Why Methane Won’t Be Included in the European Carbon Border Adjustment Mechanism

The European Union (EU-27) is a globally significant trading bloc focused on reducing greenhouse gas emissions, including by seeking to impose its own environmental standards extra-territorially on its trading partners.[1] The United States, in particular, has an interest in being a supplier of reduced-emission fuels to the EU, and the two trade partners have every incentive to work together on their greenhouse gas emissions. An essential step toward working together is to have a common understanding of the science and engineering that undergirds rational policymaking.

As the EU-27 writes laws favoring the import of fuels with low greenhouse gas footprints, it may seem puzzling to some Americans to see two different sets of rules emerging across the Atlantic to regulate trade of goods embodying the two most important greenhouse gases: carbon dioxide and methane. The use of two different rule books can be explained by the fact that various greenhouse gases cannot be compared using one-dimensional metrics such as global warming potential (GWP) or carbon dioxide equivalent (CO2-eq). Moreover, while it is relatively straightforward to estimate the embodied content of carbon dioxide, it is quite difficult to determine the corresponding quantity of methane. Therefore, their border adjustments must be constructed on different principles.

This article describes the EU-27’s distinctly different rules for controlling imports of embodied carbon dioxide and embodied methane.

Greenhouse Gas Primer

Global average surface temperatures are higher now than they have been for at least the last 2,000 years,[2] and are continuing to increase at an accelerating rate.[3] Two greenhouse gases, carbon dioxide and methane, with very different characteristics, are primarily responsible for anthropogenic climate change.

Their properties are summarized here:

Radiative efficiency is a measure of the effectiveness of a chemical compound at warming the earth.[4] About 100 times more anthropogenic carbon dioxide than anthropogenic methane is emitted each year, but a ton of carbon dioxide has only about 1/100 of the warming effectiveness of a ton of methane. Hence the prompt warming effects of the two gases are comparable at current emission rates. However, methane disappears from the atmosphere in a few decades while carbon dioxide lingers for hundreds of years. Therefore, cutting methane emissions gives prompt reductions in the rate of global warming, but carbon dioxide continues to accumulate in the atmosphere and is, therefore, more dangerous in the long run. Judging them on the same scale (GWP or CO2-eq) is misleading.

Carbon dioxide and methane also come from different parts of the fossil fuel supply chain.

Methane is mostly released during production (“upstream”) and transport and storage (“midstream”). These emissions are intermittent and vary widely in magnitude and duration. Therefore, they cannot be estimated accurately. The vast number of episodically emitting sites pose challenges to measurement.
Carbon dioxide emissions mostly come from final use (combustion). These are easy to estimate accurately because both the masses of fuels consumed[5] and the carbon dioxide emission coefficients for various fuel-consuming processes[6] are well known.

Therefore, these gases are logically regulated by different means.

Rationales for the European Union Fossil Fuel Regulations

Carbon Dioxide

Within the European Union, the EU Emissions Trading System (EU-ETS),[7] alongside ETS 2,[8] is the mechanism controlling carbon dioxide emitted by end users of fossil fuels. The EU-27 will control the embodied carbon dioxide content of imported goods with the Carbon Border Adjustment Mechanism (CBAM),[9] with the levied carbon tax to be paid by purchasing certificates at the EU-ETS market rate for carbon. This obligation can only be offset by payment of an equivalent tax in the exporting nation, which poses a problem for exporters in nations that do not tax carbon emissions, such as the United States. US Trade Representative Katherine Tai, among others, has argued that “regulatory and other non-price mechanisms for reducing carbon emissions” should satisfy, at least in part, the CBAM obligation.[10] However, these arguments appear to have been ineffective.

From 2023 to 2030 the effects of CBAM are restricted to a limited range of materials and products.[11] From 2030 onward, CBAM will apply to all sectors covered by EU-ETS. These will include crude oil and refined petroleum products, but not pipeline natural gas or liquefied natural gas (LNG), except LNG used as marine fuel.

Note that EU-ETS, and therefore CBAM, covers only carbon dioxide, nitrous oxide, and perfluorocarbons, i.e. “emissions that can be measured, reported and verified with a high level of accuracy.”[12] Methane emissions are excluded from the EU-27’s current CBAM policy.

Methane

As noted, the European Union treats methane differently than other greenhouse gases, in part because it is difficult to quantify. Many methane emissions, even the largest ones, are intermittent and of highly variable duration. Gas leaks vary over many orders of magnitude, and once diffused in the atmosphere leave no local evidence of an emission.

The Environmental Protection Agency first attempted to estimate methane emissions from US petroleum and natural gas systems in the 1990s. With about a million oil and gas production and processing sites, and potential emissions sources being large multiples of that number, surveillance was deemed impractical. Emission factor (spreadsheet) methods requiring no measurements of operating equipment were developed. Now almost all countries that report greenhouse gas emissions to the United Nations Framework Convention on Climate Change use these methods, although their accuracy has been widely disputed.[13] Elsewhere, the author has presented a comparison of implementations of the emission factor method by the Russian Federation and the United States detailing the defects of this methodology.[14]

Over the last decade, a variety of emission monitoring systems have been developed and deployed, including effective and efficient methods such as sensors on moving vehicles, drones, helicopters, fixed-wing aircraft, and earth-orbiting satellites. These systems have revealed where, how, and why petroleum and natural gas systems lose methane to the atmosphere. A summary of these findings is available[15] and, as a result of many such studies, there has been a flurry of regulatory efforts on both sides of the Atlantic Ocean.

Implementing EU’s Methane Reduction Rules

Notably, the European Union is preparing the final text of a methane reduction law with extra-territorial reach.[16] This law provides (1) upon enactment (estimated to be early summer 2024) the European Commission will begin collection of methane emissions data, primarily at the scale of producing geological basins; (2) in 2027, reports on importer monitoring, measurement, reporting, and verification (MMRV) will be required for new import contracts; and (3) by 2030, all contracts must report MMRV efforts equivalent to EU requirements and must meet a methane intensity to be set by the European Commission in a future act. An MMRV best practices initiative designed to regularize reporting across nations is a positive step toward implementing these rules.[17]

Notes

[1] A. Bradford, The Brussels Effect: How the European Union Rules the World (Oxford University Press, 2020).

[2] IPCC, Climate Change 2021: The Physical Science Basis, Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, V. Masson-Delmotte, et al., eds. (Cambridge University Press, 2023). Figure SPM.1. https://doi.org/10.1017/9781009157896.

[3] J.E. Hansen et al., “Global Warming in the Pipeline,” Oxford Open Climate Change 3, no. 1 (2023), https://doi.org/10.1093/oxfclm/kgad008.

[4] IPCC, op. cit., FAQ 6.1.

[5] US Energy Information Administration, “Monthly Energy Review,” February 2024, https://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf

[6] US Energy Information Administration, “Carbon Dioxide Emissions Coefficients,” September 7, 2023, https://www.eia.gov/environment/emissions/co2_vol_mass.php

[7] European Commission, “EU Emissions Trading System (EU ETS),” accessed January 28, 2024, https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en.

[8] European Commission, “ETS 2: Buildings, Road Transport and Additional Sectors,” accessed February 19, 2024, https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/ets-2-buildings-road-transport-and-additional-sectors_en.

[9] Official Journal of the European Union, “REGULATION (EU) 2023/956 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 10 May 2023 establishing a carbon border adjustment mechanism, L 130/52 – L 130/104,” May 16, 2023, https://eur-lex.europa.eu/oj/direct-access.html; https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2023:130:FULL.

[10] US Trade Representative, “2023 National Trade Estimate Report on Foreign Trade Barriers,” pg. 178, https://ustr.gov/sites/default/files/2023-03/2023%20NTE%20Report.pdf.

[11] Official Journal of the European Union, “REGULATION (EU) 2023/956 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 10 May 2023 establishing a carbon border adjustment mechanism, L 130/52 – L 130/104,” May 16, 2023, Annex I and II, https://eur-lex.europa.eu/oj/direct-access.html; https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2023:130:FULL.

[12] European Commission, “Scope of the EU Emissions Trading System,” https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/scope-eu-emissions-trading-system_en.

[13] R. Alvarez et al., “Assessment of Methane Emissions from the U.S. Oil and Gas Supply Chain,” Science 361 (2018): 186-188, https://www.science.org/doi/10.1126/science.aar7204.

[14] R.L. Kleinberg, “Methane Emissions from the Fossil Fuel Industries of the Russian Federation,” Center on Global Energy Policy, Columbia University, January 15, 2023, https://www.energypolicy.columbia.edu/publications/methane-emissions-fossil-fuel-industries-russian-federation/.

[15] US House of Representatives Committee on Science, Space, and Technology, “Seeing CH4 Clearly: Science-Based Approaches to Methane Monitoring in the Oil and Gas Sector,” Majority Staff Report, June 2022, https://science.house.gov/imo/media/doc/science_committee_majority_staff_report_seeing_ch4_clearly.pdf.

[16] Council of the European Union, “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on methane emissions reduction in the energy sector and amending Regulation (EU) 2019/942 – Analysis of the final compromise text with a view to agreement, 15927/23,” Brussels, December 7, 2023, https://data.consilium.europa.eu/doc/document/ST-15927-2023-INIT/en/pdf.

[17] US Department of Energy, “Public Announcement of International Working Group to Establish a Greenhouse Gas Supply Chain Emissions Measurement, Monitoring, Reporting, and Verification (MMRV) Framework for Providing Comparable and Reliable Information to Natural Gas Market Participants,” November 15, 2023, https://www.energy.gov/sites/default/files/2023-11/MMRVFramework_PublicAnnouncement_15Nov2023.pdf.

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