In this episode of Tax Notes Talk, Tax Notes contributing editor Nana Ama Sarfo discusses methane-related tax policy and how it might lead to future taxation of greenhouse gas emissions.
Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for length and clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: ruminating on methane.
As policymakers seek to curb greenhouse gas emissions through taxation, the star of the show has always been carbon dioxide, but methane emissions are a significant challenge that also require attention. So why is it so important to address methane emissions, and what policy tools are we seeing in this area?
Here to talk more about this is Tax Notes contributing editor Nana Ama Sarfo. Ama, welcome back to the podcast.
Nana Ama Sarfo: Thanks, Dave. It’s always great to join you.
David D. Stewart: So to start off, why don’t we talk about the sources of methane? Where does it come from?
Nana Ama Sarfo: That’s a great question. So methane is a greenhouse gas, as you had mentioned, and it comes from two main sources, agricultural emissions and then also oil and gas production. And when I say agricultural emissions, I’m referring to emissions from livestock. So for example, cows release methane gas as part of their digestive process. Rice cultivation is also a pretty big source of methane emissions. And then methane is also released at various parts of the oil and gas production process.
David D. Stewart: All right, so what is so important about methane? Why should it be targeted by policymakers?
Nana Ama Sarfo: Well, the issue is that methane is way more potent than carbon dioxide. So if you take a 20-year period of time, methane is actually 80 times more potent than carbon dioxide emissions, and that’s according to the United Nations. Now, the one, I guess you could say, good thing is that methane actually doesn’t linger in the atmosphere for as long as carbon dioxide does. And I think that’s probably one of the reasons why policymakers tend to focus on carbon dioxide more so than methane. But for the amount of time that methane remains in the atmosphere, methane-related warming is pretty quick and furious, and it does quite a bit of damage. There are some estimates from the United Nations and from others that indicate that methane accounts for about 30 percents of global warming.
David D. Stewart: Well, that’s definitely significant. Now, what are the sort of challenges of dealing with methane versus a traditional carbon tax?
Nana Ama Sarfo: Well, I think in terms of the structure or general goals for a methane tax or a carbon tax, there’s really not that much difference. In both cases, there’s a general policy goal of wanting to reduce emissions and then getting emitters to adopt cleaner technologies. But we do talk about carbon emissions more simply because they linger in the atmosphere a bit more than methane. So that’s why we tend to see more attention placed on carbon.
David D. Stewart: So what are the general approaches or senses of the idea of a methane tax?
Nana Ama Sarfo: I would say that over the past few years, there seems to be a pretty broad and aligned sentiment that globally methane levels need to decrease. So at COP26, which was held in 2021, the United States and the European Union actually spearheaded a global methane pledge, and that aims to reduce global methane emissions at at least 30 percent from their 2020 levels within a 10-year period, so by 2030. And it also aims to limit methane warming to 1.5 degrees Celsius. And since the pledge started, 158 countries have signed it, which is actually not too far away from the Paris Agreement, which addresses carbon-dioxide-related warming. And the Paris Agreement has 196 signatories. So many countries have signed onto this pledge really quickly.
And then we’re also seeing private industry get involved. So at COP28, which was held just a little less than a year ago, in the fall of 2023, nearly 50 oil and gas companies promised to cut their methane emissions to near zero by 2030, which is a pretty ambitious goal. So these pledges are relatively new and we’re now starting to see countries act on those promises and start to think about how they can fulfill them.
David D. Stewart: So what are we seeing in the U.S.? There’s often been a bit of a reluctance to take on things like carbon taxes. So what are you hearing going on here?
Nana Ama Sarfo: Yes, you were absolutely right about the reluctance. Well, thanks to the Inflation Reduction Act, we now…