage and its implementation of a methane charge put Biden’s goals within reach.

Indeed, the Department of Energy reports that thanks to the IRA, the United States will not only meet the 40 percent reduction goal but exceed it as it now projects GHG emissions at 50-52 percent below 2005 levels.

Interestingly, according to the EPA, the primary source for methane emissions isn’t natural gas or oil—it’s livestock.