By Jonas D. Kron, Esq., Director of Shareholder Advocacy
It is well established that methane emissions are a serious climate problem. Methane is a highly potent greenhouse gas—as much as 84 times more powerful than carbon dioxide over a 20-year time period. The Intergovernmental Panel on Climate Change, the leading international body for the assessment of climate change, estimates that about 30% of the warming we will experience over the next two decades as a result of this year’s greenhouse gas emissions will come from methane.
The entire oil and gas supply chain (from production through downstream uses) is the largest industrial source of methane emissions in the U.S., and recent studies have concluded that methane emissions from the U.S. natural gas supply chain are nearly double the official estimates . As the Obama administration noted in its March 2014 Strategy to Reduce Methane Emissions, emission measurement and estimates entail considerably uncertainty.
What this means is that both carbon dioxide and methane emissions pose imminent risk to the climate and in turn economic stability and investment opportunities. This is particularly true as market forces and the Obama administration’s Clean Power Plan position natural gas as a low-greenhouse gas alternative to coal. But methane emission rates put that premise into question. It is therefore critical for us to adopt rigorous regulation to address methane emissions so natural gas has the opportunity live up to its climate potential.
Over the past few years, Trillium, along with other concerned investors, has engaged oil and gas companies on this issue by urging them to set goals for reducing methane and to improve disclosures significantly. In October, Trillium and the NYC Comptroller’s Office opened a new avenue of advocacy by organizing investors with more than $300 billion in assets under management to write a letter to Gina McCarthy, Administrator of the U.S. Environmental Protection Agency, urging the agency to move forward with a robust effort to regulate methane emissions from the oil and gas industry, both upstream and midstream. In the letter, which is posted on Trillium’s website, we described how investors in the oil and gas industry are deeply concerned that methane emissions pose a serious threat to climate stability, accelerating the rate of warming in the near term and threatening infrastructure and economic harm, which are bad for the country and bad for investors.
The policy we call for in the letter is a comprehensive policy that will:
(1) minimize harmful methane and associated emissions,
(2) build investor confidence that natural gas is appropriately regulated so that it can help the economy transition to a clean energy economy, and
(3) keep more natural gas working for the economy as America migrates towards a more sustainable energy mix.
We also emphasize that there are proven, cost-effective solutions to this problem that will dramatically cut emissions now. A recent report prepared by ICF International, drawing on industry input, identified proven control strategies that can slash oil and gas methane emissions by 40% at an average annual cost of less than one cent per thousand cubic feet of produced natural gas. These strategies, such as vigilant leak detection and repair programs and retrofits of valves originally designed to leak methane, are commonsense ways to cut emissions. In addition, some of these strategies will have a positive economic payback, as the value of captured gas more than offsets the cost of control. Furthermore, addressing methane emissions will benefit regional air quality and public health. The attainable 40% methane reduction brings with it—for no additional cost—a 44% decrease in volatile organic compounds (VOCs) and hazardous air pollutants (HAPs), which are significant contributors to diminished air quality and public health issues such as asthma and other respiratory conditions.
We also argue that it is insufficient to rely solely on voluntary initiatives and state-level action. While voluntary industry action and state-level regulation are meaningful steps in the right direction, they are insufficient to address the magnitude and urgency of the problem. With thousands of industry operators in the upstream segment alone, uniform rules are the only way to level the playing field and ensure high performance across the board. As the industry is highly dispersed, a national framework, in collaboration with states, is the right approach to ensure simplicity, consistency, and certainty. Further, policy is needed to overcome externalities that keep companies from investing in emission reduction. The good news is that the EPA can draw on the Colorado model, where the recent development of sweeping new methane control rules was accomplished through a cooperative process that included political and policy leaders, industry, and environmentalists.
Finally, we pointed out that a rigorous methane policy can reduce risk and create value for investors and the economy. For example, a June 2014 Goldman Sachs report shows that America is losing out 15:1 on certain industrial downstream reinvestment, in part because the methane policy vacuum and associated public environmental concerns create uncertainty in industrial investment. We believe the establishment of a comprehensive methane policy that reduces emissions and ensures a real climate benefit from natural gas as we transition to a renewable-energy economy can have positive economic and environmental benefits. The Goldman Sachs report argues that as many as 1 million additional jobs in the U.S. may be created in the next decade if we address a number of key policy priorities, including methane. Moreover, getting methane emissions under control will help manage the rate of climate change, thereby limiting the damaging economic costs associated with droughts, storms, floods, and other disruptions.
In the year to come we expect this group of investors to grow significantly. We will be continuing to engage policy makers as the policy process proceeds—not only with additional letters, but with in-person meetings and discussions. We firmly believe that investors have the opportunity and responsibility to address climate change at the company and policy level. We feel that this policy initiative is one of the most impactful ways for us to do this.
 Brandt, A. R., et al., “Methane Leaks from North American Natural Gas Systems,” Science Magazine (February 2014)
Editor’s Note: This article was originally published in the Winter 2015 issue of Trillium’s newsletter, Investing For a Better World.