Nearly 130 business and labor groups led by the American Petroleum Institute (API) are urging Congress to oppose a proposed tax on oil and gas methane emissions and instead push for direct federal regulation.

Senate Democrats are considering the Methane Emissions Reduction Act of 2021 for inclusion in their $3.5 trillion budget reconciliation bill. 

Introduced by Democratic Sens. Cory Booker (NJ), Sheldon Whitehouse (RI) and Brian Schatz (MI), the methane bill would levy a fee on emissions of the potent greenhouse gas (GHG) from oil and natural gas facilities.

In a letter to Senate leaders, API and its allies said the bill could have the opposite effect of what legislators intend, causing emissions to increase. API represents 600 companies in the oil and gas sector.

The tax would be calculated using “a complicated formula,” assessing companies “based on their share of production or handling (not actual emissions) and the average emissions intensity in the oil and gas basin in which they operate,” API said. 

As a result, “it could perversely disincentivize facilities with higher emissions intensities relative to the basin average from reducing their emissions.

“At the same time, this approach could unfairly punish high production operators with lower emission intensities.”

API also cited that methane emissions relative to production in five of the seven largest U.S. producing basins fell nearly 70% between 2011 and 2019, and are expected to continue trending downward. 

The proposed methane bill, meanwhile, “has never been the subject of a congressional hearing, and therefore never scrutinized or debated among lawmakers,” API said. “Congress has never discussed the potential impacts of the methane fee on consumers or the U.S. energy market.”

API also warned that the bill could lead to higher natural gas prices, triggering a switch in power generation to higher-emitting sources.

The group highlighted that two-thirds of GHG reductions from the U.S. power sector since 2005 have come as a result of switching to natural gas.

“To impose a misguided punitive tax on natural gas could significantly undermine any purported effort of this legislation to reduce GHG emissions,” API said.  

The bill would tax emissions at a default rate of $1,800 per ton in 2023, increasing 5% above inflation annually thereafter.

API and its allies said direct federal regulation would be a more efficient and cost-effective means of curbing emissions.

“The U.S. Environmental Protection Agency (EPA) and several states already directly regulate methane emissions from the oil and natural gas sector, and the EPA is planning additional regulations on the oil and natural gas sector later this year,” API said. The proposed tax would therefore be “duplicative and unnecessary.”

The bill also includes an import fee that would be levied on each company that imports into the United States oil, natural gas or natural gas liquids.

“The import fee could likely raise consumer costs, distort markets, and could incentivize retaliatory actions from our trading partners,” API said. 

Lawmakers were still debating the price tag and contents of the reconciliation package as of Thursday.

Meanwhile, more than 70 organizations sent a letter to EPA Administrator Michael Regan on Wednesday (Sept. 8) urging the agency to adopt tough, comprehensive oil and gas methane standards for emissions from new and existing sources.

EPA is expected to unveil the new rules in the coming weeks.

Signatories to the letter are urging the enhancement of requirements to find and fix leaks, requiring zero-emission pneumatic devices, and ending routine gas flaring, among other measures.

Congress in June approved the restoration of Obama-era controls on oil and gas methane emissions that had been rolled back under the Trump administration.