The SEC turbo charges methane disclosure and enforcement

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The SEC turbo charges methane disclosure and enforcement

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Draft SEC greenhouse gas disclosure rules could be the bridge to a clean energy future, but may also be a bridge too far for natural gas proponents.

Methane, or “natural gas,” is a versatile hydrocarbon molecule CH4. Invisible, odorless, light, energy-dense, really hot when combusted and very valuable. For years it was the darling of both Democratic and Republican lawmakers — a “clean” natural gas that allowed the U.S. to regain its energy independence. Back in the day, when oil was the grail, the gas was vented as a waste byproduct, with little thought of the environmental consequences. Then it became a prized energy product. Even so, methane gas continues to escape during production, transport and use. This is problematic because methane poses a systemic climate risk. After all, it is 85 times more powerful than CO2 when it comes to warming the planet’s atmosphere. 

This is why climate risk advocates were delighted to find an early Easter egg in the epic 510-page Securities and Exchange Commission (SEC) Climate draft rulemaking released this week: a long-sought mandatory Greenhouse Gas (GHG) disclosure request. For the first time, U.S. government rules would require companies to report GHGs on a separate, “disaggregated” basis by the seven target gasses: carbon dioxide, methane, nitrous oxide, nitrogen trifluoride, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride, and not just collectively, in a single seething, indecipherable cauldron brew of greenhouse gasses based collectively on their 100-year global warming potential. 

The methane chasers

For methane chasers –– an enlightened group of physicists, climate scientists, activists and some gas operators –– this disclosure request was seen as a significant step forward by one of the world’s largest emitters of methane — a move that would also pressure companies to set methane-specific emissions reduction targets.

Methane is more immediately damaging than CO2, trapping 85-times more heat in the atmosphere.

The implications of receiving such comparable, specific and actionable data, and knowing exactly how much of each target gas is being emitted, will also have profound implications for everything from climate policy and how we use energy in the grand energy transition to more immediate concerns about U.S. energy security. This is why the proposed new rules are already encountering heated opposition from business groups and the fossil fuel industry.

How so? It is all about the physics. Methane is more immediately damaging than CO2, trapping 85-times more heat in the atmosphere. However, unlike CO2, which takes thousands of years to leave the atmosphere, methane dissipates in about 12 years.  Knowing the amount and impact of the individual gasses like methane goes a long way to understanding the interplay of gasses in a dynamic set of global warming equations, and then to modeling the best near-term carbon warming reduction options. If you are rational and practical, you attack the cheapest, most feasible and steepest GHG pollution warming potential profile. Ding! That would be methane.

Addressing methane emissions has become more urgent in light of evidence that these emissions may be much worse than previously estimated. A recent EDF study indicated that emissions in the Permian Basin are up to three times more than company estimates reported to the EPA. In a show of growing concern at the COP26 summit in November, 100 countries signed the Global Methane Pledge, a voluntary agreement to work collectively to reduce global methane emissions at least 30% from 2020 levels by 2030. At about the same time, the U.S. EPA proposed rules to limit methane emissions from new and — for the first time — existing oil and gas facilities.

The good news is that if methane emissions are reduced in the next decade, we can expect to meaningfully “bend the curve” of global warming and achieve 1.5 C.

That’s why methane has become the critical  “swing factor” in the transition between the carbon-intensive global primary energy system mix of yesteryear, and the clean and net zero system of 2050. The good news is that if methane emissions are reduced in the next decade, we can expect to meaningfully “bend the curve” of global warming and achieve 1.5 C. Otherwise, it is odds-on that the 1.5 C path is unachievable.

To tackle methane emissions will require nations, investors and fossil fuel companies to make hard energy choices if they wish to accelerate and/or manage the use of natural gas and reduce global warming. The ability to understand and limit how much methane is being released during oil and gas production will define the size, shape and nature of the putative “gas bridge.” By better understanding, and being held accountable for methane emissions, fossil fuel producers would be able to develop and export more natural gas, which, as the war in Ukraine has demonstrated, is desperately needed to meet short-term energy demand. Increasing gas exports, however, would require fossil fuel companies to do things they have been dragging their feet on for decades — reduce overall atmospheric emissions by capping methane, and meaningfully increase investments in lower emission, clean energy solutions. 

The excellent news is that EPA draft rules would be cheap for producers to implement — less than 10 cents per barrel, or 1% of current oil prices. EDF’s excellent work on methane has also handed Beta activists — investors focused beyond-single company issues  — a dead easy, near irrefutable cost argument to make systemically for the entire industry.

Trust but verify

The draft guidelines bring new meaning to the old nuclear arms control idea of “trust, but verify.” For the first time, companies face the threat of civil action if GHG gasses are falsely reported. All this has the freewheeling and regulatory-averse oil and gas industry in a veritable tizzy.

Here is how it works: The companies themselves will be responsible for measuring and managing their methane. But just as satellites are used to monitor arms control compliance, well-funded environmental NGOs like EDF and MiQ will soon monitor methane compliance. What was once a voluntary, estimated and aggregated disclosure, now becomes a granular and specific cost of doing business, a requirement for maintaining their social license to operate.

Permian basin bird watching 

It also comes at a time when rapid technological advances in satellite imagery will make it all but impossible to hide methane emissions. Funded by billionaires like Jeff Bezos, the quality and precision of data collection is improving dramatically. Next year, EDF’s MethaneSAT will become the world’s first satellite launched by an independent NGO and will have the ability to monitor methane production almost everywhere on the planet, including the Permian Basin, the largest oil field in the U.S. Soon thereafter will come more localized point source detection by Carbon Mapper funded by Bloomberg Philanthropies, the High Tide Foundation and others to measure methane pollution at an even greater granularity down to the equipment type.

Deep divisions remain on whether natural gas is a clean energy alternative to coal and oil or a critical contributor to global warming.

SEC rulemaking will be difficult to defeat because it doesn’t require Congressional approval, but a coalition of American businesses still plan to undermine and challenge key elements of the draft in the 90-day commentary period. Opponents charge that the SEC proposal is an egregious example of regulatory overreach. “We are not the securities and environment commission,” said the lone dissenting Republican-appointed SEC commissioner Hester Pierce. 

Not surprisingly, Republicans are also urging the Biden administration to pause its work on climate-related regulations in light of soaring oil prices caused largely in part by Russia’s invasion of Ukraine.

In a recent letter to Treasury Secretary Janet Yellen, Republicans on the Senate Banking Committee dusted off an old energy chestnut urging the SEC and other federal financial regulators to hold off on issuing rules that “may discourage future energy production.”

Can you live with reduced emissions and monitored natural gas?

Greater methane transparency may do the opposite — and increase all forms of energy production. The new rules, combined with the new technology could allow the United States to become the world’s largest exporter of natural gas, and accelerate the introduction of renewable energy and carbon sequestration technology at the same time. American-produced emissions-monitored natural gas becomes both a powerful environmental and democratic political alternative to the dirty gas being peddled by Russia and Saudi Arabia. 

To date, however, that alternative is not being embraced by many. Deep divisions remain on whether natural gas is a clean energy alternative to coal and oil or a critical contributor to global warming. The fact that it is both is something neither side likes to acknowledge in high-profile public affairs campaigns.

You call it fracked gas. Others call it freedom gas

But the debate on the future of “methane,” “fracked,” “freedom,” “fossil gas” or “natural gas” –– or whatever you want to call this hydrocarbon gas, spells a much deeper challenge to moderating climate change. While the debate on the science of climate change is mostly settled, the idea of actually cooperating and compromising in a practical dialogue on global warming initiatives and systemic risk mitigation remains a distant dream. With the right technology, regulatory oversight and market incentives, there could be a viable “gas bridge” to a carbon-free future. But building and crossing that bridge requires collaboration and conciliation — two human attributes that are as scarce as “clean natural gas.”

Written by

Billy Gridley

William "Billy" Gridley is Climate & Capital's climate policy editor. He is a leading climate investor activist and former Ceres policy executive. A lifelong environmentalist, business entrepreneur and former arbitrage investor for Goldman Sachs and Bear Stearns. Like all of us, he is eager to shatter the status quo to accelerate climate action.