From blocking permits that enable carbon capture to leveling a methane tax on oil and natural gas producers, the U.S. Environmental Protection Agency continues to pursue counterproductive regulations that limit both domestic energy production and productive climate action.
Now, lawmakers from both sides of the aisle are taking aim at the EPA’s novel methane tax. Last year, without any standalone evaluation or economic analysis, the methane tax was signed into law by Congress as part of the Inflation Reduction Act’s Methane Emissions Reduction Program (MERP). The program tasks EPA – an agency unfamiliar with collecting tax revenue – with charging oil and gas producers, pipeline companies, and other emitters up to $1,500 per ton on methane emissions.
As a result of partisan negotiations around the Inflation Reduction Act, MERP also set aside $1.55 billion in grant funding for EPA to distribute to companies for methane mitigation efforts before the methane tax kicks in. That compromise didn’t diminish skepticism of the program, as E&E News reported:
“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.”
However, the tradeoff is even less appealing if the massive grant program to help finance companies’ emissions reductions efforts never actually materializes.
According to Sen. Joe Manchin (D-WV), that’s exactly what’s happening. Last week, Sen. Manchin sent a letter to EPA Administrator Michael Regan urging the agency to delay implementation of the methane tax. The letter points out that while the tax is set to begin in January 2024, EPA has yet to provide any MERP funds to companies to support their efforts to bring down methane emissions. Specifically, Sen. Manchin wrote:
“The Congressional intent behind this provision is crystal clear: the EPA was directed to provide financial support to energy companies to reduce methane emissions before any new fees would be assessed. Unfortunately, nearly 10 months later, not a single penny of funding has gone out the door.” (Emphasis added)
Sen. Manchin also recommended that EPA issue guidance promptly so that energy companies understand how and when to comply with MERP. At the top of Sen. Manchin’s list was the request for clear language affirming that smaller producers are exempt from the methane tax under MERP, as stated in the IRA:
“The statute clearly intends to exempt marginal wells and smaller producers from the fee. EPA must make it clearly understood that those entities not subject to the current Subpart W Greenhouse Gas Reporting Program are not subject to EPA fees under MERP.”
Republican leaders on the House Energy and Commerce Committee are paying close attention as well. Just days after Sen. Manchin sent his letter to the EPA, Reps. Cathy McMorris Rogers (R-WA) and Bill Johnson (R-OH) authored a letter to EPA Administrator Regan requesting information about the agency’s expansive and burdensome methane regulatory agenda:
“The EPA’s regulatory proposal for methane creates substantial legal and regulatory uncertainty, which discourages energy production and increases energy prices. The EPA is also planning to add to the regulatory burden with a new tax on methane emissions.”
The letter from Reps. McMorris Rogers and Johnson also points out that MERP, which would put EPA in the unprecedented position of collecting private tax dollars, would “dramatically expand EPA’s regulatory reach” and undercut rules meant to remove duplicative regulation. E&E News previously reported on Congressional leaders’ and the domestic energy industry’s concerns with EPA’s disjointed methane regulatory agenda:
“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.”
I previously characterized the methane tax under MERP as “inappropriate and unworkable,” both as it’s written and how it has been implemented, in my testimony at a February House Energy and Commerce Subcommittee hearing.
Bottom Line: Concerns about the EPA’s far-reaching regulatory agenda are catching the attention of Congressional leaders from both parties, who are now raising important questions about the legality and practical implementation of the EPA’s new methane tax.
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