Methane Fee In Build Back Better Act Would Add $250 Billion To U.S. GDP, Cut Dangerous Climate Pollution

Senator Joe Manchin’s opposition to the Build Back Better Act’s Clean Electricity Performance Program has garnered headlines in the federal reconciliation debate, but another major climate rule is at stake with powerful opponents – a methane fee on emissions from oil and natural gas systems.

New modeling finds the Build Back Better Act’s fee on methane emissions from petroleum and natural gas systems is a critical component of the legislation’s overall climate impact, responsible for 65 percent of the Act’s reduction of industrial greenhouse gas (GHG) emissions through 2050. Investments in new equipment to capture leaks and revenue raised from a fee would also spur sustainable economic growth for decades, adding $250 billion to U.S. GDP and creating more than 70,000 jobs by 2050.

The methane fee is a straightforward policy with minor costs and major benefits for the U.S. economy, workers, and the climate. It could also provide meaningful improvements in air quality and help correct long-standing injustices for communities located near oil and gas sites.

Capping methane emissions does double duty to slow climate change, protect communities

Methane, which has a global warming impact 28 times greater than carbon dioxide, can leak into the atmosphere during oil and gas production, transmission, distribution, and during consumption, making up a significant share of U.S. emissions. But unlike carbon, which can persist in the atmosphere for centuries, methane lasts for only about 10 years, meaning steep methane reductions now create near-term opportunities to prevent warming. That’s why the United States and European Union, along with two dozen other countries, recently pledged to cut methane emissions 30% by 2030.

Methane leaks have also been shown to damage human health. Although short-term exposure to small amounts of methane is not toxic, methane emissions do contribute to ground-level ozone pollution (the main ingredient in smog), which can cause asthma and premature death. In addition, methane leaks often contain other toxic pollutants, carcinogens, and poisonous gases like toluene, benzene, and hydrogen sulfide. Black Americans are 75% more likely to live near oil and gas sites, meaning Black communities bear the disproportionate burden of the health damages associated with these leaks.

To make real progress in reducing these planet-heating emissions, while also cutting toxic pollution, a powerful provision in the Build Back Better Act (H.R. 5376) would put a fee on methane emitted from petroleum and natural gas systems. This proposal would cover the entire supply chain, including production, natural gas processing, transmission, compression, import/export operations, and storage.

The fee of $60 per ton of carbon dioxide equivalent (C0₂e) leaked in excess of specified thresholds would take effect in 2023, with the revenues raised used to administer the program, provide technical and financial assistance to companies for monitoring and reducing emissions, and—key for environmental justice—support communities impacted by pollution from oil and gas systems.

This fee would complement a U.S. Environmental Protection Agency rule limiting methane emissions from new and existing sources in the oil and gas industry, expected to be proposed shortly. Along with any fees on emissions, we must also have enforceable standards to ensure broad and equitable reductions across all communities.

But a fee on methane would reinforce these efforts by boosting the incentive for companies to reduce emissions and requiring companies to internalize the cost of the pollution they emit. In other words, a methane fee does double duty – raising revenues and discouraging pollution – while holding industry accountable.

Preventing methane leaks is simple and straightforward and many of these practices are already in use by industry, such as such as properly casing and sealing wells, monitoring for methane leaks, and improving pipeline and equipment maintenance. These steps do not require new technology development and in fact would cost the industry less than 1% of their projected revenue.

Modeling Build Back Better’s methane fee confirms opportunity for major emissions cuts

The methane fee was modeled by Energy Innovation’s Jeffrey Rissman using the U.S. Energy Policy Simulator, in a version customized to more accurately represent the complete set of measures in the Build Back Better and Infrastructure Investment and Jobs (H.R. 3684) Acts. The methane fee was tested in the context of a comprehensive set of policies representing other provisions in the Build Back Better Act to capture policy interactions.

The modeling found the methane fee would cut industrial GHG emissions by 172 MMT CO₂e per year, equivalent to 11% of today’s U.S. industry sector emissions, or the annual emissions from more than 36 million gasoline-powered passenger vehicles. Importantly, the modeling shows the fee of $60/ton of CO₂e would be sufficient to cut all the methane leakage in the industry. These reductions would account for 65% of the Build Back Better Act’s total industrial GHG emissions reductions, demonstrating how one simple policy can deliver outsized results for the climate.

A small fee on methane pollution spurs huge economic growth

A small fee on methane pollution would also generate huge economic activity by spurring the oil and gas industry to spend more on workers and equipment to prevent methane leaks. The revenue raised would further stimulate the economy, with investments in pollution-burdened communities. Our modeling finds the fee would add a cumulative $250 billion to the U.S. economy, representing 15% of the Build Back Better Act’s total GDP contribution through 2050. By 2050, the methane fee will contribute more than $10 billion per year to the U.S. economy, roughly a third of the Act’s GDP impact in that year.

Monitoring and preventing leaks would require the industry to hire new workers, while the revenue spending would stimulate additional job creation, with a total of more than 65,000 jobs created by 2028. Cumulatively from 2023 to 2050, the methane fee accounts for 17% of the roughly 11 million job-years created by the Build Back Better Act. While some of the Act’s programs (and associated jobs) do not last beyond 2045, jobs from the methane fee are enduring, meaning in 2050 the methane fee is responsible for one third of the jobs created by the Act.

A simple policy with outsized benefits for climate and the economy

Achieving climate stability requires quickly curbing methane emissions, and a fee on emissions from the oil and gas industry is a simple policy that will result in major benefits for the climate and the economy. It is a low-cost climate solution, easily implementable by the industry with already existing technology. These new investments and the revenue raised would put tens of thousands of people to work, while helping clean up the air in communities that have borne the brunt of pollution from oil and gas sites.

As Congress finalizes the climate provisions in the Build Back Better Act, it is imperative they adopt a set of policies that will achieve our climate goals, and the research confirms a fee on methane is one policy that delivers outsized results.