While the Biden Administration largely relies on massive tax incentives in the Inflation Reduction Act to address carbon dioxide emissions, it adopts a mixed strategy to address another potent greenhouse gas: methane. This approach includes a methane tax, methane regulations, and technology funding, which marks the first time the U.S. federal government has levied a direct tax on greenhouse gas emissions. 

Methane: a potent greenhouse gas

Although methane only accounts for a small portion of the total greenhouse gas emissions at about 12% in the U.S., it is much more potent than carbon dioxide, which accounts for almost 80%. Methane is 80 times more efficient at trapping heat than carbon dioxide over 20 years. 

Approximately two-thirds of total methane emissions are from human activities, including agriculture, energy and industry, land use, and waste management. It is emitted from fossil fuel production, processing, transportation, and storage. 

A methane tax in the inflation reduction act

The 2022 Inflation Reduction Act directed the EPA to collect a tax on methane emissions from oil and natural gas facilities by adding an amendment to the Clean Air Act. 

The methane tax rates align with most carbon tax proposals introduced in Congress. It starts at $900 per metric ton of methane in 2024 and will rise to $1500 in 2026, which converts to about $36 and $60 per metric ton of carbon dioxide equivalent (CO2e). 

However, the base of the methane tax is relatively narrow. It targets the oil and natural gas sources, accounting for about 29% of U.S. methane emissions. Facilities under certain industry segments that report more than 25,000 metric tons of CO2e to the EPA are subject to the tax. Additionally, only emissions above thresholds that vary by facility type are taxed. For example, the Congressional Research Service (CRS) estimated that for the onshore petroleum and natural gas production facility, 27.2 out of the 44.2 million metric tons of CO2e  reported methane emissions would be subject to the tax after applying the emissions threshold. 

CRS estimated that during the first year of implementation, it will cover about 1.3 million metric tons of methane, equivalent to 31 million metric tons of CO2e.  That means it covers about 0.4% of the total U.S. greenhouse gas emissions of 6.3 billion CO2e.  

In January 2024, the EPA released a proposed rule on implementing IRA methane tax. The proposed regulation includes tax liability calculation methods, exemptions, and reporting requirements. The agency is proposing these exemption criteria for a facility to be partially or fully exempted from the tax: delay related to permitting for eligible infrastructure for methane mitigation, wells that have been shut in, and compliance with EPA’s methane rules. There is a 45-day public comment period, and EPA will hold a public hearing to discuss the rule.

Other methane regulations and funding

The Biden Administration joined the Global Methane Pledge in 2021 to cut the world’s methane emissions by 30% from 2020 by 2030, and also relies on other instruments to cut methane:

  • EPA issued a final methane emissions rule in December 2023 that includes technology standards for new and existing oil and gas facilities.The agency estimated that the rule would result in an 80 percent reduction in methane emissions from 2024 to 2038. 
  • The IRA authorized the EPA to provide more than $1 billion of funding to oil and gas facilities to help them deploy technologies to reduce methane emissions. 
  • EPA proposed rules to update methane emissions measuring and reporting requirements in August 2023