Why Republicans want to kill the compromise methane fee

By Nico Portuondo | 03/03/2023 06:21 AM EST

Moderate Democrats say they attempted to craft a producer-friendly methane fee in the Inflation Reduction Act. That’s not stopping fossil fuel-backed Republicans from trying to get rid of it.

Rep. August Pfluger (R-Texas).

Rep. August Pfluger (R-Texas) is sponsoring legislation to undo the Inflation Reduction Act's methane fee. Ken Cedeno/AP Photo

Democrats imposed the first-ever federal charge last year on a greenhouse gas, viewing it as an unprecedented compromise that would please environmentalists and fossil fuel interests alike.

But now that Inflation Reduction Act program to reduce methane emissions is facing outright repeal from fossil fuel-backed Republicans.

The effort is being led by Rep. August Pfluger (R-Texas), a staunch oil and gas supporter who represents producers in the Permian Basin.


His “Natural Gas Tax Repeal Act,” H.R. 1141, would strip out a fee included in the Inflation Reduction Act that will eventually charge up to $1,500 per ton on methane emissions from oil and gas producers, pipeline operators, and others. The bill has 36 co-sponsors — all Republicans.

Pfluger’s bill is likely to be part of a House Republican energy package designed to boost domestic production and ease regulatory hurdles. It’s scheduled for consideration later this month (E&E Daily, March 1).

Republicans and industry leaders say the methane fee program, as currently constituted, is unworkable and potentially unconstitutional.

Democrats, meanwhile, argue that the fee, which is paired with a grant program to help implementation, is friendly to industry concerns.

Democrats were eager to impose the fee. Methane is a potent greenhouse gas that makes up 11 percent of all U.S. emissions, according to EPA. About one-third of all methane comes from oil and gas production, and industry and environmentalists alike say they want to limit methane emissions as much as possible.

While some Democrats might not be surprised at Republican efforts to repeal parts of a bill they didn’t vote for, they are nevertheless confused that some in the industry have come out in strong support of Pfluger’s effort.

“I think [Pfluger’s bill] undoes the important work that we did on this committee just last year in trying to address the impacts of methane, and deal with that in a way that’s reasonable for industry,” said Rep. Lizzie Fletcher (D-Texas) in a recent Energy and Commerce Committee hearing.

The American Petroleum Institute and the Independent Petroleum Association of America — two of the most important fossil fuel lobbying groups in the country — back Pfluger’s repeal effort.

And although those particular fossil fuel interests were against the methane fee since the Inflation Reduction Act was enacted, Democrats were still taken aback. That’s because Pfluger’s bill would also repeal a $1.55 billion grant package that Democrats see as a generous pot of money for producers to get a handle on their methane emissions and comply with the fee.

The disagreement could signal a rocky road for implementation, with some producers signaling they have little relationship with the enforcer, EPA, and that some producers don’t plan on taking the grant money. Those producers believe the entire methane program, as currently constructed, is a nonstarter.

“[The methane fee] is an inappropriate and unworkable methane emissions tax,” said IPAA President and CEO Jeff Eshelman at a February Energy and Commerce hearing. “This tax was included despite not ever being considered in a hearing, receiving expert testimony in favor or opposition, no economic analysis, and no consideration of efficacy.”

‘A problem that’s not there’

Flares burn off methane and other hydrocarbons at an oil and gas facility in Lenorah, Texas.
Flares burn off methane and other hydrocarbons at an oil and gas facility in Lenorah, Texas. | David Goldman/AP Photo

In general, the federal government, environmental groups and even industry have sought to reduce excess emissions of methane, the release of which also wastes natural gas. A recent report from the International Energy Agency indicated that global methane emissions rose to 135 million tons last year, nearly an all-time high.

And even though the methane fee is a direct charge on industry, Democrats and environmentalists believe the fossil fuel industry came out pretty well.

The $1.55 billion grant package was included in the Inflation Reduction Act to help develop methane-tracking technology and to ensure producers have some financial assistance to comply with the law and reduce their methane emissions.

Many Democrats and environmental groups believe the methane fee is a rare example of Congress finding a compromise with industry.

“We worked with the fossil fuel industry, [and] we have a very, very good piece of legislation,” said Senate Energy and Natural Resources Chair Joe Manchin (D-W.Va.). “[Republicans] are looking for a problem that’s not there.”

Several green groups say the fee does not go far enough to make industry pay. They also look unfavorably at the grant package. A researcher at Columbia University’s Center on Global Energy Policy found that the methane fee could miss roughly 60 percent of the industry’s emissions last year due to exemptions included in the law (Energywire, Aug. 11, 2022).

But some of the biggest oil and gas industry associations seem to completely disagree with Democratic assessments of the fee, saying that it will raise production costs and pass energy inflation along to consumers.

“Reducing methane emissions is a top priority for our industry and important to addressing the risks of climate change,” said Frank Macchiarola, senior vice president of policy for API at the time of the Inflation Reduction Act’s passage.

“Unfortunately,” he said, “the methane fee included in the reconciliation bill is flawed and ill-conceived policy and is counterproductive to achieving the objective of effectively reducing methane emissions.”

Industry divisions

That doesn’t sit well with Democratic negotiators. They say they consulted with fossil fuel interests and producers “large and small” to develop both the methane fee and grant package.

“We didn’t just say, well, we’re going to start fining you right now,” said Sen. Tom Carper (D-Del.). “We talked with any number of other folks in the industry, large and small, and with a number of our colleagues, Democrat and Republicans.”

Carper mentioned specific concessions to the industry to make the fee more workable other than the grant package.

He pointed to the gradual ramping-up of the fee over a few years until it takes full effect in 2026 and the exclusion of small producers to lessen the economic burden of those with less capital. Producers that emit less than 25,000 metric tons of carbon dioxide equivalent of greenhouse gases annually are exempt.

IPAA acknowledges that it “consulted with” relevant congressional offices but says that it wasn’t heavily involved with the actual crafting of the legislation.

“We certainly consulted with relevant congressional offices on the Inflation Reduction Act and our concerns,” said IPAA spokesperson Jennifer Pett Marsteller in an email. “[The organization] was opposed to the bill from the beginning so of course [we] did not take part in formal negotiations.”

Senators Tom Carper and Joe Manchin shaking hands in the U.S. Capitol.
(Left to right) Senate Environment and Public Works Chair Tom Carper (D-Del.) with Energy and Natural Resources Chair Joe Manchin (D-W.Va.) at the Capitol. | Francis Chung/POLITICO

That reflects a general sentiment from some in the fossil fuel industry and Republicans that the methane program wasn’t well thought out or discussed enough. Pfluger and IPAA have hammered points that there wasn’t a full hearing or economic analysis on the program during the hectic process by which the Inflation Reduction Act was passed.

“We didn’t have the opportunity to talk to producers,” said Pfluger at the subcommittee markup for his bill. “We didn’t have an option to have these hearings and actually go into the facts.”

A legislative aide for Fletcher, who was granted anonymity to speak candidly, said that the opinions from IPAA and API that the methane program wasn’t well discussed and will be ineffective represents only one argument in the fossil fuel industry.

Shell PLC, Occidental Petroleum Corp. and BP PLC have been more supportive, evident in statements released at the time of the Inflation Reduction Act’s passage.

Shell did not attack the fee and welcomed the funding in the Inflation Reduction Act, saying that it “presents an opportunity to industry and other companies, because it promotes extra investment in tools and solutions that will make it easier for them to meet their methane targets.”

Implementation questions

Even if some in the fossil fuel industry support the fee, API and IPAA aren’t exactly small players. IPAA, which has been perhaps most forceful in its pushback against the fee, says it comprises “83 percent of America’s oil production [and] 90 percent of its natural gas and natural gas liquids production” in its members companies.

Both API and IPAA argue that, instead of the fee, EPA should focus on implementing another set of methane rules scheduled to be finalized later this year. Those rules focus more on regulating production activities rather than a lump fee on emissions by having officers do things like inspect wells on a regular basis, find and fix leaks, and swap out pieces of equipment.

Although API has called the methane fee “duplicative” with the other rules in mind, Democrats and environmental groups say the two mechanisms were designed to go together.

“They were specifically designed to dovetail with each other and not to conflict,” said Jon Goldstein, director of regulatory and legislative affairs at the Environmental Defense Fund. “For instance, there’s provisions in the methane emissions reduction program that if you’re in compliance with the other rules, you don’t have to pay a fee.”

As EPA works to implement the fee, cracks are already showing.

“Under the Obama administration, the Clinton administration, certainly under Trump … we had a dialogue with the EPA,” Steven Pruett, board chair for IPAA, said during a recent House E&C hearing. “That is no longer the case; they will not return emails, phone calls.”

Pruett said EPA is not providing clear guidance on how to calculate the emission thresholds — including any potential calculations on converting volume to weight critical to the fee process— creating ambiguity and potential grounds for fines and audits by federal officials.

The relationship between IPAA’s member companies and EPA has gotten so bad that Pruett suggested shifting fee responsibilities to the Department of Energy, where producers have a better relationship with regulators. At the moment that is unlikely to occur, as the fee is implemented under the Clean Air Act where EPA has jurisdiction.

The Fletcher aide also said that some producers, frustrated with ambiguities and the potential impacts of the fee, are signaling that they will not take the EPA grant money.

In response, EPA said it was “proactively engaging with industry as we implement the Inflation Reduction Act.”

“We are eager to engage with all who have a stake in the success of these efforts,” said Shayla Powell, a spokesperson for EPA.”EPA’s engagement includes a request for information requesting public input to inform program design, stakeholder listening sessions, and a webpage with information on the implementation of the Inflation Reduction Act.”

Moderate Democrats have said they’re more than willing to work with industry to hash out those implementation problems.

“I would commit to work with [industry] to deal with some of the administrative issues around the taxing,” Rep. Scott Peters (D-Calif.) said during the subcommittee markup. “But I don’t think that getting rid of the program is the right thing.”

IPAA and API, however, continue to cast doubt on the program, while Democratic negotiators like Manchin and Carper insist the program is just sensible legislating.

Pfluger and fossil fuel interests have repeatedly said that EPA isn’t a “taxing agency” and has no experience doing so, as they view the fee as a direct tax on industry.

The lingering debate could signal a rocky relationship between regulators and producers going forward and even legal challenges down the road, well after Pfluger’s bill likely fizzes out this Congress.

“It’s really not even constitutional,” said Pruett. “I don’t think it’ll survive the courts, as presently contemplated, to implement the methane fee.”

This story also appears in Climatewire.