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By Jim Krane, Jones Graduate School of Business at Rice University 

What’s the cheapest, quickest way to reduce climate change without roiling the economy? In the United States, it may be by reducing methane emissions from the oil and gas industry.

Methane is the main component of natural gas, and it can leak anywhere along the supply chain, from the wellhead and processing plant, through pipelines and distribution lines, all the way to the burner of your home’s stove or furnace.

Once it reaches the atmosphere, methane’s super heat-trapping properties render it a major agent of warming. Over 20 years, methane causes 85 times more warming than the same amount of carbon dioxide. But methane doesn’t stay in the atmosphere for long, so stopping methane leaks today can have a fast impact on lowering global temperatures.

That’s one reason governments at the 2022 United Nations climate change conference in Egypt focused on methane as an easy win in the climate battle.

So far, 150 countries, including the United States and most of the big oil producers other than Russia, have pledged to reduce methane emissions from oil and gas by at least 30%. China has not signed but has agreed to reduce emissions. If those pledges are met, the result would be equivalent to eliminating the greenhouse gas emissions from all of the world’s cars, trucks, buses and all two- and three-wheeled vehicles, according to the International Energy Agency.

There’s also another reason for the methane focus, and it makes this strategy more likely to succeed: Stopping methane leaks from the oil and gas industry can largely pay for itself and boost the amount of fuel available.

Capturing methane can pay off

Methane is produced by decaying organic material. Natural sources, such as wetlands, account for roughly 40% of today’s global methane emissions. But the majority comes from human activities, such as farms, landfills and wastewater treatment plants – and fuel production. Oil, gas and coal together make up about a third of global methane emissions.

In all, methane is responsible for almost a third of the 1.2 degrees Celsius (2.2 degrees Fahrenheit) that global temperatures have risen since the industrial era.

Unfortunately, methane emissions are still rising. In 2021, atmospheric levels increased to 1,908 parts per billion, the highest levels in at least 800,000 years. Last year’s increase of 18 parts per billion was the biggest on record.

Among the sources, the oil and gas sector is best equipped to stop emitting because it is already configured to sell any methane it can prevent from leaking.

Methane leaks and “venting” in the oil and gas sector have numerous causes. Unintentional leaks can flow from pneumatic devices, valves, compressors and storage tanks, which often are designed to vent methane when pressures build.

Unlit or inefficient flares are another big source. Some companies routinely burn off excess gas that they can’t easily capture or don’t have the pipeline capacity to transport, but that still releases methane and carbon dioxide into the atmosphere.

Nearly all of these emissions can be stopped with new components or regulations that prohibit routine flaring.

Making those repairs can pay off. Global oil and gas operations emitted more methane in 2021 than Canada consumed that entire year, according to IEA estimates. If that gas were captured, at current U.S. prices – $4 per million British thermal unit – that wasted methane would fetch around $17 billion. The IEA determined that a one-time investment of $11 billion would eliminate roughly 75% of methane leaks worldwide, along with an even larger amount of gas that is wasted by “flaring” or burning it off at the wellhead.

The repairs and infrastructure investments would not only reduce warming, but they would also generate profits for producers and provide direly needed natural gas to markets undergoing drastic shortages due to Russia’s invasion of Ukraine.

Getting companies to cut methane emissions

Motivating U.S. producers to act has been the big hurdle.

The Biden administration is aiming for an 87% reduction in methane emissions below 2005 levels by the end of the decade. To get there, it has reimposed and strengthened U.S. methane rules that were dropped by the Trump administration. These include requiring drillers to find and repair leaks at more than 1 million U.S. well sites.

The U.S. Inflation Reduction Act of 2022 further incentivizes methane mitigation, including by levying an emissions tax on large oil and gas producers starting at $900 per ton in 2024, increasing to $1,500 in 2026. That fee, which can be waived by the Environmental Protection Agency and doesn’t affect small producers or leaks below 0.2% of gas produced, is based on the social cost to society from methane’s contribution to climate damage.

Customers are also putting pressure on the industry. Regulatory indifference by the Trump administration to U.S. methane flaring and venting led to cancellation of some European plans to import U.S. liquefied natural gas.

Reducing methane isn’t always straightforward, though, particularly in the U.S., where thousands of oil companies operate with minimal oversight.

A company’s methane emissions aren’t necessarily proportional to its oil and gas production, either. For example, a 2021 study using data from the EPA found Texas-based Hilcorp Energy reporting nearly 50% more methane emissions than ExxonMobil, despite producing less oil and gas. Hilcorp, which specializes in acquiring “late life” assets, says it is working to reduce emissions. Other little-known producers have also reported large emissions.

Investor pressure has pushed several publicly traded companies to reduce their methane emissions, but in practice this sometimes leads them to sell off “dirty” assets to smaller operators with less oversight.

In such a situation, the easiest way to encourage companies to clean up is via a tax. Done right, companies would act before they had to pay.

Using technology to keep emissions in check

Unlike carbon dioxide, which lingers in the atmosphere for a century or more, methane only sticks around for about a dozen years. So, if humans stop replenishing methane stocks in the atmosphere, those levels will decline.

A review of methane leaks in the Permian Basin shows the big impact that some regions can have.

Researchers found that gas and oil operations in the Permian, in west Texas and New Mexico, had a leakage rate estimated at 3.7% in 2018 and 2019, before the pandemic. A 2012 study found that leakage rates above 3.2% make climate damage from using natural gas worse than that from burning coal, which is normally considered the biggest climate threat.

Methane leaks used to escape detection because the gas is invisible. Now, the proliferation of satellite-based sensors and infrared cameras makes detection easy.

Companies such as GTI Energy’s Veritas, Project Canary and MiQ have also launched to assist natural gas producers in reducing emissions and then verifying the reductions. At that point, if leaks are less than 0.2%, producers can avoid the federal fee and also market their output as “responsibly sourced” gas.

About the Author:

Jim Krane, Fellow for Energy Studies, Baker Institute for Public Policy; Lecturer, Jones Graduate School of Business at Rice University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Eric Hittinger, Rochester Institute of Technology; Eric Williams, Rochester Institute of Technology; Qing Miao, Rochester Institute of Technology, and Tiruwork B. Tibebu, Rochester Institute of Technology 

The planet is heating up as greenhouse gas emissions rise, contributing to extreme heat waves and once-unimaginable flooding. Yet despite the risks, countries’ policies are not on track to keep global warming in check.

The problem isn’t a lack of technology. The International Energy Agency recently released a detailed analysis of the clean energy technology needed to lower greenhouse gas emissions to net zero globally by 2050. What’s needed, the IEA says, is significant government support to boost solar and wind power, electric vehicles, heat pumps and a variety of other technologies for a rapid energy transition.

One politically popular tool for providing that government support is the subsidy. The U.S. government’s new Inflation Reduction Act is a multibillion-dollar example, packed with financial incentives to encourage people to buy electric vehicles, solar panels and more.

But just how big do governments’ clean energy subsidies need to be to meet their goals, and how long are they needed?

Our research points to three important answers for any government considering clean energy subsidies – and for citizens keeping an eye on their progress.

Why subsidize at all?

An obvious first question is: Why should governments subsidize clean energy at all?

The most direct answer is that clean energy helps to reduce harmful emissions – both of gases that cause local pollution and of those that warm the planet.

Reducing emissions helps to lower both public health costs and damage from climate change, which justifies government spending. Reports have estimated that the U.S. spends US$820 billion a year just on health costs associated with air pollution and climate change. Globally, the World Health Organization estimated that the costs reached $5.1 trillion in 2018. Taxing and regulating polluting industries can also cut emissions, but carrots are often more politically popular than sticks.

A less obvious reason for subsidies is that government support can help a new and initially expensive technology become competitive in the market.

Governments have been central to the development of many technologies that are pervasive today, including microchips, the internet, solar panels and GPS. Microchips were fantastically expensive when first developed in the 1950s. Demand from the U.S. military and NASA, which could pay the high price, fueled the growth of the industry, and costs eventually dropped enough that they’re now found in everything from cars to toasters.

Government support has also helped to bring down the cost of solar power. Rooftop solar system costs fell 64% from 2010 to 2020 in the U.S. because cells became more efficient and higher volumes drove prices down.

How much money?

So, subsidies can work, but what’s the right amount?

Too low, and a subsidy has no effect. Giving everyone a coupon for $1 off an electric car won’t change anyone’s buying plans. But subsidies can also be set too high.

The government doesn’t need to spend money persuading consumers who already plan to buy an electric car and can afford one, yet studies show clean energy subsidies disproportionately go to richer people. When people who would have purchased the item anyway receive subsidies, they’re known as “free riders.”

The ideal subsidy attracts new buyers while avoiding free riders and overspending on people who are already convinced. The subsidy can only work when it convinces a previously uninterested consumer to buy a product.

How long should subsidies last?

Timing is also important when thinking about the size of subsidies. When a promising technology is new and expensive, free riders are less of an issue. A large subsidy may be needed to attract even a few buyers, build out the emerging market and support the industry’s growth.

Solar power is a good example: In 2005, solar was several times more expensive than traditional electricity sources. Subsidies, like the 30% Investment Tax Credit established that year, helped lower the cost, and today’s solar is about one-tenth the price and cost-competitive with other electricity sources.

Once a clean technology is competitive, subsidies can still play an important role in speeding up the energy transition, but at a lower level than in the past.

In our research on residential solar panels, we estimate that the ideal subsidy for rooftop solar should have been initially higher than the actual federal tax credit but fall more quickly, declining to zero after 14 years from its start date.

By starting the subsidy about 20% higher, our models found that it would have boosted production faster, which would cut costs faster and reduce the need for high future subsidies.

Should subsidies eventually disappear?

It makes sense for subsidies to disappear altogether once a technology is sufficiently cost-competitive. However, even if a technology is competitive, it might be worth further subsidy if the speed of adoption is important.

The argument for continuing a subsidy depends on whether the additional adoption it stimulates is cost-effective in reducing emissions. Wind power is cheaper than fossil fuel power in many parts of the country. Even so, we found that continuing subsidies for wind power would lead to valuable emission benefits.

That said, sometimes subsidies stick around when they shouldn’t.

Fossil fuels have been heavily subsidized for decades, despite their harm to human health, the environment and the climate, all of which raise public costs. Governments globally spent almost $700 billion on fossil fuel subsidies in 2021. The U.S. government, in recent years, has spent more on renewable energy tax credits than fossil fuels, which is a promising transition of government support.

Global impact

While the U.S. was the focus of our solar subsidy research, this way of thinking – balancing the costs and benefits of subsidies – can be applied in other nations to design better subsidies for clean energy technologies.

The subsidy is just one policy tool, but it is an important one for both stimulating early-stage technologies and accelerating deployment of more competitive options. As the world attempts the fastest energy transition in history, today’s energy subsidy decisions will affect its ability to succeed.

About the Author:

Eric Hittinger, Associate Professor of Public Policy, Rochester Institute of Technology; Eric Williams, Professor of Sustainability, Rochester Institute of Technology; Qing Miao, Associate Professor of Public Policy, Rochester Institute of Technology, and Tiruwork B. Tibebu, Ph.D. Student, Rochester Institute of Technology

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By RoboForex Analytical Department

The crude oil market began the week with a crash. A Brent barrel is falling to 86.75 USD and looks very week.

Curiously, nothing has changed on the hews horizon.

On the one hand, the market is reacting negatively to the news about the coronavirus spreading in China. The country remains the main importer of crude oil. Any COVID-19 bound limitations might shorten the industrial demand for energy carriers. On the other hand, investors are caring for the comments of the US Federal Reserve System about further interest rate strategy.

Moreover, information has spread about a surplus of crude oil at European oil plants.

All this taken together is dragging the barrel price down.

On H4, Brent corrected to 86.00 and started developing a consolidation range. At the moment, the quotes performed and corrected an impulse of growth. Practically, they have set the borders of the range. With an escape upwards, a new wave of growth to 94.75 may start. The goal is first. Technically, the scenario is confirmed by the MACD. Its signal line is at the lows, getting ready to start growing to zero.

On H1, with a breakaway of 91.41, oil declined and extended the wave to 86.00. At the moment, the market completed an impulse of growth to 87.90 and a correction to 86.55. Another wave of growth is going to develop to 88.66. With a breakaway of this level upwards, a pathway to 91.41 should open. Technically, this scenario is confirmed by the Stochastic oscillator. Its signal line is under 50, aiming strictly upwards. Growth of the indicator to 80 is expected.

Disclaimer

Any forecasts contained herein are based on the author’s particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.