October 01, 2015

The Economics of Methane Regulation: The Cost-Effectiveness of Regulating Existing Oil and Gas Operations

Shani Harmon

Environmental groups have asserted that the oil and natural gas industry is wasting economically valuable methane. The Natural Resources Defense Council (NRDC), Sierra Club, the Clean Air Task Force, and the Environmental Defense Fund (EDF) argue that the EPA could reduce methane emissions from the oil and gas sector by 40 to 50 percent by requiring available, cost-effective technologies. NRDC, Sierra Club and Clean Air Task Force, Waste Not, at 6 (2015) (Waste Not); ICF, Economic Analysis of Methane Emission Reduction Opportunities in the U.S. Onshore Oil and Natural Gas Industries, at 1-1 (2014) (EDF Study). A significant amount of these potential methane emission reductions would come from existing oil and gas operations. A study commissioned by EDF (EDF Study) estimates that approximately 90 percent of methane emission reductions will come from existing oil and gas operations in 2018. EDF Study, at 1-1. If reducing methane emissions from existing oil and gas operations is indeed cost-effective as environmentalists have alleged then why hasn’t the oil and gas sector already reduced its methane emissions and captured the economic benefit? Is the oil and gas industry truly wasting economically valuable methane?

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