U.S. Congress repeals methane fee on oil and gas

The U.S. Congress has voted to repeal a methane fee imposed on oil and gas producers, rolling back a key climate policy by the Biden administration.

The House of Representatives passed the measure on February 26th, and the Senate passed it a day later, sending the bill to President Trump for his signature.

The methane fee was passed into law as part of the 2022 Inflation Reduction Act, and it imposed a $900-per-tonne fee on methane emissions from larger sources of emissions, which would have increased to $1,500 per tonne in 2026.

The Environmental Protection Agency estimated that the methane fee would have led to cumulative emissions reductions of 1.2 million metric tons of methane between 2024 and 2035, equivalent to removing 8 million cars from the road, and resulting in $2 billion in climate-related benefits.

For 2025, the industry was estimated to pay $560 million in fees, a modest amount, and those figures were expected to decline sharply in the years ahead as the industry cut down on its emissions. Now, drillers with significant methane emissions will be able to essentially continue emitting with no penalty.

Democratic Senator Jeanne Shaheen from New Hampshire called it a “common sense fee,” whose repeal will cost taxpayers $2.3 billion over 10 years, “effectively lighting money on fire to save Big Oil a few bucks.”

Methane emissions reflected in the U.S. EPA’s inventory are based on self-reported data, submitted by the oil and gas industry itself. Historically, the emissions were not actually measured, but rather were derived using assumptions about leakage rates of methane from pieces of equipment.

For many years, the EPA’s official methane leakage rate was pegged at around 1.4 percent for the entire industry, a figure that the industry proudly touted as respectable. But that figure was badly flawed. In recent years, countless studies using ground-level measurements, flyovers, and satellites have shown that methane emissions from oil and gas operations are vastly higher in the real world.

Some studies found that methane was leaking at a rate as high as 9 percent in the Permian, which means  that a catastrophically high volume of methane is simply being dumped into the atmosphere.

One provision in the 2022 IRA sought to address the data problem, directing the EPA to begin updating its methodology to reflect real-world methane measurements.

“It’s still self-reported. The program remains based upon industry, on an annual basis, sharing their emissions measurements and estimates,” Jon Goldstein, associate vice president of energy transition at EDF, a Washington-based environmental NGO, told Gas Outlook. “But there were some improvements made to begin to incorporate more empirical data.”

The improvements “didn’t go as far as they could have,” Goldstein added, but the EPA “did begin to go in that direction.”

The repeal of the methane fee removes one of the key policies the U.S. government has passed to begin to cut methane from oil and gas operations in the country. The U.S. is the largest emitter of methane from the oil and gas sector in the world, followed by Russia.

Even though Congress has now repealed the methane fee, the underlying law that led to the creation of the EPA methane fee remains in effect.

“Unless Congress changed the statute, that directive would still be on the books,” Goldstein said. The law calling for the methane fee still exists, but the regulation is now gone, which will “create confusion,” he added. That could legally force the EPA to eventually come up with a replacement methane fee of some kind, although Republicans are considering a broader repeal of the 2022 law later this year.

Separately, the Biden administration had implemented other regulations on methane, requiring more monitoring and inspections of equipment, intended to cut down emissions from oil and gas operations. For new sources of production, those regulations are in effect. Requirements for older wells will be done at the state level, and won’t begin until at least 2026.

Environmental groups blasted the latest move by the Republican-controlled Congress to repeal the methane fee. 

“Let’s be clear: responsible companies have nothing to fear from this measure. The only corporations impacted are those that refuse to use readily available technology to curb dangerous methane leaks,” Evergreen Action, a climate NGO, said in a statement. “Gutting this program means more toxic pollution in our air, higher energy prices, and bigger profits for polluters—at our expense.”

The American Petroleum Institute, a powerful oil industry lobby, called the methane fee “a duplicative, punitive tax on American energy production that stifles innovation.” In a statement, API “applauded” the efforts to repeal the “misguided rule.”

Questions for LNG

The second Trump administration is acting more aggressively than the first. Trump has vowed to impose savage cuts to EPA’s budget. Industry lobbyists are running key EPA regulatory offices. The head of the EPA, Lee Zeldin, is going as far as advising the White House to repeal the so-called “endangerment finding,” a foundational scientific finding issued in 2009 that underpins much of U.S. climate regulation. That could lead to a wholesale trashing of climate rules that regulate cars, power plants, and heavy industry.

As such, it is easy to imagine the Trump administration going after the modest methane regulations on oil and gas that are already in effect. Goldstein from EDF said it is possible that they will refrain from doing so, in part because the oil and gas industry needs to demonstrate to the rest of the world that they are abiding by some standards on methane.

Some of the larger oil majors are supportive of regulations as they court customers in Europe or Asia. Full repeal of all methane standards would make it difficult for the oil majors to differentiate their product from those of smaller companies with worse track records.

“The oil and gas industry increasingly recognizes for itself that it needs to address this problem,” Goldstein said. “That makes it hard for them if they don’t have that nationwide across the board emissions reduction rules in place.”

The issue could have impacts on the LNG expansion. U.S. LNG companies are seeking long-term contracts for their projects.

At the same time, the European Union is implementing the carbon border adjustment mechanism (CBAM), which will impose import taxes on high-emitting sectors such as cement, aluminium, and gas. Already, analysts have predicted that the EU’s CBAM could create a “bifurcated” market, with better-regulated gas heading to Europe and dirtier gas going elsewhere.

But the ongoing aggressive deregulation of the U.S. oil and gas sector, which could exacerbate the methane crisis, could make it even more difficult for American gas exporters to find buyers in Europe.