As climate change continues to pose a significant threat to our planet, reducing greenhouse gas (GHG) emissions has become a top priority for governments worldwide. The United States is no exception. The Inflation Reduction Act of 2022 (IRA) is a significant new piece of legislation that aims to reduce greenhouse gas emissions and promote clean energy development across various industry sectors.
Yet, one of the most significant provisions of the IRA is the Methane Emissions Reduction Program (MERP), designed to address and reduce methane emissions from the oil and gas industry through stricter regulation, financial incentives, and public-private partnerships.
In this article, we’ll look to answer the following questions regarding the IRA’s Methane Emissions Reduction Program:
- Why the focus on methane?
- What is the methane charge and how is it calculated?
- What challenges does MERP create for oil and gas producers?
- How can organizations prepare?
Why the Focus on Methane?
Most of us likely do not realize that methane has a greater warming effect on the planet than carbon dioxide. To address this greater effect, the MERP provides the U.S. Environmental Protection Agency (EPA) with the authority to impose a new surcharge on oil and gas producers for their methane waste emissions. The program aims to reduce national methane emissions by up to 45% by 2030, a significant step towards combating climate change.
What is the Methane Charge and How is it Calculated?
The U.S. EPA’s Greenhouse Gas Reporting Program (GHGRP) requires approx. 8,000 fuel and industrial gas suppliers and other large emissions sources across the United States to report their greenhouse gas emissions data each year. The MERP’s Waste Emissions Charge (WEC) applies to oil and gas facilities that report more than 25,000 metric tons of CO2 equivalent per year through the GHGRP, and where these facilities exceed specific waste emissions thresholds.
Starting in 2024, the charge will be $900/ton of methane emitted above the threshold, increasing to $1,200/ton in 2025 and then to $1,500/ton in 2026 and beyond. This fee will be adjusted for inflation annually. The revenue generated from the Waste Emissions Charge will go toward providing financial and technical assistance for emissions reduction projects across the oil and gas sector.
Facilities that emit methane emissions below thresholds will not be subject to the charge, and facilities that implement demonstrable methane reduction measures can avoid or reduce the charge entirely.
Company X currently emits 3-4 times the amount of methane allowed under the MERP, which could result in substantial penalties:
- In 2024, a charge of $900 per metric ton of methane emitted over the threshold, potentially totaling $27 million.
- In 2025, a fine of $1,200 per metric ton of methane emitted over the threshold, potentially reaching $36 million.
- In 2026 and beyond, a fine of $1,500 per metric ton of methane emitted over the threshold, possibly amounting to $45 million.
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What Challenges Does MERP Create for Oil & Gas Producers?
The MERP will create significant challenges for oil and gas producers in the years ahead, including:
- Maintaining compliance with MERP reporting requirements: Impacted organizations must follow specific reporting requirements under the MERP, accurately report methane emissions, and adhere to reporting deadlines. Failure to comply can result in financial penalties and other enforcement actions.
- Financial burden of the Waste Emissions Charge: The Waste Emissions Charge fees increase annually, and organizations that fail to reduce methane emissions will face higher operating costs.
- Navigating multiple regulations: Compliance with the MERP does not replace or supersede other existing state or federal regulations related to methane emissions. Maintaining compliance with multiple regulations can be complex, and require significant resources to do it right.
- Data management challenges: Operators will need to collect, manage and report large amounts of emissions data accurately, which may require investment in robust data management systems and processes that can efficiently handle tens of thousands of data points. As U.S. EPA inspectors may also audit reporting submissions, operators need to be able to present auditable data to demonstrate how emissions were calculated and reported.
How Can Organizations Prepare?
To meet the impending reporting requirements, and prepare for potential audits, organizations should have an up-to-date and comprehensive GHG monitoring plan that i) outlines the source data they are using for their methane emissions calculations, ii) covers the accuracy and calibration requirements of their measurement systems, and iii) documents the calculation methods, emission factors, and any assumptions used to develop reports. These plans should be controlled documents that are reviewed periodically, and any updates or changes should be documented through a revision log.
It’s also a good idea for organizations to consider additional investment in robust data management systems and processes to ensure that they can accurately report their methane emissions and avoid any associated penalties for inaccurate reporting. Since the methane charge provisions in the IRA are amendments to the Clean Air Act, organizations found in violation of reporting requirements could face civil penalties of $100,000 per day per charge, and up to $500,000 per offense for criminal penalties.
Air emissions management software can play a crucial role in helping oil and gas organizations accurately track and report their methane emissions, identify areas for improvement in methane reduction efforts, and monitor their progress in reducing methane emissions – and related waste emissions charges – over time. One of the primary challenges in tracking progress toward reducing methane emissions is selecting a base year to measure future reductions against when setting goals and targets. Software can help compute base year emissions and use that data for comparison against multiple subsequent years of data.
Additionally, as enterprise air emissions management software can help firms evaluate multiple reduction strategies, these companies can more easily identify the most impactful strategies and track their progress in real-time. Software enables organizations to forecast financial liabilities under the MERP and make informed decisions regarding asset utilization, gas control measures, gas purchasing/sales contracts, or budgeting across business units or individual facilities.
With the implementation of the MERP, the financial stakes have never been higher for oil and gas companies. To weather the storm, and avoid potentially disruptive financial penalties, they will need to manage their compliance risks more proactively. Air emissions management software can help ensure the efficient collection and quality control of source data, support meaningful data analysis to better understand risks and opportunities, and accurately summarize methane emissions by facility, gathering system, or across the entire organization to meet reporting obligations.
Cority’s Air Emissions Management solution helps you manage diverse requirements with consistency, ease, and accuracy – enabling you to reduce errors and consistently respond to potential deviations. We’ve simplified air compliance with a user-friendly interface that increases visibility into potential problems and company-wide trends, centralizes data, and decreases time-consuming manual work for data entry and reporting.
Environmental Protection Agency. (2021, April 23). Methane Emissions Reduction Program (MERP) Overview. https://www.epa.gov/methane/methane-emissions-reduction-program-merp-overview
The National Law Review. (2021, April 23). EPA Proposes First-Ever Methane Emissions Reduction Program for the Oil and Gas Industry. https://www.natlawreview.com/article/epa-proposes-first-ever-methane-emissions-reduction-program-oil-and-gas-industry
Environmental Defense Fund. (2021, April 23). EPA’s Methane Emissions Reduction Program. https://www.edf.org/climate/epas-methane-emissions-reduction-program
United States Congress. (2022). H.R. 3999 – Inflation Reduction Act of 2022. Retrieved from https://www.congress.gov/bill/117th-congress/house-bill/3999
U.S. Environmental Protection Agency. (2022). EPA Issues Historic New Rules to Cut Methane Emissions, Combat Climate Change. Retrieved from https://www.epa.gov/newsreleases/epa-issues-historic-new-rules-cut-methane-emissions-combat-climate-change
Environmental Defense Fund. (2022). How the Methane Reduction Program Works. Retrieved from https://www.edf.org/climate/how-methane-reduction-program-works
U.S. Environmental Protection Agency. (2022). Methane Emissions Reduction Program (MERP) Overview. Retrieved from https://www.epa.gov/methane/methane-emissions-reduction-program-merp-overview