Navigating Carbon Border Mechanisms: Lessons from the Natural Gas Industry's MMRV Processes
Differentiated Gas Coordinating Council Blog
November 15, 2023
Senator Bill Cassidy (R-LA) recently introduced the Foreign Pollution Fee Act of 2023, reigniting the conversation on a carbon border tax in the United States. The Foreign Pollution Fee (FPF) is designed to ensure the pollution intensity of products imported into the U.S. is no dirtier than the production of similar domestically produced goods. The bill text specifies that no fees will be applied to any U.S. producers and also encourages and exempts “international partnerships” from all or most fees to promote U.S. trade. The products implicated under the FPF include aluminum, batteries, biofuels, cement, crude, glass, hydrogen, iron/steel, minerals, natural gas, petrochemicals, plastics, pulp/paper, refined petroleum products, solar cells, and wind turbines.
Earlier this summer, Senators Chris Coons (D-DE) and Kevin Cramer (R-ND) introduced the Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency (PROVE IT) Act of 2023, which directs the Department of Energy (DOE) to conduct a comprehensive study comparing the emissions intensity of certain domestically-produced goods to the emissions of those same goods produced in other countries. Products to be studied under the legislation include aluminum, fertilizer, hydrogen, natural gas, and plastics, among others.
These announcements come on the heels of the European Union’s (EU) recently passed Carbon Border Adjustment Mechanism (CBAM), which began its first transitional phase on October 1, 2023. Under its CBAM, the EU will require imported goods to face charges and requirements similar to those that would be applied if the imported product was produced domestically. Under current EU law, European producers of carbon-intensive goods must purchase allowances via the EU Emissions Trading System (ETS) for each metric ton of carbon dioxide (CO2) they emit. During its first transitional phase, the EU’s CBAM will cover direct and indirect emissions from certain imported carbon-intensive products including cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. Though natural gas is not explicitly called out as a carbon-intensive product under the EU’s policy, natural gas emissions that result from the production of the listed products must be reported. By 2026, CBAM will become permanent and align with a phase-out of the current ETS system. Beginning January 1, 2026, importers will be required to annually declare the GHG emissions from their imported products and make a payment based on the weekly average auction price of ETS allowances expressed in €/metric ton of CO2 emitted.
As both the U.S. and the EU consider and advance carbon border mechanisms, policymakers must understand the importance of strong measurement, monitoring, reporting, and verification (MMRV) systems to ensure the proper enforcement of enacted CBAM policies. The natural gas industry is leading the adoption of innovative MMRV systems by developing and deploying technologies and procedures to enable rapid leak detection and repair. These accomplishments are enabled by advanced measurement technologies, which provide the emissions data critical to reducing methane emissions throughout the natural gas value chain. Once methane leaks in the oil and gas sector are detected, they can often be remediated using simple engineering solutions, such as replacing a valve or tightening bolts.
A crucial component of MMRV in the natural gas sector is emissions certifications. Entities and practices that enable certification push beyond the lowest standards for methane emissions set by regulators and allow companies to demonstrate mitigating efforts that go above and beyond local, national, and international requirements. Certifiers guarantee the environmental attributes of a product by combining “bottom-up” emissions data (i.e., emissions inventories generated using emissions factors and engineering calculations) with “top-down” (i.e., data collected via direct measurement or atmospheric sensing). These data can then be reconciled to provide the most comprehensive picture of a producer’s emissions possible. Initiatives such as the Energy Emissions Modeling and Data Lab (EEMDL) at the University of Texas at Austin and GTI Energy’s Veritas protocols are helping improve how operators use these data to monitor and reduce emissions, pushing the natural gas industry even further into a digitized future. In addition, the U.S. Department of Energy’s (DOE), Office of Fossil Energy and Carbon Management (FECM) is developing an international working group to advance comparable and reliable information about greenhouse gas emissions across the natural gas supply chain to drive global emissions reductions. The working group will develop a consistent framework for the measurement, monitoring, reporting, and verification (MMRV) of methane, carbon dioxide, and other greenhouse gas emissions that occur during the production, processing, transmission, liquefaction, transport, and distribution of natural gas.
Methane MMRV systems, especially recent developments in technology and data systems, have enabled significant reductions in emissions in the natural gas sector. With carbon border initiatives front of mind in the U.S. and EU, policymakers on both sides of the Atlantic should look to the natural gas industry as an example of how to demonstrate best practices for visualizing the environmental attributes of a commodity, in this case helping establish a fair market for low-emissions products. These practices can lead to significant methane emissions reductions, from a site level up to a basin level, while simultaneously creating a strong and growing market for differentiated gas.
Differentiated natural gas stakeholders lead the world’s efforts to accurately create, adopt, and codify MMRV systems, exemplifying the opportunity of CBAM policies. Differentiated gas is already being traded domestically and internationally, and the sector’s MMRV process continues to evolve and improve as more stakeholders engage in the market. A study from the Department of Energy assessing the emissions intensity of natural gas, such as what has been proposed in the PROVE IT Act, would also help build out an international framework for measuring emissions intensity. As a result, differentiated gas should be seen as an example for other industries as they work to comply with carbon border mechanisms in both the U.S. and abroad.