Perspectives
A Climate Deal on Methane
Forging a Winner on the “Energy Transition Supply Cure” – By
We’ve been fond of quoting Winston Churchill to the effect of: “You can always count on the United States to do the right thing…after they’ve tried everything else.” Whether Churchill said exactly those words (or anything similar) is subject to historical debate, but the quip seems to fit the subject. Certainly, when that subject is climate policy, a strong case can be made for the U.S. trying many things before getting something fundamentally right. However, the news coming out of COP28-Dubai suggests the U.S. may have gotten to something resembling a sweet spot. This Climate Summit’s big news is a U.S.-sponsored deal to limit methane emissions.
Whether acknowledged or not, something called the Energy Transition Supply Curve exists. This curve is a policy tool that identifies which options provide the most Greenhouse Gas (GHG) emissions reduction for the least incremental cost over current practice. One example would be converting coal-fired power plants to combined-cycle natural gas (CCNG). A significant reduction in CO2 emissions results and the higher efficiency of the CCNG plant delivers comparable or even cheaper electricity than the shuttered coal plant. That’s a supply curve ‘winner’ and a leading edge of the Transition Supply Curve.
Offshore wind and battery electric vehicles (BEVs) reside much higher on that curve. They cost more than current alternatives, especially when one strips away the subsidies, factors in the costs of backup power for non-dispatchable wind generation and considers all the metals and other inputs required to produce and recharge BEVs. Adding all elements of their supply chains and operations together, their contribution to reducing GHG emissions may be small or non-existent.
A sustained effort to capture methane emissions, however, lands dead center in the sweet spot of the GHG Supply Curve. Methane is a more potent GHG than CO2. Its saving grace is that it stays in the atmosphere less time, on average for only twelve years. CO2 remains in the atmosphere for as long as a century – hence the focus on reducing carbon-based emissions. But stopping methane emissions gets rid of that more potent GHG and for several reasons should be cheaper and easier to accomplish.
The reasons why this is so should make compelling reading for everyone committed to combatting climate change. Start with the fact that natural gas is a valuable product, more valuable by far than CO2. The former powers a host of activities vital to modern living: electricity generation, industrial and manufacturing processes, home heating and cooking, even such things as hydrogen production. The gas liquids associated with methane, such as ethane and propane, are building blocks for plastics and other chemicals. CO2 isn’t useful for very much beside beverage carbonation. With effort it can be made into useful things like cement or methanol, but the costs of doing so persist in being more expensive than current production. The bottom line – there is a basic business incentive to capture methane and sell it for cash rather than let it leak or burn it off via flaring. The same can’t be said for CO2.
Why then does this not automatically happen? The reasons for methane emissions are many and varied. Start with the phenomenon of ‘associated gas.’ When crude oil is produced at remote locations, it often comes up the well bore accompanied by natural gas. These separate at room temperature, and if the producing company doesn’t have a nearby commercial market and/or infrastructure to get the gas there, this ‘associated gas’ becomes a problem. One solution is to reinject the gas into the oil reservoir. This helps sustain reservoir pressure and oil production, but reinjection is costly to install. Depending upon crude oil prices at the time, investing in reinjection may not be economic. When that is the case, flaring gas has been the alternative – eliminating the methane but emitting CO2 instead.
Leaks from pipelines, compressors and other industrial infrastructure ‘kit’ have been the other source of emissions. Industry terms these ‘fugitive emissions’ – meaning they are somewhat unintentional. Sponsors don’t build pipelines to intentionally leak large volumes of valuable products (most are designed to allow small pressure-release emissions). Yet, leak unintentionally they do, especially as they age. Spotting these leaks has been one issue; methane is odorless and colorless and thus difficult to see leaking. Fixing the leaks is the obvious task, and while that might sound like a no-brainer, the leaks are often relatively small compared with the cost and effort to repair them – think shutting down a line or industrial process, losing production, digging up the lines, repair and rebury, and restart.
These accounts help explain why methane emissions still occur; if such is the case, why is COP-28’s methane message likely to get a receptive hearing from industry? For starters, as noted above the product is valuable. For another, the industries in question have already begun serious efforts to capture methane emissions. Pressured to show progress on GHG emissions, they exhibit a clear preference for tackling methane. Various initiatives and industry coalitions dedicated to this task already exist. A third reason is they know how to do it. Proven technology exists and is being deployed to identify and capture methane. This is not a case of awaiting some laboratory breakthrough or the development of a supply chain. Rather it’s a case of being willing to make the necessary investments even when the volume of gas captured and sold does not ‘pencil’ versus the cost of doing so. In this case, the last miles on this journey are the hardest and least economic.
Flaring is a good example and a test case for the rules to come out of COP-28. As noted, flaring is the solution when/where ‘capture and sell’ is not physically or economically feasible and when reinjection doesn’t ‘pencil.’ Reports coming out of COP-28 and the Biden administration point to instituting a ban on routine flaring. The industry will likely complain that such rules make no allowance for situations where flaring is by far the most economic option. Such complaints may eventually lead to situations where voluntary industry compliance gives way to political resistance and even some non-compliance.
To finish the job of eliminating methane emissions, the best means would be to combine well crafted, regulation with a gradually rising tax on such emissions. Knowing that such a tax was coming would do two great things: 1) it would remove the economic incentive to flare and 2) give industry a firm planning basis for handling methane as they consider future projects. Both steps would put action on methane emission limitation onto its most economic pathway to elimination.
Combining uniform, sensible regulations with a rising tax on methane emissions also levels the financial playing field – every operator would have to bear the cost of compliance. Exxon’s CEO Darren Woods said that the company would welcome methane legislation during at the June 2018 World Gas Conference in Washington DC. ( https://www.axios.com/2018/06/25/environmental-group-teams-up-with-exxon-on-climate-change-1529944179). Five years later, the world may be ready to take CEO Woods up on his offer to welcome action on this Energy Transition Supply Curve opportunity.