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Democratic Infrastructure Proposal Prices GHGs

Copyright © 2021 Energy Intelligence Group

Democrats working on a climate-heavy infrastructure package have agreed to price greenhouse gases (GHG) but are so far stopping short of levying a carbon tax or price at home. A $3.5 trillion spending proposal agreed to this week includes both a fee on methane leaks and a fee known as a carbon border adjustment levied on products coming from countries that do not have strict regulations (OD Jul.14'21). The details of both proposals remain thin, with legislative text not yet available as negotiations to keep all 50 Senate Democrats on board continue. Other energy-related questions, such as whether lawmakers will eliminate favorable tax provisions for oil and natural gas drillers, remain unclear. At the Border Democrats agreed to include a carbon border adjustment in the bill, a day after the EU debuted its initial structure for a carbon border tax in a wide-sweeping climate package (IOD Jul.14'21). A proposal put forward earlier this year that includes such a mechanism would impose a fee on goods from countries that do not have a price or strict regulations for carbon, and reimburse US manufacturers for goods they export to other countries. Carbon border adjustment proposals are a “first test” of how a country or jurisdiction like the EU “might use the link to trade to begin to put pressure on other countries” to develop more robust climate policies, said the University of Michigan’s Barry Rabe, who has extensively studied carbon taxes. But where the EU has an established carbon trading system, the US does not, raising questions over how a border adjustment mechanism put forward by Washington will function. Attempts to tax or otherwise put an economy-wide price on carbon have so far fallen flat. And while the oil and gas industry supports a carbon tax, recordings featuring Exxon lobbyists released earlier this month underscored long-standing questions over the seriousness of those proposals (OD Jul.1'21). Methane Fee There are some hints as to the structure of a methane fee in legislation proposed in March by US Sens. Sheldon Whitehouse (D-Rhode Island), Brian Schatz (D-Hawaii) and Cory Booker (D-New Jersey). That bill directs the Department of the Treasury to estimate a fee, which would start at $1,800 per ton beginning in 2023 and increasing annually. The tax amount for each company would be determined based on a government estimate of the amount of methane leaked into the air. Because the only way for a company to theoretically lower its tax bill would be to produce less gas or oil, the bill also has an alternative process for a company to determine its own methane contribution and only pay for those emissions. The $1,800/ton figure is based on the White House’s social cost of carbon formula for quantifying future harms from GHGs, which are used by federal agencies to justify the costs of policies. In a recent post for Forbes, Mark Agerton, assistant professor of resource economics at the University of California Davis, Ben Gilbert with Colorado School of Mines’ Payne Institute, and Jim Krane with Rice University’s Baker Institute for Public Policy lay out the case for a methane tax of $1,500/ton. “Producers facing a tax 10 times greater than the market value of that gas would take action,” including replacing leaky valves, avoiding venting from well completions and ensuring that flares stay lit, they argue. There is a striking difference between the $1,500-$1,800/ton figure and legislative proposals for pricing carbon, which have ranged from $15-$59 per metric ton in recent years. The estimated social costs of methane are higher because its short-term warming potential is believed to be higher than that of carbon. One oil lobbyist described the bill as “intended to be a punitive effort” that would “suppress gas production.” Moreover, that source adds, how Treasury calculates the estimates is likely to become a sticking point, because methane monitoring is complicated, especially when it comes to pinpointing specific operations’ profiles. Emily Meredith and Bridget DiCosmo, Washington

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