Rising natural-gas prices pose hurdle for methane tax


The tax would charge oil-and-gas producers for leaks of methane from wellheads, pipelines, storage tanks and other facilities. The Congressional Budget Office hasn’t weighed in the financial impact, but independent analysts have said it would cost producers between $1 billion and $10 billion annually.

Methane is a potent greenhouse gas that contributes to global warming. Proponents say the tax would provide incentives for the oil-and-gas industry to plug leaks and capture excess gas that would otherwise be wasted.

Industry groups including the powerful American Petroleum Institute are opposing it, saying the tax is unnecessary given that the Environmental Protection Agency recently proposed new rules to curb methane leaks.

Residential natural-gas prices for August, the most recent available, were up nearly 15% from the same month of 2020, according to the Energy Information Administration. It has forecast that the average U.S. household that relies on natural gas for heating will pay 30% more for the fuel this year.

“The White House’s plan is a recipe for disaster,” said Sen. John Barrasso (R., Wyo.) in a statement. “It will result in skyrocketing power bills, less reliable energy, and fewer jobs for the American people.”

Some gas industry trade groups initially said the levy could raise natural-gas bills by 17%, but they haven’t updated that estimate since lawmakers agreed in September to lower the tax. The nonprofit research group Resources for the Future said the tax would result in a 1% increase in household bills.

Kevin Book, an analyst for ClearView Energy Partners LLC, said there is no reliable way to estimate the costs for consumers because of the number of variables involved.

“It’s certainly a sign of political tone deafness,” Mr. Book said. “And whether or not it’s economically risky, any increase is going to be perceived as a strike against voters, and that would be a weird thing to do politically before closely contested midterms.”

Republicans are solidly opposed to the tax, which Mr. Book estimated would cost the industry roughly $10 billion annually once the fee is fully phased in, and they are finding allies among some Democrats from oil-patch states.

“This tax will hurt U.S. competitiveness and increase the wholesale cost of natural gas and encourage industries to shift to high-polluting sources to save money,” wrote Reps. Vicente Gonzalez, Henry Cuellar and Filemon Vela, all Democrats from Texas, in a recent letter to House Speaker Nancy Pelosi.

The House and Senate are scheduled to take up the $2 trillion social and climate spending bill when they return to D.C. this week.

Sen. Joe Manchin (D., W.Va.), whose vote will be essential to Democrats in a 50-50 Senate given unanimous Republican opposition, hasn’t said that he would support the package if the methane provision is included.

But when new government figures showed the inflation rate hit a three-decade high last week, Mr. Manchin posted on Twitter that “the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse.” He said that “DC can no longer ignore the economic pain Americans feel every day.”

Rising energy prices have doomed prior attempts to cut greenhouse gases. In 2008, as gasoline prices hovered around $4 a gallon, a record at the time, several Senate Democrats joined Republicans to block climate legislation. Mr. Biden, who was a senator but would soon be picked as a vice-presidential nominee, didn’t cast a vote.

Sen. Tina Smith (D., Minn.) called the methane tax an “inexpensive and very effective way to address emissions” in an emailed statement.

“It’s important to remember at this moment that temporary swings in fuel prices shouldn’t distract us from the long-term transition to clean energy,” said Ms. Smith, who sent a letter with 10 Democratic colleagues to Mr. Biden last week asking him to take steps to ease energy prices.

Robbie Orvis, a senior director of energy policy design at San Francisco-based research group Energy Innovation, estimated that the methane fee would account for roughly 8% of Mr. Biden’s goal of slashing U.S. greenhouse-gas emissions in half by the end of the decade.

To help win Mr. Manchin’s support, Democrats included $775 million of grants and other subsidies for the oil-and-gas industry to track and reduce methane emissions starting in 2022.

They also agreed to lower the tax to start at $900 a ton in 2023, rising to $1,500 a ton in 2025. Originally the tax would have started at $1,500 a ton.

“We have a good compromise,” said Senate Environment and Public Works Committee Chairman Tom Carper (D., Del.), who developed the subsidies with input from Mr. Manchin. “Those oil and gas folks who are emitting methane, it incentivizes them to end that practice, and to say we’re not just going to penalize you.”

Mr. Manchin declined to say that he would support the compromise and has complained about the cost of Democrats’ proposals.

Activists from the Sunrise Movement, which focuses on environmental issues, surrounded Mr. Manchin earlier this month as he left his houseboat in Washington, D.C., chanting “we want to live” as they pressured him not to derail the climate and social policy bill.

The oil-and-gas industry is the source of about one-third of the U.S.’s industrial methane emissions, which escape from wells, drilling equipment and thousands of miles of pipelines that transport it to major customers such as chemical plants.

U.S. officials would calculate the annual tax owed by oil-and-gas companies based on the methane emissions they report each year by law. It is designed to exclude smaller emitters, only applying to companies whose emissions exceed thresholds set at different levels for producers, processors, pipeline operators and storage facilities.

This story has been published from a wire agency feed without modifications to the text



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