In September, the Environmental Protection Agency and the Department of the Interior pushed forward two separate regulations that will, in effect, hold oil and gas companies less accountable for methane gas emissions into the atmosphere. The new rules ease requirements that energy companies detect and repair methane leaks from wells and pipelines. The Interior rule, which has gone into effect, and the EPA rule, which is now open for 60-days of public comment, are part of a series of Trump administration efforts to undo methane regulations that the same agencies had written during the Obama administration.
The agencies acknowledge that the looser regulations will have a negative climate impact. Methane is a greenhouse gas that can be 80 times more potent than carbon dioxide. Yet the current administration maintains that the Obama-era rules would place undue economic burden on energy companies, while many energy companies say that they’re already acting to reduce emissions, and the stricter rules are duplicative.
Guests Catherine Hausman, assistant professor in the School of Public Policy at the University of Michigan, and Ben Ratner of the Environmental Defense Fund, discuss the economic and environmental costs of methane emissions, and how estimates of these costs tend to vary widely. Hausman and Ratner also discuss why methane emissions are so hard to detect, explore initiatives to both speed and lower the cost of containing leaks, and look at whether industry’s voluntary efforts to reduce emissions are enough.
Andy Stone: Good day and welcome to the Energy Policy Now podcast from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone.
In September, the Environmental Protection Agency and the Department of the Interior pushed forward two separate regulations that will, in effect, hold oil and gas companies less accountable for methane gas emissions into the atmosphere. In sum, the new rules ease requirements to energy companies detect and repair methane leaks from wells and pipelines. The Interior rule, which has gone into effect, and the EPA rule, which is now open for 60 days of public comment, are part of a series of Trump Administration efforts to undo methane regulations that the same agencies had written during the Obama Administration.
The agency has acknowledged that the looser regulations will have a negative climate impact. Methane is a greenhouse gas, it’s 80 times more potent than carbon dioxide. Yet the Administration maintains that the Obama era rules would place undue economic burden on energy companies. While many energy companies say that they’re already acting to reduce emissions and the stricter rules are therefore duplicative.
In today’s podcast, a researcher and an environmental advocate will discuss the economic and environmental costs of methane emissions and how estimates of these costs tend to vary widely. Our guests will discuss why methane emissions are so hard to detect and explore initiatives to both speed and lower the cost of containing leaks. And we’ll look at whether industry’s voluntary efforts to reduce emissions are enough. Catherine Hausman is a visiting scholar at the Kleinman Center, and an assistant professor in the School of Public Policy at the University of Michigan, where she focuses on environmental and energy economics. Ben Ratner is a senior director at the Environmental Defense Fund based in Washington D.C., where he focuses on collaborating with businesses on cleaner energy. Catherine and Ben, welcome to the podcast.
Catherine Hausman: Thank you.
Ben Ratner: Thank you.
Stone: To start out, Catie and Ben, what if you could tell us about the focus of your work? And Catie, let’s start with you.
Hausman: So I’ve been thinking recently and researching a lot about methane leaks from the natural gas sector, as we’re going to talk about today. And that’s part of a broader research agenda of looking at what basic microeconomics can tell us about the role that energy markets play in society and in the environment and what role the government should take in correcting market failures in that energy space.
Stone: Ben, what about you?
Ratner: Global climate change really is the defining environmental issue of our time, but also a huge economic opportunity. So much of the greenhouse gas emissions here in the U.S. and globally come, of course, from energy systems. And so at EDF, we’re doing two things on that. One, we’re helping to usher in a wave of cleaner energy as fast and as broadly as possible, but two, and this is important, is helping traditional forms of energy significantly reduce their unnecessary emissions and impact on the environment. I help work with businesses on both those fronts.
Stone: So Catie, what is methane’s role in the energy industry, and as a greenhouse gas?
Hausman: So methane comes in part from the oil and gas industry. And the reason is that the main component of natural gas is just methane. So throughout the natural gas supply chain, natural gas can leak out of the physical infrastructure. And whenever that happens, methane leaks to the atmosphere. Natural gas and oil are co-located. So when you’re drilling for oil, you have the same problem that you can get natural gas and it can leak. And that methane then accumulates in the atmosphere. It traps heat just like carbon dioxide does. That’s the greenhouse gas, of course, that we hear about more often. Methane is more short lived than carbon dioxide, but pound for pound, it traps a lot more heat than carbon dioxide, which is why it’s so important for thinking about right now.
Stone: Ben are there other health and air quality impacts from methane?
Ratner: There are. Methane matters to climate and methane matters to people’s lives, it matters to their health and the health of their kids. So many Americans live close to areas of oil and natural gas production. And often methane, which is natural gas, is emitted with other pollutants that are even more pernicious from a public health perspective. Things like volatile organic compounds, things even like hazardous air pollutants. And that’s why we’ve seen an outpouring of support for methane regulation and methane emission reductions from tribes, from communitie,s from health groups, in addition to environmental groups, is there’s a climate benefit but also an important public health benefit at stake for reducing methane and associated emissions.
Stone: Catie, just want to go back just a moment, you’d mentioned something about the sources of methane leaks. Are these leaks from equipment that’s old and not well maintained? Are they just inherent when you’ve got such complex infrastructure? And you said some of it also comes out of the wells themselves?
Hausman: Yeah, a mix of all of what you just said. So you should think of there being the potential for leaks throughout the natural gas supply chain, plus at oil drilling sites. So drilling sites, but also processing plants, transmission lines, surface stations, storage stations, as we’ve seen in California. And distribution lines that run under our streets and bring natural gas to our homes. All of those have the potential for leaks, both underground, think pipelines, and above ground, think surface stations.
And so one of the scientific challenges is figuring out where the biggest leaks are. But it can be aging infrastructure, it can be poorly maintained infrastructure, where components aren’t fitted well together. It can also be intentional venting that you need to do repairs on a pipeline. And so you purge that pipeline of gas by releasing it to the atmosphere. So it’s a mix of sources and equipment types.
Stone: Well, I’ve seen aerial maps or pictures, excuse me, taken at night of the United States, and they show North Dakota, for example. And they’re huge. It looks like a city right in a very rural place, because that gas is vented from the Bakken fields. And it’s flared off, right?
Hausman: Yes, so we want to be careful with distinguishing flaring versus venting. So when the gas comes out of an oil drilling site, you have three choices. One is to try to capture it and sell it. Another is to burn it. And a third is to vent it.
In North Dakota, those lights that you’re seeing are burning, so flaring. The good thing about flaring is that you convert the methane to carbon dioxide. So it’s less problematic from a greenhouse gas perspective. But it brings lots of other things like light pollution and particulate matter if you don’t have a clean burning flame. And if you don’t completely manage to burn all of the methane that’s coming out, then you do get the methane itself.
Stone: So Catie, how much methane is leaking overall?
Hausman: Couple percent from the supply chain as a whole is, I think, the best latest estimate. So that latest peer reviewed, scientific study put it at 2.3% of all natural gas. That’s actually huge. Maybe 2% initially sound small, but it’s actually huge. It’s 13 million metric tons of methane per year. That’s $2 billion in lost revenue if you take the commodity value of natural gas. And that’s nearly $20 billion in climate damages per year,
Stone: Based upon social cost of carbon?
Hausman: That’s right. So that’s using the 2013 interagency working group social cost of carbon and a global warming potential of 34 is where the $20 billion is coming from. Recent peer reviewed studies have put the social cost of greenhouse gases substantially higher than that interagency working group number, which would mean climate damages of much more than $20 billion per year.
Stone: And the 34, you mentioned is 34 times the potency of carbon dioxide?
Hausman: That’s right.
Stone: Ben, methane emissions are notoriously challenging to detect. Why is that?
Ratner: Methane emissions are challenging to detect, for a simple reason. They’re invisible and odorless. So it’s the out of sight, out of mind problem.
Stone: So if you’re in an area where there may be wells that are that are leaking natural gas, you won’t smell the gas, or that the methane specifically?
Ratner: You generally would not smell the methane. And that’s because the smell that some of us associate as a natural gas smell, that’s called mercaptan. That’s an additive. But it’s not added to the stream of natural gas until farther down the value chain. And so for an upstream segment production, drilling, gathering, again, near where people live, in a lot of cases, increasingly as drilling comes nearer to communities in different parts of our country, including in Pennsylvania, that methane is invisible, and it’s odorless. And often there’s more emissions than people are aware of for that reason.
Hausman: So one problem that that brings up is that upstream where the odorant hasn’t yet been added, there’s the public safety concern that if there’s a leak, you don’t know that it’s there. If it accumulates, it can explode and cause injuries and loss of life.
Another thing that that brings up, you know, I had said earlier, there’s the potential for leaks throughout the supply chain, millions of miles of pipeline in the U.S. that bring natural gas to our homes and businesses. Thousands of wells and processing plants and surface stations. So figuring out, and they’re not leaking. So figuring out which ones are leaking and which ones aren’t is a real scientific and measurement challenge.
That makes it really different from carbon dioxide. If you have a ton of coal or a barrel of oil, you know exactly how much carbon dioxide is going to get produced when you combust that, when you use it in a power plant or in a car. But with methane, if it’s 1%, that’s leaking, as the EPA had had said, a couple of years ago, versus 2%, as the latest scientific studies, say versus 3%, it’s going to make a huge difference for the climate.
Stone: So you’ve got millions of miles of pipelines. That’s everything from gathering lines to main trunk lines, etc. all along. It’s a lot to cover. So right now, how does the industry find those leaks?
Ratner: So what’s interesting is that we are seeing a proliferation of innovation, both in technology and in monitoring approaches to find those leaks. And that’s powerful, because it will give civil society more visibility into where and how much methane is leaking. But it also equips companies to have a better handle on where their exposure is, where are their hotspots, and how can they react in real time.
Today, one of the leading approaches for detecting methane leaks is infrared cameras or optical gas imaging cameras. They’re adapted for military use, and a trained operator can do a survey at, let’s say a well pad or a natural gas compressor, and literally look through this camera that makes these invisible emissions visible. And we’re seeing innovation on other deployment mechanisms like drones, like aerial, even satellites, which we’ll go into later.
Stone: So Ben, tell us about recent efforts to loosen methane regulations. And is methane regulated only the federal level or is there state involvement as well?
Ratner: So let’s start the story in the last administration. The Obama administration worked with leaders in Canada and Mexico, to develop a powerful consensus for North America to reduce its oil and gas methane emissions 45%.
What came out of that? The Obama administration both Environmental Protection Agency, EPA, the Bureau of Land Management, BLM, developed and put forward regulations at the national level both public and private lands, to help companies both monitor and reduce and report on these emissions. More recently, Canada and Mexico have stepped forward actually, with some of the strongest methane regulations in the world. And states like Pennsylvania, where we are today have also moved forward with regulations.
Along comes the Trump administration, and they’re sticking out like a sore thumb and dragging the industry backwards. So what we’ve seen just in the last few months, is the Trump administration BLM, effectively squashing the regulation of emissions and flaring and venting on public lands, particularly in the American West. And even more recently, EPA issued a proposed rulemaking that would dramatically weaken the leak detection and some other requirements for new and modified sources of methane emissions in the oil and gas industry.
So we’re seeing a deregulatory onslaught. And the question is, how far will it go and how much damage will be done, not just to climate, but frankly, to the reputation of natural gas and to the credibility that it has, or won’t, in helping the country in a world transition to a cleaner energy future.
Stone: So Ben, you work with oil and gas companies, and something that’s called the Oil and Gas Climate Initiative, specifically on these methane issues? What is the industry itself doing about methane leaks?
Ratner: I’ve had the chance to work on this methane issue for six or seven years. And one of the interesting things I’ve learned is industry is not monolithic. And that presents both opportunities and challenges. The Oil and Gas Climate Initiative, you mentioned has about 13 of the world’s largest oil and gas producers, companies like Exxon Mobil, BP, Shell. And they recently announced a target to limit their collective emissions to about one quarter of 1% of the natural gas that they are operating and producing around the world.
And our group, EDF came out publicly and we said that’s a good strong target. And it is, it’s a stringent target. And so a couple things that we’ll look for now are follow through with real empirical field measurement data, transparency on the progress that they’re making. And the methods that they’re using to achieve and to validate that progress because again, these are invisible emissions. So, trust, but verify and transparency is going to be key.
But then when you translate that to the U.S. scene, you ask, well, how far does that get us? And the cold hard truth is, the market share of OGCI companies in the U.S. is less than 20%. And what that means is that while these voluntary commitments and targets are positive, they show what’s possible, they can help usher further technology innovation, they are not adequate, because the whole industry needs to come along to address the magnitude of the challenge that Catie identified.
Stone: What are the incentives to act?
Ratner: There are a lot of incentives to act. And I think that’s why leading companies are beginning to step up with targets, with technology deployment, and training. The two biggest incentives are number one, methane is natural gas, it’s a product, and it can be sold. And so in many cases, the economics of capture and sale of methane emissions of emissions of natural gas are attractive core business driver.
As we talk with executives, and we engage with companies, the even bigger picture that many of them see is, this is about the future of gas. The case for gas that we hear folks in industry consistently make is that it’s cheap, abundant, and clean. But with recent studies showing that methane emissions in the U.S. double the climate impact of natural gas, that third leg of the stool, the clean leg is standing next to an axe, that’s methane emissions. And so industry has a strong incentive to intervene and keep that stool sturdy, otherwise, the case for natural gas could unravel.
Stone: Catie, you’ve looked at methane emissions from gas utilities specifically and found that the industry tends to focus on direct economic loss due to emissions such as lost revenue from the gas that they can’t sell or deliver. Yet the industry, your researches is kind of focused on, the industry may not be taking all costs into account. Can you explain that?
Hausman: Yeah, two things are going on here. I want to, before I get to the utilities, distribution utilities, I want to back up a step and think more about the upstream companies that Ben brought up. So if we’re talking about upstream production sites, or downstream distribution utilities, the firm is going to care about its own private costs of natural gas has been referred to.
So they’ve got a financial incentive to keep that product in their supply chain, at something like $3 per 1000 cubic feet, but higher or lower, depending on what part of the country we’re talking about, and what part of the supply chain. So if you know they’re leaking $3 per 1000 cubic foot, they want to protect that gas and be able to sell it on the marketplace.
But the climate damages that I was talking about earlier, are an order of magnitude higher. So in my research, the number I typically use is $27 per 1000 cubic feet. That’s using again that 2013 interagency working group number.
Stone: That’s $27 worth of damage due to each 1000 cubic feet of natural gas?
Hausman: That’s right, so that damage is coming from health impacts of climate change, rising sea levels, increased hurricane risk, as we’ve seen so recently. So that $27 is a real economic and human welfare loss coming from those 1000 cubic feet of gas that to the company is only worth $3.
So imagine that there’s a leak detection and repair technology out there, which there are, that costs, let’s say $10, more than 3 and less than 27. And the company is not going to have a financial incentive from just the value of the product to implement that technology that costs $10 and saves them $3 in revenue. But from a societal perspective and a climate perspective, we would very much like them to implement that technology and avoid all of the climate damages associated with the leak.
So you hear the line a lot that the financial incentive is there, because it’s the product. That’s partly true, but it’s only a very small part of the total costs that we need to think about. And Econ101 tells us that when that’s the case, you need regulation. The industry’s incentives just aren’t fully there.
Now, you’d brought up the downstream utilities. So that’s what my research has really focused on and there’s an added problem. So in most states utilities are reimbursed via their natural monopoly regulation for the cost of gas that they purchase, not the cost of gas that they sell. And there are good historical and regulatory and legal reasons why we do that. We need to make sure that utilities are able to recover their cost. You don’t want gas utilities going bankrupt.
So they’re reimbursed for the cost of gas they purchase. If they buy 100 units of gas, one unit leaks and 99 units get sold to you and me for home heating and home cooking, they’re reimbursed for the 100, not for the 99. So there, there really is not a financial incentive to reduce leaks. Now, most utilities care a lot about safety, they do repairs as a result. It’s not that they don’t repair leaks, it’s that the financial incentive is not there. So if you have a leak, that’s not an imminent safety threat, the utility doesn’t have much of a business side for repairing that leak.
Stone: So Ben, I want to go back to you. EDF has found that methane emissions are under counted by 60%. The 60% is versus what, what’s the baseline?
Ratner: Well the baseline for the 60% is the prior best estimates of national methane leakage by EPA. Now, the challenge with that is that what we’ve come to appreciate, through years of scientific study, through field measurement of real emissions from real equipment at real sites, is that so often they are higher than the official government estimates. And one reason for that is that estimates of emissions from different equipment and from different processes, generally for when those equipment or processes are working right.
Well, a lot of times the largest emission events are when things are working wrong. And that’s why conducting field study to get to the bottom of what’s actually happening in the field, in our communities, and the atmosphere is so essential. And when we found that emissions are about 60%, higher even than government estimates, that was a wake up call. That the magnitude of this of this challenge is huge. And we have to do something about it now.
And I completely agree with Catie’s point that regulations are going to be critical to bring the entire industry along, we talked earlier about the positive step of a target from 13 companies. Well, here in the U.S., there are thousands of companies that are operating oil and natural gas facilities that have the potential for methane emissions. So we can hold up the voluntary commitments from the few. But we must also have a floor to bring along the entire industry. Otherwise, the bottom drops out, the challenge is not addressed. And that’s a harm again, not just to climate change in our communities, but to the future of gas in a world that’s increasingly demanding, not just cheap energy, but cleaner forms of energy.
Stone: Going back to that last mention of clean energy. You mentioned earlier, the fact that there are obviously a lot of emissions of methane, and that makes natural gas not as clean as we had hoped. How does natural gas take into account the entire value chain of gas? How does it compare with coal?
Ratner: The magnitude of methane emissions that we’re seeing from the oil and gas industry puts such a stain on the reputation of gas and such a stretch on the claim that natural gas is today a credible contributor to a low carbon economy. It has the potential to do so but we are not there yet.
Let me put it this way when you think about natural gas versus coal. Some study that EDF and others conducted a few years ago found that for natural gas to deliver immediate climate benefits in the electric power sector, relative to coal, the leakage rate from the value chain in oil and gas as Catie described needs to be about 2.8% or less. Well, then along comes the scientific study with real measurements and finds that it’s well over 2%. So when it comes to gas versus coal in the U.S. for power generation and what’s the immediate effect on climate? The answer is, it’s almost too close to call.
Hausman: But that doesn’t mean necessarily doing something like banning natural gas, or banning fracking. Another way of thinking about the $3 vs $27 is that if companies have been incentivized historically at $3, and we want them to be incentivized at least $27, there’s a lot of room in there for regulation to really have bite and lead to leak reduction and repairs. There’s got to be things that we can take advantage of to get leak reductions in the sector that’ll get it closer to that clean fuel source that we may have hoped it would be.
In other work of mine, I’ve looked at the economic benefits of natural gas. And we don’t want to forget those. As winter approaches, I really value the home heating that I get from my local natural gas utility, where you all listening to this podcast here are using electricity to be able to listen to it. So there are real benefits to natural gas. And we don’t want to forget those. With the leak rates we’re talking about here, the policy recommendation I would give is not banned natural gas. But it’s clean up the leaks.
Stone: Ben, I want to come back to the issue of talk about the OGCI for just another moment here. So these companies obviously have ambitious targets to reduce methane emissions. Many of these companies are also members of the API, the American Petroleum Institute, which has come out in favor of the administration’s relaxed rules on methane. What type of legislation, or regulation more specifically, do you think that these companies would like to see?
Ratner: Well, that’s the $64,000 question. And we’ll all be paying attention in the coming weeks to where the companies like Exxon Mobil, like BP, like Shell land on this live active policy debate. A number of companies including those committed in November of 2017, to proactively advocate for sounds and effective methane regulations and to engage with governments and with groups like ours at EDF and others in the development and implementation of regulations.
And now that the EPA, methane regulation is on the chopping block, it creates a moment of truth, where all eyes will be on those kinds of companies who have positioned themselves as leaders, who have taken good targets. But the question is, will you follow through on commitments that you’ve made? And will you support regulations that helped the industry as a whole improve and generate some confidence in civil society that we’re on a path to solutions?
Stone: Catie is your view that industry is doing enough at this point?
Hausman: No, we know more is certainly needed. The recent IPCC report 1.5 degrees is a stark reminder that action is needed urgently, not in 10 years or 20 years. But now. Combining that with recent tropical storms and other climate damages. You know, action is needed now and methane is a really important place to start.
Stone: Ben, a concern is that smaller companies may not have the resources to monitor leaks and to repair them. Tell us about the EDF initiative on this front.
Ratner: One of the things that EDF has done is to conduct some research. And what we’ve uncovered is that there is a thriving industry unto itself of methane mitigation firms. These are often smaller, medium sized businesses around the country, particularly in oil and gas heavy states like Texas, like Colorado, that offer leak detection and repair as a service to their clients who are oil and gas producers. And what this creates is a more cost effective, easy approach for a smaller oil and gas driller so that they don’t necessarily need to buy their own optical gas imaging cameras or deployed their own staff to conduct inspections at well sites. They can call trained expert, pay for a service out of their operational expenses, not a big capital expense, and get the job done.
So that’s something that’s encouraging. And we also see innovation in this space with things like aerial monitoring sensors on fixed wing aircraft. We’re seeing more on sensors mounted on drones. I was out in Colorado a few months ago very cool stuff to witness some testing of a really innovative drone-based company called SeekOps, that Equinor, the Norwegian oil and gas producer, is investing in. And this is just going to make it easier and easier for oil and gas operators of all stripes, including smaller operators, to get information and insights about their leakage as a service and use that information to be tighter, more efficient, and better positioned for compliance and for a low carbon future.
Stone: And EDF is working on a satellite as well, right?
Ratner: EDF is working on a satellite as well. And we’re targeting the launch in 2021. Outside of North America in the United States, much less is known about methane emissions from oil and gas. The best available information indicates that there is a lot of emissions over $30 billion of value of natural gas that’s going into the sky globally. But we need to bring that same rigor of scientific understanding, that same visibility globally, because that will help policymakers and it will help businesses take full advantage of the opportunity and address the magnitude of the challenge.
And the satellite that we hope to launch in 2021, we think can really help doing that by providing visibility on emissions from over 80% of the world’s oil and gas producing regions taking measurements, in some cases, every four days over the same areas, both to quantify emissions, and also to detect perhaps surprising hotspots.
Stone: Is this going to be a policing satellite? Or is it going to be a satellite that you’re working in conjunction with industry to help identify the leaks?
Ratner: We want very much for the methane tracking satellites to be helpful and collaborative tool. And something that creates not just raw data, but information and insights that are acted on by governments and by companies and by value chains that want to be part of the solution. The data will be public. And we very much look forward to working with anyone who wants to put that information to good use to reduce emissions.
And one interesting thing is that we have more companies coming up to us now in this window period, between today and launch a few years from now, saying what can we do to reduce our emissions now, because when the satellite, and by the way, ours isn’t the only one are in the sky, we’d like to have a head start before that day comes.
Stone: Let me ask the two of you one final question, if I may. We’ve really focused here on domestically within United States the problem of methane emissions. And in your description of the satellite brought to mind that this is very much a global problem.
Gas is produced everywhere around the world. What is being done on a global scale? And this is very broad question I understand. Are these initiatives taking place elsewhere?
Ratner: They’re starting to I think North America has been the epicenter of early action on addressing methane emissions from the oil and gas industry. But we’re moving past the days when people had the misunderstanding that methane is just a U.S. fracking issue. Actually, methane emissions are an oil and gas value chain issue. And the oil and gas value chain is very much global, with many independent experts predicting that natural gas could continue to increase globally, not just in the power sector, but perhaps in other sectors that may be a little bit more difficult to decarbonize.
So there’s increasing interest on methane emissions in Europe, in China, in different regions of the world. And it’s going to be important, I think, to capitalize on that, to get better data. And to help policymakers, companies, investors and others understand the magnitude of the challenge, but also the ability to use technologies and proven solutions to make a big dent in climate change.
Stone: Catie and Ben, thanks for talking.
Hausman: Thank you.
Ratner: Thank you.
Stone: Today’s guest has been Catie Hausman, a visiting scholar at the Kleinman Center and an assistant professor in the School of Public Policy at the University of Michigan. And Ben Ratner, a senior director at the Environmental Defense Fund. For more insights and research into current energy policy issues, subscribe to the Kleinman Center’s Twitter feed @kleinmanenergy, or visit our website our addresses kleinmanenergy.upenn.edu. Thanks for listening to Energy Policy Now and have a great day.