The Abatement Cost of Methane Emissions from Natural Gas Production

At present, the potential climate benefits of natural gas are largely offset by methane emissions from the natural gas supply chain. This paper estimates the cost of reducing methane emissions from the extraction segment of the industry by examining how production facilities’ emissions respond to natural gas prices. Because firms mitigate emissions up to the point at which their marginal cost of abatement equals their marginal private benefit of being able to sell captured gas, an estimated relationship between emission rates and prices can be mapped to a marginal abatement cost curve. Results indicate that pricing methane emissions would generate substantial net social benefits. For instance, a relatively modest emissions tax equivalent to a $5 carbon price would decrease emissions by 60%, achieving about $1.8 billion annually in avoided climate damages at a net cost of about $50 million per year.