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We compare several polices aimed at reducing methane emissions from the natural gas sector, which threaten to erode the advantages that gas holds over coal in terms of climate change.

Methane emissions from the natural gas sector threaten to erode the climatic benefit that gas holds over coal. Yet the majority of existing sources of methane emissions in the natural gas sector remain unregulated. This is due in part to concerns that policies to mitigate these emissions would entail overseeing a large number of sources and impose significant administrative and compliance costs. Unfortunately, the typical market-based approaches that might ameloriate these concerns, such as a pollution tax, are not practical at the moment because there are no accurate and publicly available firm-level inventories of methane emissions; however, monitoring technologies are improving quickly, meaning that such inventories may be available in the foreseeable future. Focusing on the United States, we describe a suite of prototypical policies to reduce methane emissions from the natural gas sector, including technology standards, performance standards on firms, performance standards with averaging, tradable performance standards, several types of leak detection and repair programs, and a pollution tax with default and updatable leakage rates. We then analyze the extent to which each of these policies provides appropriate incentives for abatement, given the unique attributes of methane emissions from the natural gas sector. Finally, we compare these policies in terms of administrative costs, economic efficiency, and environmental effectiveness. We find, among other things, that a pollution tax with assumed and updatable default leakage rates performs particularly well in terms of economic efficiency and environmental effectiveness.

Figures

Figure 1. Leakage Rates (%) from Natural Gas Systems in the United States, 1990-2014

Figure 3. Methane Emissions (MMTCO₂E), as Estimated by EA's Greenhouse Gas Inventory by Natural Gas Subsector

Figure 4. National Aggregate Marginal Abatement Cost Curve for Oil and Natural Gas Subsectors

Figure 5. National Marginal Abatement Cost Curve for Methane Abatement Technologies for Oil and Natural Gas Sector