June 13, 2024

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Biden $3.5 trillion boondoggle slaps methane tax on oil and gas producers

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If the Biden administration and the progressive caucus have their way on what the Wall Street Journal calls the $3.5 trillion social welfare and climate change proposal, gasoline, natural gas, and electricity will become much more expensive.

Embedded in the bill that Democrats hope to pass by way of reconciliation, is the so-called “Methane Emission Reduction Act of 2021.

If passed, the provisions would levy “fees” — actually taxes — on oil and gas producers for “ambient methane emissions.” Those fees, in the way of all taxes, would naturally be passed along to consumers in the form of higher prices.

There are, however, a few problems with the bill.

According to Ed Cross, president of the Kansas Independent Oil and Gas Producers Association, the first and most glaring is that to measure “ambient methane emissions” requires technology that doesn’t currently exist.

“The tax is based on ambient methane emissions measurements,” Cross wrote in a guest column in the Kansas City Star. “The measurements would have to distinguish between oil and natural gas production, agricultural emissions – about a third of U.S. methane emissions – and landfill emissions – about a third of U.S. methane emissions. 

“And the measurements would have to be continuous – 24 hours/day every day. No  such system exists and cannot be created in the foreseeable future.”

Which points out another major issue with the bill. Methane emissions are already highly regulated, and oil and gas producers consider methane emission reduction a priority.

$3.5 trillion bill ignores the biggest methane emitters

The bill also ignores the No. 1  producer of methane emissions known as “enteric fermentation” — or “cow farts” in laymen’s terms. 

While the oil and gas industry does produce methane emissions — the biggest component of natural gas is methane — the bill also ignores the No. 3 producer, landfills and other waste management facilities, and the No. 4 producer, coal — which has a number of other issues as well.

The American Farm Bureau successfully lobbied to prevent language targeting the agriculture sector making it into the bill, and what is the single largest producer of methane emissions according to the International Energy Agency — wetlands are clearly impossible to regulate.

Serious economic consequences of methane tax

According to Cross, the bill would costs jobs, money and — ultimately — increase emissions.

“As many as 155,000 jobs could be impacted by the tax, with the largest impacts concentrated in the health care and social assistance industries. Oil and natural gas together account for nearly 70% of energy consumption in the U.S. New taxes on the industry are likely to have a ripple effect across the U.S.  economy – at a time when inflation is already skyrocketing.”  

Moreover, increased costs for natural gas could force power companies to fall back on cheaper options such as coal — which is also far less clean.

“The bill could unintentionally set the U.S. back with respect to the significant (greenhouse gas) reductions we have realized in the electric power sector,” Cross wrote. “Historically, fees on commodities have led to increases in the cost of that commodity. Should this be the case here and there are increases in the cost of natural gas relative to other fuels, it could lead to a switch in electric power generation from clean natural gas to higher emitting sources. To impose a misguided punitive tax on natural gas could significantly undermine any  purported effort of this legislation to reduce (greenhouse gas) emissions.”

The bottom line

It has been a matter of faith among environmentalists for decades that higher gas prices would discourage people from driving, and therefore reduce consumption.

However, that seems not to be the case. The non-partisan Congressional Budget Office found in a 2008 study that consumers are far less likely than previously assumed to change their driving habits based upon gas prices.

“Recent research suggests that consumers are not very responsive to changes in the price of gasoline, at least in the short run,” the CBO wrote. “Increased expenditures on gasoline have, however, reduced consumers’ saving, real income growth, and probably other forms of consumption. For a variety of reasons, consumers are currently only about one-fifth as responsive to short-run changes in gasoline prices as they were several decades ago.”

The reality is that the bill is not truly about methane emissions, but — as Cross noted — was included as a “pay for” for the $3.5 trillion social welfare and climate change bill.

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