The politics of methane

A natural gas flare on an oil well pad burns as the sun sets outside Watford City, North Dakota

The United States is receiving global opprobrium for its record in an important environmental performance measure: methane emissions related to oil and gas production. The World Bank reports that America ranks fourth among producing peers in total releases. Only Russia, Iraq, and Iran produce more methane.

It is eminently possible that the U.S. will pass one or more of these rivals in the coming years as production continues to expand and surpass rivals. Vast fossil fuel deposits in the Bakken (North Dakota and Montana) and Permian Basins (Texas and New Mexico) are being aggressively pursued, and given comparatively high global prices, the focus is primarily on oil.

But these energy reservoirs also include vast amounts of gas, and methane is a central component. Gas currently draws a considerably lower price than oil, making its capture and use far less attractive. Industry is often reluctant to invest in technology to secure the gas and bring it to market when prices drop. This makes methane venting (direct release) or flaring (combustion conversion into carbon dioxide and other contaminants) convenient options.

This is not a new concern for oil-producing governments in the United States or around the world. Long before methane was recognized as a formidable greenhouse gas, it exacerbated air quality problems in many regions. Venting or flaring also constitute waste of a non-renewable natural resource, which could instead produce royalties for property owners and severance tax revenues for governments.

Norway recognized this concern nearly a half-century ago, taking decisive steps as it began to harvest its extraordinary North Sea oil reserves. It began by prohibiting most forms of flaring and requiring oil-production firms to submit detailed gas capture plans before drilling.

These steps led to major methane release reductions during the 1970s and 80s. But Norway went farther in 1991. Its steep carbon tax was explicitly applied to flaring linked to oil production without exceptions. This led to additional reductions and a well-documented methane capture rate routinely above 99.8 percent. Carbon tax rates on oil production increased again in 2014, as Norway continues to view lingering methane releases as sloppy practice that is unacceptable given technological advances. Such policies have not been a global secret. Organizations like the World Bank have studied them for decades and encouraged emerging oil-producing nations and states to follow suit. American states were well aware of these measures.

One such state was North Dakota, which, after careful study, modeled its sovereign-wealth fund after Norway rather than other models like Alaska and Alberta. Methane flaring emerged as a major political concern in the mid-1980s. Farmers and other land owners contended that their royalty rights on extracted energy were violated amid state reluctance to address industry waste.

Legislators patched together a 1985 compromise but it did not last long given intense industry opposition and North Dakota’s methane woes have endured. Amid sky-rocketing Bakken production, the state’s gas-capture rates have hovered around 80 percent this year, far below state guidelines that are routinely waived.

To its considerable credit, North Dakota is more forthcoming with its flaring data than most states. But, as best we know, Permian-based states give every indication of closing the gap with North Dakota, generating voluminous flaring waste alongside expanded oil production. And methane remains a nagging concern in many other production states that are not models of transparency and rigor.

Ironically, these developments follow an aggressive effort by many fossil fuel-producing states to thwart Obama Administration efforts to establish federal performance standards for methane. These efforts sought to build on the experience of a few states such as Colorado that have taken significant steps to drive down methane waste while maintaining production.

Many states contended that proposed federal regulations encroached upon an area where they had expertise and were fashioning cutting-edge strategies to address this problem. They have retained considerable latitude to demonstrate this leadership given the Trump Administration’s decision to sustain state preeminence.

But most state legislatures have remained silent on this issue in recent years, even as methane concerns intensify. North Dakota legislators revisited a proposal to extend state severance taxes to methane flaring earlier this year, the third such effort during this decade. They were crushed. Wyoming counterparts have repeatedly failed in efforts to remove generous severance tax exemptions for flaring common in production states. Regulatory reform bills tend to languish in state legislative committees.

A few governors and state regulatory agencies have begun to revisit regulatory approaches to this issue in recent months, most notably New Mexico as it anticipates major methane challenges. But there is little indication of states racing-to-the-top to define innovation and demonstrate American excellence.

This political inertia coincides with marked expansion of technologies offering more precise methane measurement and mitigation. Some production firms now contend that they are successfully reducing methane releases and do not oppose tougher standards. But even combining these developments with growing flaring spikes in key regions has largely failed to drive creative policy responses in most statehouses.

Ironically, there is an American state success story on gas measurement and capture. Helium is produced alongside oil and gas in some regions. Far more than a source of gas for balloons and blimps, helium plays a growing role in advanced medical technologies.

As helium prices spiked in past decades, some states paid close attention. During the past decade, three major production states concluded that helium warranted inclusion under established severance taxes. Broad bipartisan coalitions backed legislation that required accurate helium measurement and set steep rates at its extraction point.

This Norway-type approach has not yet been extended to methane gases in any American production state. The same applies to Russia, Iraq, and Iran

I am grateful to Claire Kaliban and Isabel Englehart for research assistance on the application of state severance taxes to methane.