Taxing Flaring and the Politics of State Methane Release Policy

Abstract

Methane is a potent greenhouse gas but it has received strikingly less social science attention than carbon dioxide in examining climate policy options. This article explores American state policy toward methane that is not captured and instead released into the atmosphere during oil and gas production. It examines whether states have adopted market-based approaches to price methane flaring and venting through long-standing severance taxes on natural gas extraction. Such taxes exist in all but one production state, routinely materializing after prolonged adoption battles. Most states have maintained methane release exemptions from these taxes through either statute or administrative discretion between 1960 and 2000, although a few have allowed some form of pricing. Two state legislatures have explored applying these taxes to methane releases on multiple occasions since 2000, amid expanded shale era output and growing public concern about climate and air quality impacts. Steadfast production industry opposition, rather than technical feasibility, emerges as the primary factor leading to rejection in these cases. Even when framing releases as a conventional air contaminant or as permanent loss of a nonrenewable natural resource, states largely continue to exempt flared or vented methane from severance taxes.