Buried inside the "Build Back Better" plan that cleared the House of Representatives on Friday morning is a new tax on natural gas production that will likely translate into higher heating bills for American households.
The new tax is aimed at curbing methane emissions and will apply fees to companies that produce, process, transmit or store oil and natural gas starting in 2023. The specific fees will depend on where the natural gas is produced and will vary depending on how much methane is released into the atmosphere during the process. Overall, the Congressional Budget Office estimates that the new "methane fee" will generate about $8 billion over the next 10 years.
The natural gas industry says that money will end up coming directly out of consumers' wallets.
"New fees or taxes on energy companies will raise costs for customers, creating a burden that will fall most heavily on lower-income Americans," a coalition of energy industries wrote in a letter to congressional leaders in September. "These major new costs most likely will result in higher bills for natural gas customers, including families, small businesses, and power generators."
Those industry groups claim that the new fee will translate into a 17 percent increase in household energy prices for homes that rely on natural gas heat. Meanwhile, Americans for Tax Reform, a conservative nobnprofit that advocates for lower taxes, says the natural gas fee is "a clear violation" of President Joe Biden's promise that the "Build Back Better" plan would not increase taxes on American families earning less than $400,000 annually.
The proposed methane fee is based on legislation introduced earlier this year by Sen. Sheldon Whitehouse (D–R.I.). In a statement when the bill was introduced, Whitehouse said the new fees would slow climate change and improve air quality.
But the tax is unlikely to have a serious impact on global methane emissions. The United States accounted for about 622,000 metric tons of methane emissions in 2018, according to the most recent information available via the World Bank. That's about 7.5 percent of all global methane emissions during that year.
Meanwhile, only about 30 percent of American methane emissions are the result of natural gas and oil production. Most of it comes from cows, sheep, and other aspects of agricultural industries, according to the Environmental Protection Agency.
That being said, methane emissions are a serious driver of man-made climate change that may justify the tradeoffs that come from higher energy prices. Methane is far more potent than carbon dioxide when it comes to trapping heat in the Earth's atmosphere, and more than 100 countries (including the U.S.) agreed last week in Scotland to take steps to limit methane emissions. Crucially, China and Russia did not sign the agreement despite being two of the world's largest methane-emitting countries.
This debate over the tradeoffs of methane and other greenhouses gases is not going away anytime soon. And the "Build Back Better" plan's methane fee amounts to a policy decision that says higher heating bills for Americans living right now is an acceptable price to pay for a marginal reduction in future emissions. Voters already dealing with rising heating bills on a number of other fronts may disagree.
The Department of Energy warned last month that American households using natural gas heat are likely to face cost increases between 30 percent and 50 percent this year. That means the average family that relies on natural gas to stay warm this winter will shell out $746 between October and March, up from an average of about $570 last year, the department estimates. Those increases are partially driven by inflation and partially a result of lower-than-normal prices a year ago.
Raising costs on industries that produce greenhouse gases, via carbon taxes and other means, could be an effective way to account for the public costs of pollution that contribute to climate change. But those proposals will always come with tradeoffs for consumers—since taxes are ultimately paid by people, not businesses.