2022-10-30-IMF-How_to_Cut_Methane_Emissions_28页_2mb

Summary: How to Cut Methane Emissions

Core Content

This IMF Staff Climate Note outlines practical fiscal policy options for reducing methane emissions globally and discusses their economic and environmental impacts. Methane, although less persistent in the atmosphere than CO₂, has a significantly higher global warming potential (GWP), making it a critical target for climate mitigation. The report highlights the importance of implementing methane pricing mechanisms, such as fees or feebates, to achieve substantial reductions in emissions.

Main Viewpoints

• Methane's Impact: Methane contributes significantly to global warming, accounting for 30-40% of the 1.2°C temperature rise since preindustrial times. It has a GWP of about 30 over a 100-year period, meaning each tonne of methane is equivalent in warming effect to 30 tonnes of CO₂.
• Global Pledge: 125 countries have signed the Global Methane Pledge (GMP) to cut methane emissions by 30% by 2030, but current commitments fall short of what is needed to limit warming to 1.5°C or 2°C.
• Emission Sources: Methane emissions are primarily from three sectors:
  • Extractives (35%): Oil, natural gas, and coal operations are the main contributors, with 80% of emissions coming from upstream activities (e.g., venting, flaring) and 20% from midstream.
  • Agriculture (40%): Cattle and other livestock contribute the most, with enteric fermentation being the primary source.
  • Waste (25%): Landfills are the largest source, followed by incineration and wastewater leaks.
• Fiscal Policy Options: The report recommends methane fees or feebates as the most efficient and administratively feasible tools for reducing emissions, especially in extractive industries.
• Revenue-Neutral Policies: Fees should ideally be revenue-neutral, using collected funds to subsidize cleaner producers or offset costs for firms with lower emission rates.
• Global Coordination: An international price floor for methane emissions could help align global efforts and address competitiveness concerns among large emitters.
• Differentiated Pricing: Developing countries face higher mitigation costs, suggesting that international climate finance and differentiated pricing could be necessary to support global methane reduction goals.

Key Information

• Global Emissions Gap: Even if all countries meet their more stringent methane reduction commitments, global methane emissions would only be reduced by about 40-70% of what is needed to stay below 1.5°C or 2°C warming.
• Methane Fee Impact: A $70 methane fee per tonne of CO₂e among large economies would align emissions with the 2°C target, with two-thirds of cuts coming from the extractive sector.
• Implementation Challenges: Many countries, especially non-GMP signatories, underreport methane emissions. This suggests the need for more accurate measurement and reporting systems.
• Technology and Innovation: Methane capture technologies, improved leak detection, and better livestock feed (e.g., seaweed) can reduce emissions. However, these require investment and may not be feasible for all countries without support.
• Private Sector and Financial Markets: The report also discusses private sector initiatives and financial instruments that could complement government policies.

Policy Instruments

• Methane Fees: Directly levied on emissions or indirectly on production, using default emission factors. Fees can be revenue-neutral, with rebates for firms that demonstrate lower emissions.
• Feebates: A policy that uses fees on high-emitters to subsidize low-emitters, promoting cost-effective reductions.
• Emission Trading Systems (ETSs): Can be used as an alternative to fees, but face challenges in terms of market size, price volatility, and institutional capacity.
• Emission Rate Regulations: Set standards for methane emissions per unit of output, but may lack flexibility and fail to incentivize innovation.
• Technology Mandates: Require the installation of methane capture technologies, but are often not cost-effective due to varying firm-specific costs.
• Subsidies and Offsets: Can incentivize technology adoption but may not always result in additional emissions reductions, as some projects might occur regardless of the offset payment.
• Public Investment: May be necessary for state-owned enterprises (SOEs) in extractive sectors to adopt methane reduction technologies.

Conclusion

Methane emissions need to be cut rapidly to avoid irreversible climate damage. While many countries have pledged to do so, current policies and commitments are insufficient. Implementing methane fees, especially in extractive industries, is a practical and efficient approach. However, differentiated pricing and international climate finance may be essential for supporting developing economies in their mitigation efforts. The report underscores the importance of combining fiscal policies with technological innovation and international coordination to achieve global methane reduction goals.