Though the US is one of just 2 developed economies that do not have a carbon price, it is the only country with a methane fee. Though not technically a carbon price, it is a greenhouse gas price, and thus a close cousin. The US methane fee was passed as part of the Inflation Reduction Act of 2022; the massive bill passed exclusively by Democrats as part of a parliamentary process called “budget reconciliation”.
The methane fee contained therein has a novel structure. Since the US EPA is working on regulations for methane emissions that are expected to be finalized in the next year or two, this methane fee is designed to work together with those anticipated regulations. The fee would only apply to facilities that emit over 25,000 metric tons of carbon dioxide equivalent per year and exceed applicable waste emissions thresholds. It would not apply to wells permanently plugged in the previous year nor to emissions caused by an unreasonable delay in environmental permitting of transmission pipelines. The program further provides $1.55 billion for the EPA to fund and provide technical assistance for methane abatement in the oil and gas sector.
In effect, the fee would only be charged on emissions above what would be expected for operations fully in compliance with the regulation. The methane fee ultimately may be waived for a facility if (1) EPA adopts its proposed rule for Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review, 86 Fed. Reg. 63110 (Nov. 15, 2021), or other regulations that will result in equivalent or greater emissions reductions, and (2) such regulations are then adopted in the implementation plans of the states where those facilities sit. If EPA’s regulations and the applicable state implementation plans are not in effect by January 1, 2024, the source category facilities in those states will be subject to the methane fee.
The fees for these emissions will begin at $900 per metric ton of methane emitted in 2024 and will increase to $1,200 in 2025, and $1,500 in 2026. A Congressional Research Service report estimates that 2,172 facilities will be subject to the methane fee.
Here are links to a summary of bills submitted in the last Congress (the 117th) from our partners at CCL, and at C2ES. The CCL paper is more high-level, and the C2ES work is more technical. For an older, but more interactive experience, you might check out the Carbon Pricing Calculator created by Resources for the Future. It reports 10 different metrics such as GDP impact, emissions reductions, etc. for carbon pricing bills actually submitted in the 116th Congress. In addition, you can design your own carbon price, and see how it stacks up against the policies actually submitted by legislators. As carbon pricing bills are introduced in the 118th Congress, we will post their summaries here.