The key to reducing methane emissions? Actual measurement

By Mark Agerton and Ben Gilbert

Methane reduction efforts in the oil and gas sector are a hot topic, as reducing methane emissions saves the world time to decarbonize. Methane warms the planet 85 times more than CO2 in 20 years, even if CO2 stays longer.

Many methane reduction efforts work by linking the financial performance of companies to their emissions. In a previous article, we discussed how a methane royalty like the one proposed by Senators Whitehouse, Booker and Schatz would do this. Companies also voluntarily reduce their emissions, have their emissions certified and demand a price premium for their “low-emission” gas. They also reduce emissions to avoid the legal and regulatory risks associated with government mandates.

For ANY of these methane reduction incentives to be truly effective, they must directly target measured methane emissions, not specific equipment or operational practices that MAY emit methane.

The beauty of measurement-based incentives, like a methane emissions charge levied on verified emissions, or a monitoring requirement for low-emission gas certifications, is that they give producers powerful incentives to optimize their performance. operations around the reduction of emissions.

Unfortunately, measurement is difficult. Methane is colorless and odorless. Measuring it requires expensive tools.

Equipment inventories are not emissions monitoring.

A seemingly inexpensive alternative to high-cost measurement is to take advantage of government inventory-based emission reporting programs, such as the EPA’s Greenhouse Gas Reporting Program (GHGRP) or the UK version. . As part of these, companies report inventories of potentially emitting sources: equipment, components and practices. The EPA multiplies these sources by their estimated average emission rate, called the “emissions factor”.

Companies like Shell and EQT are currently using inventory-based estimates to calculate their climate footprint. Then they reduce or offset it in the hope of being paid more by climate-conscious buyers.

For politicians studying methane policy, it’s tempting to simply take advantage of existing inventory-based reporting programs in new methane regulations.

But relying on inventories for methane regulation would be a mistake

The fundamental problem with inventory-based reporting is that of information: government regulators and third-party certifiers simply cannot know how much methane each individual source emits.

Taking the shortcut to inventory creates a number of perverse incentives. Linking financial performance to inventory-based estimates encourages producers to optimize their operations based on reported inventories, not actual emissions. It also means that inventory guidelines and emission factors must be continually updated.

Creating a new standard to measure actual emissions may involve bigger changes up front, but it will be better for government and business. Government programs will be less complicated and less burdensome. Businesses will be able to reduce their emissions faster and at lower cost.

By not targeting emissions, inventory-based incentives distort behavior.

When you tie the benefits to emissions-based inventories, you pay off the inventory changes, not the emission reductions. Companies will want to reduce or replace existing sources with those with lower emission factors. These new sources may or may not emit less than what companies did before.

In fact, it is possible for a company to improve its inventory-based emission estimates while emitting more.

When companies make changes to improve their inventories, they can substitute something that emits a little methane that is counted in inventory with something that emits a lot of methane but is not counted. Government regulators and third-party certifiers will constantly have to catch up to ensure that everything that needs to be counted is getting it right.

Distorted behavior changes the emission factors.

While reducing inventory does not exacerbate emissions, an inventory-based incentive will encourage companies to change their behavior. This will change the real emission factors and make the existing ones inaccurate.

Although scientists are getting better at modeling emissions of specific types of components, whenever producer behavior changes, these models should be revised and updated. Of course, updated models would lead to more behavioral changes, which would again make the updated emission factors wrong. (This general principle is known in the social sciences as Campbell’s Law, Goodhart’s Law, or Lucas’s Critique.)

Inventory-based incentives do not target super-emitting components.

We know that individual sources issue different rates. In fact, emissions are characterized by a majority of sources that emit moderate amounts of methane, and a few large “super-emitters” that emit a disproportionate amount of emissions.

When we use emission factors to calculate methane taxes instead of actual metrics, for example, we are not targeting super-emitters. Instead, we tax the sources at an average rate: the taxes are too high for the majority of sources that emit low amounts, and too low for the super-emitters. The exact same logic applies to certifications.

This means that companies will spend too much money on low-impact methane reduction efforts and too little on high-impact super-emitter reduction. In addition, low-emission companies will not be rewarded enough for their good performance. Instead, they’ll use average emission factors that include high-emission companies. We will spend too much to optimize inventory and not enough to reduce the incidence of super-emitters.

Inventory-based incentives cannot reward innovation.

We need hungry innovators to see a business opportunity in designing new equipment, new methane detection methods, and new AI algorithms to help businesses find and fix leaks as they happen. ‘they happen.

But for innovation to happen, innovators must be rewarded financially. This means that the EPA or private certifiers should add new equipment, detection methods, and leak prevention programs to their inventory programs. This would be a colossal undertaking and would create new uncertainty for innovators as to whether and how their technology would be “counted”.

Methane monitoring is realistic about what we can and cannot know.

Yes, it is difficult to come up with new monitoring certifications to measure actual emissions. But the alternative is more difficult. We will need to continually update the inventories of every component in approximately one million active oil and gas wells in the country and recertify the changing emission factors of existing and newly developed equipment. It seems much more ambitious and much less effective in getting companies to reduce their emissions.

Fortunately, there have been recent moves towards actual measurement rather than inventory-based approaches. The Gas Technology Institute has launched a Differentiated Gas Initiative, which is developing a framework for measurement-based approaches. Certification bodies like Project Canary implement continuous monitoring approaches. Satellite companies like Kayrros and Bluefield offer methane monitoring by satellite. Federal legislation like the Methane Emissions Reduction Act could serve as a catalyst to help industry harmonize monitoring standards that could underpin new markets for low-emission gas.

Basically, a methane monitoring regime is much more humble in what businesses, government regulators, and third-party certification bodies know about the details of an ever-changing oil and gas supply chain. Of course, monitoring is a tall order. But monitoring costs are falling, while updating inventories will remain expensive.

Reducing methane from the oil and gas industry is one of the cheapest ways to slow climate change. Rather than taking an inventory-based shortcut, government, academia and industry should work together to develop reliable methane monitoring standards. In the long run, these standards will be simpler; achieve faster and cheaper emissions reductions; and facilitate the development of a low emission gas market that rewards clean producers.

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Marc Agerton is an assistant professor of resource economics at the University of California Davis and a non-resident researcher at the Baker Institute for Public Policy at Rice University;

Ben gilbert is an assistant professor of economics and researcher at the Payne Institute of the Colorado School of Mines.