High Stakes: Taxing Methane

The House passed a $1 trillion infrastructure bill Nov. 5: It includes renewed Superfund excise taxes on petrochemicals along with infrastructure funding. Passage sent the bill to the White House, where President Biden said he would sign it.

Next in line is the budget bill for social spending and climate change policy, expected to raise taxes on methane emissions and increase royalties and fees for oil and gas from federal lands.

Infrastructure

The infrastructure bill includes taxes on all production and imports of many chemicals, including 10 of the most common petrochemicals: methane, butane, benzene, toluene, xylene, ethylene, propylene, butadiene, butylene, and acetylene.

The rates would be $9.74/ton for all except methane, whose rate would be $6.88/ton. The $9.74 rate is double the previous Superfund rates.

The American Chemistry Council issued a statement lamenting revival of the excise taxes, citing negative economic effects due to the wide variety of chemicals, critical minerals, and metallic elements used in manufacturing.

Budget

The price tag for the pending budget bill is roughly estimated at $1.75 trillion, but the actual cost could be far higher. The full content of the bill has not been released; some provisions were publicized, and they will profoundly change the oil and gas industry.

The bill will reform royalties and fees for oil and gas from federal lands, according to the House Budget Committee. The House Natural Resources Committee  specified a minimum of 20% federal royalties, up from the current 12.5%, and added other fee increases and new fees on oil and gas from public lands (OGJ Online, Sept. 10, 2021).

The bill will block further oil and gas drilling in the Arctic National Wildlife Refuge and in the Pacific, Atlantic, and eastern Gulf of Mexico waters.

The planned methane emissions tax, when last made public, was pegged at $1,500 per ton (on emissions exceeding two-tenths of 1% of gas sent for sale) to cover the “social cost of methane,” meaning health hazards and other environmental costs of methane emissions.

That “natural gas tax” will increase energy bills for families by at least 12%, according to the American Gas Association.

The American Petroleum Institute (API) estimated as much as $9.1 billion in negative impacts on the US economy, including up to 90,000 jobs lost.

“The structure is all wrong,” said Frank Macchiarola, API senior vice-president of policy, economics, and regulatory affairs. He stated the best way to reduce methane emissions would be through the regulatory process, with direct regulation for both new and existing sources taking into account best methods and technologies.

Regulatory mandates based on climate and health concerns will reshape the oil and gas industry, pushing companies to take on the expenses and responsibilities of environmental stewardship. Investing today in reducing the environmental impact of unproductive assets is a good bet.

Although implementation is not yet fully clarified, oil and gas companies need to plan for environmentally sound procedures and processes to reduce their methane emissions. This can include investing in monitoring technology, modernizing equipment, boosting sustainability with renewable energy, and sealing methane-emitting wells with permanent solutions like BioSqueeze®.

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