A small fee with a long history behind it

Cap-and-trade for greenhouse gases has been proposed in the United States for over thirty years. The Waxman-Markey bill came closest in 2009-2010, passing the House and dying in the Senate. After that defeat, federal climate policy turned almost entirely toward regulation, tax credits, and direct investment — with no federal price on greenhouse gas emissions.

The 2022 Inflation Reduction Act introduced the first federal price on a greenhouse gas in US history, in a narrow but consequential form: a methane emissions fee on oil and gas operations.

This brief explains what the fee does, how it interacts with existing methane regulation, and what its trajectory is likely to be.

What the fee covers

The IRA’s methane fee applies to large oil and gas facilities — those reporting at least 25,000 metric tons of CO2-equivalent emissions per year under EPA’s Greenhouse Gas Reporting Program. Covered facilities include onshore and offshore production, gas processing, transmission compression, and storage.

The fee structure is graduated:

• 2024: $900 per metric ton of methane emitted above industry-specific thresholds.
• 2025: $1,200 per metric ton.
• 2026 and beyond: $1,500 per metric ton.

The “above thresholds” framing matters. The fee does not apply to all methane emissions — only to emissions above specified leak rates (e.g., 0.20% for production facilities). Operators that meet aggressive emissions reduction can pay nothing. Operators that don’t pay substantial sums.

Why methane specifically

Methane is a potent greenhouse gas — roughly 80 times as warming as CO2 over a 20-year timeframe, and roughly 30 times as warming over 100 years. The oil and gas sector is the largest US industrial source of methane emissions, primarily through leaks at production sites and across the gas distribution system.

Methane emissions reduction is one of the highest-impact, lowest-cost climate interventions available. Many leaks can be detected and repaired with off-the-shelf technology. The cost per ton of CO2-equivalent reduction through methane abatement is generally well below the cost of CO2 reduction in most industrial sectors.

How the fee interacts with regulation

The IRA does not replace EPA methane regulation. The Clean Air Act requires EPA to set methane standards for oil and gas operations, which the agency has done through a series of rulemakings over the past decade. The 2024 EPA final rule strengthened those standards substantially, requiring more frequent leak detection, restricting flaring and venting, and setting performance standards for new and existing sources.

The fee and the regulation are designed to work together. The regulation sets a ceiling on emissions; the fee provides additional financial pressure to drive emissions below the regulatory ceiling. Operators who comply with the regulation but don’t go further still pay the fee for emissions above thresholds.

The IRA also includes about $1.5 billion in funding for EPA to support methane mitigation — grants, technical assistance, and equipment for operators (especially smaller ones) to detect and repair leaks.

What the early implementation looks like

EPA finalized the methane fee implementation rule in 2024. Compliance reporting began in 2025. The first fee payments are due in 2026 for 2025 emissions.

Early indicators suggest the fee is shifting behavior:

• Larger producers have accelerated leak detection and repair programs.
• Investment in continuous monitoring systems (drone-based, satellite-based) has grown sharply.
• Some smaller producers, who lack the capital for monitoring upgrades, are at risk of significant fee exposure — which has prompted M&A activity as larger operators acquire smaller fields with high leak rates.

The revenue from the fee is expected to be modest in initial years (a few hundred million dollars annually) and to decline as operators reduce emissions in response — which is the policy’s intended outcome.

Why this matters even at modest revenue

The methane fee is not, by itself, a transformational climate policy. It does not affect the largest greenhouse gas — CO2 from power generation, transportation, and industrial sources. The revenue is small. The behavioral effect on the oil and gas sector is real but bounded.

What it represents is more important. It is the first federal price on a greenhouse gas in US history. It is structured in a way that survived constitutional and administrative challenges. It has bipartisan implementation history (the 2024 EPA rule was bipartisan in some respects). It establishes both the legal architecture and the political precedent for broader greenhouse-gas pricing if and when that becomes politically viable.

A future federal carbon-price proposal — whether structured as a fee, a cap-and-trade system, or a border-adjustment-only mechanism — would draw substantially on the architecture and lessons of the methane fee.

What to watch

• Repeal pressure. The methane fee is one of the IRA provisions most consistently targeted for repeal. Tracking its survival across administrations is important.
• 2026 and 2027 emissions reports. Whether the fee actually drives emissions reductions, and at what scale, will be measurable in operator-reported emissions data.
• EPA rule implementation. The 2024 methane regulation has multiple implementation phases through 2027. Each is contested.
• Sector expansion. Future legislation could extend the fee to other methane sources (landfills, agriculture) or to other greenhouse gases. The legislative architecture is now in place.
• OECD coordination. Several other major economies are pricing methane in similar ways. Coordination on industry-level approaches is on the international agenda.

Bottom line

The methane fee is small in dollar terms and narrow in scope. It is also, by any reasonable measure, the most consequential structural development in US climate policy since the IRA’s broader passage. The first federal price on a greenhouse gas is now in effect. Defending and expanding it is one of the most concrete climate-policy fights of this decade.