How can carbon markets be more effective in reducing methane emissions from oil and gas systems?

Ensemble integrated assessment modeling (IAM) indicates the need for methane emission mitigation by 60% from current levels over the next three decades for compatibility with 1.5°C futures. This study aims to understand the extent to which methane mitigation in oil and gas systems could be compatible with existing carbon markets. Specifically, we illustrate the need for (1) streamlining the coverage of different greenhouse gases in carbon markets, and (2) using appropriate life-cycle assessment (LCA) scrutiny in carbon markets for methane mitigation. We first present the comparative costs of mitigation technologies with various carbon markets globally. Investment in abatement technologies in some cases is considered economical, as the gas saved can pay for the installation of better equipment or the implementation of new operating procedures. Around 50% of the mitigation can occur at <$0/t-CO2 due to added value of the methane required while the rest is well below the 2050 consensus carbon price of $200/t-CO2, as projected by IAMs. That said, carbon markets are not equitably well-poised to deal with methane emissions. Our synthesis of the current pricing mechanisms shows that prominent carbon markets including the Chinese and the European emission trading systems do not cover methane emission mitigation. Therefore, the first set of recommendations involves streamlining the coverage of methane emissions in carbon markets. Even if such streamlining occurs, incentivizing mitigation still requires a consistent set of approaches to consistency in baseline emissions and perverse incentives (i.e., to make sure that the mitigation action does not make other emissions profitable). Specifically, baseline emissions are often based on measurements of gas leaks before infrastructure repair. Some projects, however, calculate leakage rates instead of direct measurements. These could result in erroneous baseline estimates if the baselines are inappropriately defined. Our second set of recommendations pertain to improving LCA practices to appropriately incentivize methane emission mitigation. Specifically, we will demonstrate how system boundary expansion in LCA methodologies could reduce the risk for inflated baselines and perverse incentives.