Pricing Methane Emissions from Oil and Gas Production
Environmental Defense Fund Economics Discussion Paper Series, EDF EDP 21-04
34 Pages Posted: 27 Apr 2021 Last revised: 30 Apr 2021
Date Written: April 28, 2021
Nearly a quarter of global greenhouse gas (GHG) emissions are covered by GHG pricing initiatives. However, few methane emissions are priced, even though methane is a significant driver of current warming. To reduce methane emissions from oil and gas production, comprehensive policies and regulations are critical.
Price-based policy instruments offer several attractive features to manage these emissions. They offer firms flexibility in terms of who mitigates, when and how. On its own, emissions pricing can enable and encourage some reductions. When combined with direct regulations, such as technology standards and mandated leak detection and repair programs (LDAR), pricing can support even deeper reductions. However, price-based policies have so far not been extensively used to address methane emissions from fossil fuel production. The main argument against pricing methane emissions from oil and gas production has been that these emissions are difficult to measure cheaply, frequently, and with precision and accuracy. Direct regulations to address oil and gas methane emissions typically do not require emissions measurements, though they also will be even more effective with better data.
While methane emissions from this sector remain difficult to measure on a comprehensive and frequent basis, emissions pricing policies can still be effective complements to existing regulations – especially if well designed. Furthermore, methane emissions measurement technologies, including satellite instruments, continue to advance and provide new opportunities for monitoring and enforcement.
This brief provides a preliminary assessment of how a well-designed price on methane emissions from oil and gas production could be implemented in addition to existing regulations in a way that incentivizes oil and gas companies to increase their mitigation efforts and improve their methane detection and measurement practices.
Keywords: climate policy, emissions pricing, greenhouse gases, methane emissions, methane emissions data, methane monitoring and enforcement
JEL Classification: H23, Q35, Q54, Q58
Suggested Citation: Suggested Citation