Methane

Read this article to understand:

• Why addressing methane emissions offers a swift route to reduce global warming
• Key areas where progress can be made at low cost
• Why nature-based solutions are needed for effective action on methane

Molecule for molecule, methane is a much more powerful warming gas than carbon dioxide (CO₂). As such, tackling methane emissions is vital for climate action. Although it is far less abundant in the atmosphere than CO₂ and does not remain in the Earth’s atmosphere as long, it absorbs thermal infrared radiation much more efficiently.¹

As well as contributing to global warming, methane may also play a role in the formation of low-level ozone, a pollutant associated with health problems from asthma to premature death.² That’s why methane emissions are coming under increasing scrutiny by policymakers, governments and investors.

New legislation to limit emissions

Methane is emitted during the production and transport of coal, natural gas and oil; a significant issue, as these fossil fuels supply around 80 per cent of the world’s power (read Gas versus renewables: Does gas have a Future?).^4,5 Now a raft of new legislation is being proposed to address the scale of methane emissions.

In May 2023, the European Parliament voted in favour of rules that would force companies selling oil and gas in Europe to reduce emissions.⁶ The new regulations follow the EU Strategy on Methane Emissions, set out in October 2020.⁷

This sets the European Commission up for painful negotiations with gas-dependent countries who would prefer weaker limits. The EU aims to negotiate a new legal framework this year to cut emissions, requiring fossil energy producers to quantify emissions at source, and detect and repair leaks within their infrastructure. These fugitive emissions have historically been downplayed.⁸

The new legislation also seems likely to ban companies from intentional venting and flaring (burning) practices that release methane into the atmosphere, a step the UK is yet to take. The UK’s oil and gas regulator, the North Sea Transition Authority, intends to cease routine venting and flaring by 2030, but has received multiple recommendations to bring this ban forwards, and consider economic disincentives to achieve it, which would be useful first steps.

The EU imports more than 80 per cent of its gas, and the new rules are also likely to apply to imported fossil fuels from 2026, requiring importers of oil, gas and coal to prove foreign suppliers comply.

Methane emissions are also a focus in the US. The 2022 Inflation Reduction Act gave new powers under the Clean Air Act to target emissions, including $1 billion of support for monitoring and reporting, and fines for those in breach. It also introduced measures to mitigate the negative health impacts of emissions on low-income and disadvantaged communities, including those vulnerable to exposure living close to extractive industries.⁹

The question now is whether these measures will add up to a meaningful move towards addressing a problem thought to be responsible for around one third of the warming experienced since the Industrial Revolution (see Action on methane for details on global action).¹⁰

Methane – a climate change blow torch

Around 60 per cent of the world’s methane emissions are produced by human activities.¹³ Natural sources include waste decomposition (landfill and wastewater), agriculture (livestock ruminants) and biomass burning (Figure 2), as well as the processing of coal, oil and gas.

Seeking rapid fixes

The quickest methane fixes could be in the fossil fuel sector, which accounts for around one-third of anthropogenic emissions.¹⁵ Special venting in coal mines; using equipment for the early detection of gas leaks; reducing venting during oil and gas production and other “readily available” measures could cut emissions by more than 40 million tonnes a year, according to the UN Environment Programme.¹⁶

The IEA estimates that if all known technologies and approaches to methane reduction were used across the oil and gas value chains, 75 per cent of emissions could be avoided.¹⁷ Around 40 per cent of the cuts in the oil and gas sector could be achieved at zero net cost, because the outlays for the abatement measures are less than the market value of the additional gas captured (i.e. methane is a valuable product and can be sold if captured).¹⁸

Addressing natural sources of methane

Aside from fossil fuels, it is equally important to address increasing emissions from “natural” activities, such as agriculture, waste and thawing permafrost.¹⁹

In agriculture, the obvious fix would be to reduce the number of animals farmed and change consumer practices to encourage plant-based diets (see Change diets, not the planet: The link between food and sustainability).²⁰

Scientists are also experimenting with alternative types of feed to reduce methane produced by cows and looking at ways to manage manure more effectively, for example, using it to produce biogas.²¹

New Zealand’s farms are relatively sustainable with livestock predominantly raised on pasture, and more attractive to consumers and importers versus animals raised in factory farms with practices that are fueling a shift away from dairy, particularly amongst younger generations. The country is considering a world first tax on “cow burps”; the size of the levy would depend on the number of animals, size of farm, type of fertiliser used and the steps farmers take to reduce emissions.²² It could reduce the amount of methane New Zealand’s livestock release into the atmosphere by as much as 46 per cent by 2050.²³

Such proposals face a backlash from farmers who may need to reduce their herd size to meet those targets, which many worry might drive them out of business. If demand for New Zealand’s exports from farms exceeds supply, and if the levy constrains herd sizes, agricultural production could shift to countries that are less efficient and sustainable in their practices. The proposals require careful consideration of potential unintended consequences.

Nevertheless, the scale of opportunity to reduce emissions and create energy-from-waste is now receiving much more attention, as research from the World Biogas Association shows.

Agricultural methane does not only come from animals. Paddy rice cultivation – in which flooded fields prevent oxygen from penetrating the soil creating ideal conditions for methane-emitting bacteria – accounts for around eight per cent of human-linked emissions.²⁴ Alternatives include alternate wetting and drying approaches that could halve emissions. Rather than continuous flooding, paddies can be irrigated and drained two to three times throughout the growing season, limiting methane production without impacting yields and requiring around one-third less water.

Thawing permafrost, a natural long-term process that is accelerating due to human-induced climate change, could also be a key methane contributor, although scientists cannot reach agreement on how significant the impact may be. The Arctic landscape stores one of the largest natural reservoirs of organic carbon in the world in its frozen soils but, once thawed, soil microbes in the permafrost can turn that carbon into CO₂ and methane, which then enter the atmosphere and contribute to climate warming.

Scientists believe this could result in a positive feedback cycle: two greenhouse gases are released, which then contribute to higher temperatures and more melting.²⁵ Strategies to slow this cycle come down to limiting warming by reducing the warming gases in the Earth’s atmosphere.

What should investors be mindful of in the meantime?

For projects or opportunities relating to gas infrastructure and gas-related technologies, investors need to consider how to reduce potential ESG risks from operating in this sector. If the proposed EU legislation to cut methane emissions and ban venting and flaring of the gas is approved, companies operating in the fossil-fuel sector need to ensure their monitoring and detection systems are well maintained and be prepared to act quickly to fix repairs or face financial penalties.

There may also be opportunities in nature-based methane abatement and capture. Opportunities to generate power from crop, animal and human waste are emerging; biomethane, for example, is almost indistinguishable from natural gas and can be used without the need for changes in transmission and distribution infrastructure or end-user equipment. It is fully compatible for use in natural gas vehicles. We expect interest in these alternatives to grow as the focus on more mindful resource use intensifies.

Key takeaways

• Stringent global regulation is likely to be the only way to compel action on emissions reductions from the highest-polluting sectors. The world is not short of methane-reducing pledges, but urgently needs a forcing mechanism.
• Recent actions by several countries to legislate in this area are positive first steps in what is hopefully a global movement towards operational and behavioral change. Thus far, however, legislation and proposals focus predominantly on oil and gas, which is only part of the methane story. It is also critical that methane reduction measures are implemented alongside deep CO₂ emission reductions.
• There are several alternative uses for captured methane, which could offer significant potential for putting this environmentally harmful gas to good use in electricity or energy production, or alternative fuels. However, success will be heavily contingent on the strength and design of policies globally.