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SUMMARY

Inflation Reduction Act includes methane tax of up to $1,500/metric ton.

By Dale Lunan

The US Senate, on the strength of an August 7 tie-breaking vote from vice president Kamala Harris, passed the Inflation Reduction Act of 2022 (IRA22), legislation which includes several climate-related components, including a tax on methane emissions and tax credits supporting alternative fuels.

The legislation will be sent to the Democrat-controlled House of Representatives this week, and could receive president Joe Biden’s signature by the end of the week.

The act sets aside $369bn for energy security and climate change measures – the largest spending package to fight global warming in US history – including a $1.5bn program that includes new payments for companies that cut methane emissions and penalties, starting at $900/metric ton in 2024 and rising to $1,500/mt in 2026, for emissions from certain oil and gas facilities regulated by the Environmental Protection Agency.

The methane charge would only apply to facilities that emit more than 25,000 mt of CO2-equivalent/year, with a host of other exemptions available to certain parts of the oil and gas system. Natural gas distribution facilities would not be subject to the charge.

Various models suggest the climate components of IRA22 – including tax incentives to encourage wind and solar power developments and purchases of electric vehicles – could reduce US greenhouse gas emissions by as much as 40% over the next eight years.

The IRA22 also extends the Alternative Fuel Tax Credit (AFTC) for three years, retroactive to January 1, 2022. The AFTC provides a $0.50/gallon fuel credit/payment for the use of RNG as a transportation fuel.

“We are pleased that the Inflation Reduction Act of 2022 that was passed in the US Senate yesterday included provisions that encourage the use of renewable natural gas (RNG), which is currently the cleanest transportation fuel available and powers tens of thousands of heavy-duty vehicles every day,” Clean Energy Fuels CEO Andrew Littlefair said August 8. Clean Energy Fuels is one of the largest producers and marketers of RNG in the US.

Other measures of the AFTC include an investment tax credit of up to 30% for qualified biogas projects, including RNG digesters at dairies and other agricultural facilities.