Carbon Credits: A New Vehicle to Fund P&A?


Jul 25, 2023

Methodology and Qualification

Carbon credits, also called offsets, allow individuals or companies to meet emissions reduction targets or offset their carbon footprint through the purchase of verified carbon reduction efforts.

The American Carbon Registry (ACR) is responsible for setting methods and regulatory standards for earning the approved carbon credits. Each credit represents removal of one metric ton of atmospheric CO2.

These companies use two methods for calculating the carbon credit amount:

  • Marginal wells – active, small amounts of production. Credits is based on potential emissions of product estimated to be still in the ground that will no longer be brought to the surface.
  • Orphan wells – inactive, lacking legal/solvent owners. Credits are calculated based on estimated emissions that will be prevented by plugging.

Under ACR methodology, several major conditions must be met to earn carbon credits from well plugging:

Eligibility of the Well – unplugged wells, established before 1950’s plug and abandonment regulations or wells established after 1950 with six consecutive months of zero production.

Additionality – creation of a new methane reduction, the plugging would not be carried out without the carbon credit, and there is no legal requirement that plugging and abandonment be performed.

Crediting Period – plugging projects are approved with a carbon emissions registry to earn credit (offsets) to be sold in carbon credit markets. For inactive wells, credits are calculated by multiplying predicted methane reductions by years in a crediting period (typically 5 years, renewable based on additionality)

Methane Emissions Monitoring – measurement of methane release is required to establish the expected saved emissions over the crediting period. After plugging, additional measurements are made to confirm successful reduction of methane. Once the well status is officially “plugged,” the carbon credits are issued and can then be sold.

Some states have well categories that affect carbon credit eligibility (for example, Louisiana wells can be classified as ”inactive“ indefinitely, meeting the additionality requirement).

There may be nearly 600,000 marginal wells in the U.S. – over 80 percent of producing wells, yielding about 6 percent of U.S oil and gas production, U.S. Energy information Agency data show.

Cost Analysis

Currently the costs of plugging are typically far greater than the value of carbon credits earned – the market value of carbon credits fluctuates based on location and industry. Plugging costs typically are between $20,000 and $150,000 per well (averaging $75,000) but costs depend on location, age, depth, and other factors.

Future regulations and GHG reduction imperatives may boost carbon credits price to offset plugging costs so companies are incentivized to plug sooner rather than later.

According to the U.S. Department of the Interior’s Bureau of Land Management, there are about 120,000 documented orphan wells in the U.S. The U.S. Department of Energy estimates there are between 210,000 and 746,000 undocumented orphan wells. Fewer than half of all disused U.S wells in the US are effectively sealed, the EPA estimates.


In the meantime, efforts to measure and mitigate methane emissions at the wellhead continue to march forward with better data and new technology rapidly changing the landscape of P&A and interventions. BioSqueeze utilizes natural biomineralization technology to permanently eliminate methane leaks at the wellhead previously inexorable with traditional sealants.