What’s the issue?
The Inflation Reduction Act imposes a charge on methane emissions above a certain threshold which varies by segment of the gas supply chain. This concept was first included in the Build Back Better Act, but there were significant changes made between the two versions of the bills. In particular, the original bill imposed the charge on a facility-by-facility basis.
Why does it matter?
The Inflation Reduction Act, however, included a provision that allowed the fee to be assessed based on the aggregate emissions for “facilities under common ownership or control.” Therefore, it would seem that one way to avoid the fee entirely would be to transfer high-emitting facilities from smaller companies to larger ones that can absorb the excess emissions and still stay under the limit “across all applicable segments.”
What’s our view?
While certainly not as efficient as a market in methane emissions, we may see that some smaller companies will find it cheaper to simply sell their higher-emitting facilities to larger companies rather than incurring the costs to bring a facility into compliance. Many of the highest emitting sources owned by smaller companies are gas processing plants and they may become a target for acquisition by larger companies as the date for the collection of the methane charge is set to begin in 2024.
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