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A methane fee could be a first and easier step towards a carbon tax - Rabe

September 10, 2021

While the United States has been slow to take action on a carbon tax, there may be another avenue that holds promise to curb the emission of an even more potent climate pollutant— a methane tax. In a new Milken Institute article, “Containing Methane Emissions,” Barry Rabe, the J. Ira and Nicki Harris Family Professor of Public Policy and Arthur F. Thurnau Professor, explores the feasibility of a federal methane fee in the United States and offers some international comparisons.

“Economists of every ideological stripe and from every continent have argued for decades that the best way to reduce climate risks is to tax carbon emissions,” Rabe writes. “But this begs a question that’s gotten relatively little exposure: if taxing carbon emissions makes sense, why not tax the far more potent methane emissions from oil and gas operations for the same reason?”

American politics have made it difficult for a carbon tax to come to fruition, while Canada and the European Union have created a hybrid of carbon taxes and cap-and-trade systems to regulate carbon emissions. Because of the political pushback to carbon taxes in the United States, Rabe argues that a methane fee is the “lowest hanging fruit on the climate policy tree.” 

Methane is a “short-lived” greenhouse gas, but one of the most significant. For its first 100 years in the atmosphere, one ton of methane causes more global warming than one ton of carbon dioxide. On top of this, it also can potentially form toxic chemicals that are cancer-causing and make ground-level ozone pollution worse. 

Further, while methane can be used as fuel, most fossil fuel companies ignore it for oil. Rabe argues this is where the government can target methane emissions. Since most companies consider methane a byproduct, they either burn it off, releasing carbon dioxide, or vent it into the atmosphere. Both practices are harmful to the environment. 

While multiple state legislatures have tried to move forward with methane fees, they all have faced too much pushback from the fossil fuel industry. But, the new Senate reconciliation package proposes a national methane fee — specifically, $1,800 per ton on methane released at production and along the supply chain. Along with a fee, the bill introduces a plan to measure methane releases rather than allowing companies to self-report their emissions, which usually results in underestimated emissions. Finally, companies that decrease methane emissions would be allowed to opt-out of the fee.

“This would … (put) the United States on a more credible path as a responsible producer of natural gas for as long as it continues to play a role as a global energy source,” Rabe writes. “Some portions of the revenue from such a methane fee could be used to deploy modern methane monitoring equipment. The balance could be returned to production states that would like to establish their own tax on this wasteful practice but are politically terrified to act unilaterally for fear of industry retribution.”

The bill would allow states to no longer fear the fossil fuel industries and create more revenue to allocate to the “inevitable transition to renewables.” Another benefit of the bill: a roadmap for carbon fees down the road. 

Rabe's article was originally published by the Milken Institute Review. Read it in its entirety here.