Following EU Lead to Regulate Methane Emissions
By Amy Myers Jaffe and Hunter Kornfeind
This week, ExxonMobil estimated that methane leakage from its oil and gas oil field activities should fall by 30 percent by 2025 –contributing to a total decline of 12 percent company wide -- as it brings its overall carbon intensity targets for methane and flaring emissions down 40 to 50 percent. That target is unacceptably modest, even compared to its peer oil companies. But ExxonMobil’s lack of climate ambition is symptomatic of a larger problem. The United States and Europe will need to align methane policies.
The Trump Administration removed restrictions on methane leaking and venting, and in doing so, did industry a disservice. Not only was the lifting of environmental regulations completely ineffective in preventing American oil companies from losing money, it has left them ill-prepared for pressing climate standards soon to come in global trade.
The problem of U.S. lax rules when it comes to methane leakage has already lost U.S. industry business. In November 2020, France-based utility ENGIE S.A. declined to move forward with a $7 billion deal to import liquified natural gas (LNG) from U.S.-based NextDecade Corp., citing concerns about methane emissions from U.S. natural gas. The deal’s collapse reportedly followed pressure from the French government over methane emissions from West Texas oil and gas fields, where NextDecade Corp. is expected to source natural gas for its Rio Grande LNG export facility in Brownsville, Texas.
The French move came in the aftermath of the adoption of the European Union’s “Methane Strategy,” aimed to come into effect by September 2023, that sets outs out measures to “cut methane emissions in Europe and internationally…” by “utilizing legislative and non-legislative measures in energy, agriculture, and waste sectors.” The strategy will include the improvement of measurement and reporting of methane emissions, utilization of satellites to detect “super-emitters,” and creation of an international methane emissions observatory with the United Nations (U.N.). Additionally, the EU’s Strategy incorporates potential future legislation on venting, flaring, and standards covering the full supply chain, including “external” carbon or methane emissions associated with EU fossil natural gas consumption, e.g. U.S. and other imports of liquefied natural gas (LNG) and pipe gas from Russia.
Privately, EU officials are saying that they will use their satellite capabilities as the basis of measurement, in cases where reporting and verification are not adequate, and EU diplomats are engaging now in the diplomatic work that is needed to be ready for their 2023 launch and are seeking coordination with the United States and Canada, alongside the United Nations. Among the asks for the future might be an overall ban on venting as well as a ban on routine flaring, which would be a problem for U.S. oil companies that routinely practice both. Colorado has already implemented new standards that prohibit oil companies operating in the state from venting or flaring except to manage emergencies.
The EU intends to put teeth behind its plans to monitor emissions of oil and gas production destined for its supply chain. It is already asking for early consultation with the Biden Administration on its plans for a carbon border adjustment levy. Europe will need a methodology for such a mechanism and that, of course, starts first and foremost with harmonizing reporting transparency.
The Biden administration will weigh carefully how to proceed. It has prioritized reestablishing limits on methane leakage. President Biden reiterated the importance of reducing emissions on his first day in office, signing an Executive Order on “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.” The Executive Order calls for the U.S. Environmental Protection Agency to reconsider the “Oil and Natural Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources Reconsideration” rule, which under the prior administration relaxed methane emission limits for oil and gas. Additionally, the Executive Order directed the EPA to propose “…new regulations to establish comprehensive standards of performance and emissions guidelines for methane…” by September 2021.
According to the International Energy Agency’s (IEA) “Methane Tracker 2021,” methane emission estimates for U.S. oil and gas sector reached about 11,790 kilotons (11.8 MtCH4) , or 16.4 percent of global methane emissions, in 2020. About 65 percent of the U.S.’ methane emissions from the oil and gas sector originated from unconventional oil and gas production with venting – the direct release of methane to the atmosphere – representing nearly three-quarters of unconventional oil and gas production emissions. IEA estimates U.S. methane intensity from oil and gas production averaged 8.0 tons of methane per kiloton of oil equivalent (tCH4/ktoe) in 2020, significantly higher than Canada (5.0tCH4/ktoe) and Saudi Arabia (3.0tCH4/ktoe) but below Russia’s methane intensity of 13.1tCH4/ktoe.
At present, diplomatic attention appears focused on new coal buildouts inside China and beyond when it comes to thinking about the next phase of global climate politics. But discussions will come around to the oil sector soon enough. When it does, American oil companies might be advised to take the European Methane Strategy seriously as net zero climate targets are likely to gain more momentum as Glasgow approaches. Europe’s border adjustments could tag other important U.S. oil and gas importers whose manufactured products wind up in the Eurozone, incentivizing other countries to similarly avoid high carbon intensive U.S. oil and gas imports that would raise the carbon footprint of their own exportable goods to the EU. Japan and South Korea, two of the largest long-term customers of U.S. LNG exports, may also consider more ambitious national commitments of their own, now that they have formally embraced 2050 net zero climate goals.
Amy Myers Jaffe is the Managing Director of the Climate Policy Lab and is a Research Professor at The Fletcher School, Tufts University
Hunter Kornfeind is the Chief Investment Officer for The William C. Dunkelberg Owl Fund and will graduate from Temple University in May 2021.