## clnea2022008

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---

### Introduction — Abstract and framing
- Limiting global warming to 1.5 to 2°C above preindustrial levels requires rapid cuts in greenhouse gas emissions, including methane, which has an outsized impact on temperatures.
- To date, 125 countries have pledged to cut global methane emissions by 30 percent by 2030.
- This Note provides background on methane emission sources, presents practical fiscal policy options to cut emissions, and assesses impacts.
- Putting a price on methane, ideally through a fee, would reduce emissions efficiently, and can be administratively straightforward for extractives industries and, in some cases, agriculture.
- Policies could also include revenue-neutral ‘feebates’ that use fees on dirtier polluters to subsidize cleaner producers.
- A $70 methane fee among large economies would align 2030 emissions with 2oC.
- Most cuts would be in extractives and abatement costs would be equivalent to just 0.1 percent of GDP.
- Costs are larger in certain developing countries, implying climate finance could be a key element of a global agreement on a minimum methane price.

### Global emissions context and targets
- In a business-as-usual (BAU) scenario without additional mitigation measures, global GHGs are expected to grow to 53 billion tonnes of carbon dioxide equivalent (CO2e) in 2030.
- Fossil fuel CO2 emissions account for 65 percent of emissions; methane (CH4) accounts for 20 percent; other GHGs account for 15 percent.
- Limiting global warming to ‘well below 2oC’ and ideally 1.5oC requires that global GHG emissions be cut 25 to 50 percent below 2019 levels by 2030.
- Most attention has focused on CO2 because of its central role in long-term warming and long life in the atmosphere, but cutting methane emissions is paramount because of its disproportionate impact on near-term temperatures.
- If methane emissions are not cut rapidly and soon, there are substantive risks of irreversibly destabilizing the global climate.

### Current pledges and the emission gap
- 139 countries, responsible for 83 percent of global GHGs, have proposed or set a net zero target for total GHGs sometime in the middle of this century.
- Signatories to the Global Methane Pledge (GMP) committed to taking actions to reduce global methane emissions at least 30 percent below 2020 levels by 2030.
- Even if countries met whichever is the more stringent of their NDC pledges (where methane is included) or the GMP (assuming signatories cut their national emissions 30 percent below 2020 levels), global methane emissions in 2030 would be cut by only about 40 and 70 percent of the reductions consistent with limiting warming to 1.5oC and 2oC, respectively.
- The emission gap reflects a combination of:
  - Inconsistencies between countries’ 2030 GHG pledges and long-term net zero pledges;
  - Exemptions of methane from some large emitters’ NDC commitments (for example, China, India, and Russia);
  - Non-signatories to the GMP, which account for about half of the global methane emissions.
- Policies to implement the pledge in signatory countries are largely in their infancy.

### Practical policy themes (summary)
- Putting a price on methane is generally a practical mitigation instrument for the extractive, and in some cases, agricultural sectors and can often build on business tax collection capacity.
- Direct pricing is feasible where firm-level emissions are monitored; in other cases proxy pricing can be implemented based on production levels and assumed emission rate factors, with rebates for firms demonstrating (through their own or third-party metering) lower emission rates than the default.
- Given competitiveness concerns, pricing is best introduced in a revenue-neutral way—for example, through adjustments to existing fiscal regimes for extractive industries or through feebates.
- At the global level, an international price floor arrangement would be effective from an emission and competitiveness perspective—for example, among GMP signatories.
- A uniform price on methane emissions of large emitters, rising to $70 per tonne of CO2e in 2030, would align their emissions with the goal of staying below 2oC warming, with two-thirds of emission cuts coming from the extractive sector.
- Mitigation burdens are disproportionally large on certain emerging market and developing economies, implying differentiated pricing and international climate finance are potentially important elements of an agreement on a minimum methane price.

### Background on methane — contribution to warming
- Methane has a much higher global warming potential (GWP) than CO2 on time horizons of a century or less.
- The GWP of methane measured over a 100-year period is estimated at about 30, meaning each tonne of methane has the same cumulative warming effect as 30 tonnes of CO2.
- The average atmospheric life span of methane is 12 years; the life span of CO2 is about 100 years.
- Scaling anthropogenic methane emissions by their GWP implies emissions of about 9 billion tonnes of CO2e in 2021.
- Methane accounts for 30-40 percent of the 1.2°C rise in global average temperatures since the preindustrial era.
- Cutting methane could have a net cooling effect due to its much shorter residence time; cutting methane emissions by half over the next decade could cut global temperatures in 2040 by up to 0.3°C.
- Reducing near-term methane emissions could make an outsize contribution to mitigating tipping point risks, such as the breakup of the Greenland ice sheet or Amazon rain forest destabilization.

### Measurement approaches — overview
- Two alternative approaches are used to measure total global methane emissions:
  1. National inventory approach (bottom-up): used for UNFCCC submissions; based on national activity statistics (for example, fuel or agricultural production) multiplied by a methane emission factor, with factors based on IPCC guidelines accounting for local characteristics (for example, surface versus underground mine, livestock breed and feed).
  2. Atmospheric observations approach (top-down): uses remote sensing from towers, aircraft, drones, and satellites to monitor emissions of individual facilities and regions.

---

### Atmospheric observations approach (top-down) — overview and key findings
- Uses remote sensing from towers, aircraft, drones, and satellites to monitor emissions of individual facilities and regions.
- Atmospheric observations have been used to infer historical global emission trends and provide emission measurements at a spatial level, which can be mapped to individual facilities.
- GtCO2e = gigatonnes of CO2 equivalent.
- Atmospheric observations suggest that methane emissions have been larger than stated by inventory approaches; country submissions to the UNFCCC may significantly understate actual emissions.
- Underreporting is most severe for the extractive sector and varies by country.
- Exact comparative statement in source: extractive emissions in our data are higher by 6, 23, 54, and 36 percent for Brazil, China, India, Russia, and the United States, respectively, than those reported in the UNFCCC data.
- Of global methane emissions:
  - 35 percent are from fossil fuel extraction.
  - 40 percent are from agriculture.
  - 20 percent are from waste.
- Sectoral shares change only moderately in BAU emission projections to 2035.
- If global efforts align fossil fuel CO2 emissions with limiting warming to 2°C, then:
  - methane emissions from extractives would be 50 percent lower in the 2035 BAU scenario;
  - global methane emissions would be 28 percent lower.
- Concentration of emissions:
  - The top 5 and top 20 total methane emitters accounted for 45 and 70 percent of global methane emissions in 2021, respectively.
  - 13 of the top 20 methane emitters have so far signed the GMP.
  - 11 of the top 20 emitters are not in the Group of Twenty (G20) countries.
- Underreporting drivers: methane leaks (especially by “super emitters”) that are not well captured under the current measurement framework; leaks may also affect waste sector reporting.

### Extractive emission sources and characteristics
- Oil, natural gas, and coal operations each contributed about one-third to methane emissions from extractives in 2021.
- About 80 percent of extractive emissions are “upstream” (from a mine mouth or wellhead), and 20 percent were “midstream” (from fuel processing and distribution).
- Venting is the primary cause of upstream methane emissions; smaller amounts are attributed to fugitive emissions (unintentional leaks) and incomplete flaring.
- For oil and natural gas, venting accounts for about 70 percent of (upstream and midstream) emissions and fugitive leaks for 30 percent.
- About 90 percent of emissions from coal extraction are from operational mines and 10 percent from abandoned mines.
- Country-specific shares:
  - Russia and the United States together accounted for 34 percent of methane emissions from oil/natural gas operations in 2021.
  - China accounted for 57 percent of coal mine emissions in 2021.
- Flared gas emissions note: A tonne of flared natural gas with complete combustion releases about three tonnes of CO2, implying a reduction in the GWP of methane by 90 percent (incomplete flaring leaves significant methane releases).

### Emission factors and intensities
- Methane emission factors vary across fuels and countries and with operation type, equipment, and flaring extent.
- Examples of methane emissions per gigajoule (GJ) of energy (from Figure 5 in source):
  - about 1 kg in Canada for coal;
  - 8 kg in Russia for oil/natural gas;
  - less than 1 kg in Norway for oil/natural gas;
  - 12 kg in Iran for oil/natural gas.
- CO2 emissions from fuel combustion by weight per GJ (approximate magnitudes in source):
  - coal: approximately 100 kg per GJ;
  - oil: approximately 70 kg per GJ;
  - natural gas: approximately 60 kg per GJ.

### Agricultural and waste emission sources
- Agriculture (2019):
  - cattle accounted for 55 percent of agricultural methane emissions;
  - other livestock (for example sheep, pigs) accounted for 22 percent;
  - rice cultivation accounted for 17 percent.
  - About 90 percent of livestock emissions are from enteric fermentation and 10 percent from manure management.
  - Methane emissions account for nearly half of total GHGs from the agricultural sector.
- Livestock emission intensity variation (Figure 7 in source):
  - methane emissions for cattle vary from 25 kg CO2e per kg of protein in eastern Europe to 200 kg CO2e per kg of protein in Sub-Saharan Africa.
- Waste:
  - landfill leaks account for 70 percent of global methane emissions from waste sites;
  - incineration accounts for 10 percent;
  - leaks from wastewater systems account for 20 percent.

### Policy instruments and mitigation options (overview)
- Mitigation approaches include reducing emission intensity of production and reducing demand.
- Technological measures: flaring or capturing methane for use or sale; electrifying extraction processes; replacing natural gas pumps; improving leak detection and repair; upgrading distribution infrastructure; switching to higher-productivity livestock; enhancing livestock feed (for example, seaweed).
- Demand-side measures: shifting from fossil fuel combustion to renewables and nuclear energy; shifting from meat to crop-based diets; recycling; domestic composting of organic materials; reducing packaging.
- Demand responses generally play a minor role in efficient mitigation policy for extractives (given modest product price increases from methane policies).
- Focus in the Note: methane fees or variants thereof are emphasized because:
  - they can be integrated into existing fiscal regimes, especially on oil and natural gas extraction;
  - they limit administrative burdens by building on existing business tax regimes (or farm assistance programs);
  - a fee is potentially the most efficient instrument to exploit behavioral responses and offers greater rewards for technological innovation than regulation.

### Methane fee design and implementation options
- Direct levy on emissions:
  - firms develop emission-metering capacity and remit taxes based on reported emissions;
  - facilities subject to random or periodic government inspections, with penalties for non-compliance.
- Interim indirect levy on production:
  - proxy emission fees based on observable output and/or input and default emission factors;
  - allow low-emission-rate firms to petition for rebates if monitored and certified rates are below the default;
  - rebates could be linked to observable technologies (for example, methane capture) or production methods (for example, more productive livestock herds).
- Default emission factors could be based on zero-mitigation scenarios or worst-performing firms to ensure incentives to cut emissions below the default.
- Administrative considerations:
  - If the government lacks capacity to properly audit self-reported emissions, a rebate program could lead to fraud and may be less suitable.
  - It is important that governments increase their capacity to monitor emissions.

---

### Box 1 — Beyond Methane Fees: Alternative Instruments
- Fees and their variants are regarded as the most flexible and cost-effective instruments for methane abatement, but numerous other options exist.
- Alternatives include emission trading systems (ETSs), emission rate regulations, technology mandates, subsidies, offsets, public investment, and incentives for decarbonizing food systems.
- ETSs:
  - Quantity-based analog of a methane tax; advantages include certainty regarding future emissions; limitations include price volatility, thin markets, manipulation risk, and institutional capacity constraints.
  - Where CO2 ETSs exist (examples: California, EU, Korea, New Zealand), they could be extended to methane; price floors could partially address uncertainty.
- Emission rate regulations and credit trading:
  - Restrict methane per unit of output; trading among firms can promote cost-effective reductions but markets may be thin and state capacity limited.
- Technology mandates and subsidies:
  - Mandates are generally not cost-effective due to variation across firms; subsidies incentivize adoption but impose fiscal cost.
- Offsets:
  - Can shift abatement location but risk non-additionality and, in some cases, increase total emissions.
- Public investment and SOEs:
  - May be necessary for adopting reduction technologies; SOEs should be subject to similar regulatory or pricing policies as private firms.
- Incentives for decarbonizing food systems:
  - Shift from livestock to plant-based agriculture; farm-level inducements for productive herds and better feed; consumer incentives.
  - Capacity constraints: about half of African countries signed the GMP, but monitoring and tax collection capacity is severely constrained in many cases; many Latin American countries lack farm-level data.
- Extractives fiscal and measurement considerations:
  - Revenue-neutral methane taxes are technically most feasible where upstream fiscal regimes exist and spatial dispersion aids atmospheric metering.
  - Observation: all top 25 methane emitters from oil/natural gas extraction have fiscal regimes designed to maximize government revenue though regimes vary.
  - Integration options: production taxes related to methane rates could be integrated into royalties.
  - Existing capacity: most oil and natural gas regulators already monitor venting and flaring; a methane tax could build on this capacity (Norway prototype).
- Proxy fees and transition to direct measurement:
  - Interim proxy fees based on observable project characteristics scaled by production; couple with investments to improve measurement and transition to direct measurement medium term.
  - Alignment with EU Methane Strategy, Oil and Gas Methane Partnership, and Norway’s methane fee evolution.
  - Caveat: assumptions for emission intensities and ensuring technologies are operational affect policy effectiveness.
- Super emitters and abandoned sites:
  - Super emitters: large facilities with chronic leakage, usually detectable via atmospheric measurement; can account for up to 12 percent of methane emissions from oil and natural gas production.
  - Recommended measures: emergency shutdowns or large penalties until leakage rates are reduced; include them in measurement and pricing as monitoring improves.

---

### Box 2 — Methane Taxes in Norway and quantitative assessment
- Norway:
  - Imposes a tax currently equivalent to about $50 per tonne of CO2e on methane emissions from oil and natural gas operators on the Norwegian Continental Shelf.
  - Firms must measure and report emissions and remit taxes to the Norwegian Petroleum Directorate.
  - Favorable factors: upstream operations on the shelf account for about 95 percent of sector emissions; about 30 firms pay the tax; government has two-thirds share in Equinor; firms use similar equipment and produce homogeneous output; regulators consulted extensively with stakeholders.
- U.S. relevance:
  - The U.S. Inflation Reduction Act includes a methane fee rising to $50 per tonne of CO2e in 2026.
  - The average effective tax on total U.S. methane emissions will be much lower because it excludes coal producers, applies to large-emitting firms covering less than half of oil/natural gas emissions, and applies only above a 25,000 tonnes methane threshold.
- Competitiveness and leakage:
  - For a 30 percent emission reduction, tax payments account for about 80 percent of the production cost increase and abatement costs for about 20 percent.
  - A $70 methane fee per tonne of CO2e in 2030 increases coal and natural gas production costs by about 1–7 percent and livestock costs by 1–8 percent across selected countries.
  - Leakage is smaller when reductions come from emission intensity rather than output migration; for extractives, reduced emission intensity predominates.
- Options to address competitiveness:
  - Border methane adjustment (BMA): per-unit import charge equal to domestic methane fee times an emission factor; practical challenges include administrative complexity, equity concerns, and legal uncertainties.
  - Revenue-neutral approaches: recycle fee revenue to mitigate firm tax payments and dampen cost increases; sector-specific recycling options exist for extractives and agriculture.
  - Feebates: fees on above-average emitters and rebates for below-average emitters; effective when firm-level emissions are monitored.
  - International minimum methane price: would address demand, competitiveness, and leakage concerns more effectively than unilateral BMAs but requires setup and monitoring.
- Quantitative assessment: $10→$70 per tonne scenario (T35 countries)
  - Fee starts in 2024 at $10 per tonne of CO2e, increasing $10 per tonne each year to reach $70 per tonne by 2030.
  - Applies to the top 35 methane-emitting countries (T35), defined as the top 25 overall emitters plus an additional 5 large emitters each for extractives and agriculture.
  - T35 countries account for 85 percent of BAU global methane emissions in 2030.
  - Scenario includes methane taxes for extractive and agricultural sectors and a regulation reducing landfill emissions (with a shadow price or incremental mitigation cost equal to $70 per tonne).
  - Outcomes:
    - Cuts T35 methane emissions by 2.5 billion tonnes below BAU in 2030, or about 30 percent.
    - Would align methane for large emitters in 2030 with limiting temperature rises to below 2oC; additional action required for a 1.5oC-aligned pathway.
    - Sectoral decomposition of T35 emission reductions: Extractive sector 66 percent; Agricultural sector 17 percent; Waste sector 17 percent.
    - Within extractives, about one third each of reductions come from coal, oil, and natural gas production.
    - Most reductions come from reduced emission intensity: 95 percent of the response in extractives and 80 percent in agriculture.
  - Distributional outcomes:
    - Emission reductions below BAU in 2030 under the methane tax: 16–32 percent across high-income countries (Australia, Canada, France, UK, US).
    - Exceed 40 percent in various emerging market and developing economies (for example, Algeria, Bangladesh, Indonesia, Iran, South Africa, Turkmenistan).
    - Emission reductions exceed countries' pledged reductions in 7 cases, fall short in 20 cases, and 9 countries have no (binding) pledges.
  - Mitigation costs:
    - Global level: about 0.1 percent of GDP.
    - Less than 0.1 percent of GDP in high-income countries but exceed 0.5 percent of GDP in certain developing economies with large extractive industries relative to GDP (Mongolia and Turkmenistan).
  - Policy implications:
    - Differentiated pricing and financial/technological support are likely key elements of an international minimum pricing agreement.
    - Varying methane taxes by development level would promote a more progressive distribution of reductions and costs.
    - Support from high-income countries (e.g., donor support linked to verifiable emission reductions or technology transfer) would likely be needed.

### Conclusion — key takeaways
- Cutting methane emissions is critical to stabilizing the global climate.
- Rising climate disasters, tipping point risks, improved monitoring technologies, and the GMP increase the importance of methane abatement.
- Methane fees—or variants—are emphasized as a practical policy tool, especially in the extractives sector where many near-term low-cost mitigation opportunities exist.
- Options to address competitiveness include revenue recycling, feebates, BMAs, and international minimum pricing.
- Methane pricing may be viable in agriculture where farm taxation or assistance programs cover most farms.
- Other tools include regulation, subsidies, private sector and financial market initiatives, and public investment.
- Measurement improvements, operational methodologies for cross-country comparison, and dissemination of successful programs (for example, Norway’s methane tax) are essential.
- Financing and international coordination will be critical given disproportionate mitigation burdens on emerging market and developing economies.

### Annex 4 — An International Price Floor for Methane Emissions
- Core proposal:
  - A coalition of willing countries with large collective methane emissions (such as GMP signatories) to negotiate a minimum methane emission price.
  - Agreement on a price floor allows countries flexibility to set higher domestic prices.
- Pragmatic design features:
  - Differentiate pricing requirements by development level and include mechanisms for financial and technological assistance to low-income participants.
  - Allow political accommodation: countries can participate by demonstrating equivalent emissions reductions through other instruments.
  - Sequence sectoral coverage: start with extractives, extend to agriculture and waste as metering evolves.
- Measurement, enforcement, and institutional design:
  - Mutual agreement on measurement procedures required.
  - Enforcement mechanisms (for example, a BMA) could deter cheating but complicate setup; collective interest may limit cheating.
- Comparison with alternatives:
  - Pure price floor: promotes global cost-effectiveness but limits differentiated responsibilities.
  - Country-level methane quotas: directly align with global objectives but are harder to negotiate and do not address policy uncertainty across countries.
  - Conclusion: a pragmatically designed price floor balances practicality, coverage, and flexibility.
- Precedents and analogues:
  - Tax floors for indirect taxes in the EU and the OECD/G20 Inclusive Framework on BEPS.
  - Climate policy precedents: 1987 Montreal Protocol and 2016 Kigali Agreement.

*Source: IMF staff climate note (clnea2022008).*

### Introduction

### Introduction

### Abstract and framing
- Limiting global warming to 1.5 to 2°C above preindustrial levels requires rapid cuts in greenhouse gas emissions, including methane, which has an outsized impact on temperatures.
- To date, 125 countries have pledged to cut global methane emissions by 30 percent by 2030.
- This Note provides background on methane emission sources, presents practical fiscal policy options to cut emissions, and assesses impacts.
- Putting a price on methane, ideally through a fee, would reduce emissions efficiently, and can be administratively straightforward for extractives industries and, in some cases, agriculture.
- Policies could also include revenue-neutral ‘feebates’ that use fees on dirtier polluters to subsidize cleaner producers.
- A $70 methane fee among large economies would align 2030 emissions with 2oC.
- Most cuts would be in extractives and abatement costs would be equivalent to just 0.1 percent of GDP.
- Costs are larger in certain developing countries, implying climate finance could be a key element of a global agreement on a minimum methane price.

### Global emissions context and targets
- In a business-as-usual (BAU) scenario without additional mitigation measures, global GHGs are expected to grow to 53 billion tonnes of carbon dioxide equivalent (CO2e) in 2030.
- Fossil fuel CO2 emissions account for 65 percent of emissions; methane (CH4) accounts for 20 percent; other GHGs account for 15 percent.
- Limiting global warming to ‘well below 2oC’ and ideally 1.5oC requires that global GHG emissions be cut 25 to 50 percent below 2019 levels by 2030.
- Most attention has focused on CO2 because of its central role in long-term warming and long life in the atmosphere, but cutting methane emissions is paramount because of its disproportionate impact on near-term temperatures.
- If methane emissions are not cut rapidly and soon, there are substantive risks of irreversibly destabilizing the global climate.

### Current pledges and the emission gap
- 139 countries, responsible for 83 percent of global GHGs, have proposed or set a net zero target for total GHGs sometime in the middle of this century.
- Signatories to the Global Methane Pledge (GMP) committed to taking actions to reduce global methane emissions at least 30 percent below 2020 levels by 2030.
- Even if countries met whichever is the more stringent of their NDC pledges (where methane is included) or the GMP (assuming signatories cut their national emissions 30 percent below 2020 levels), global methane emissions in 2030 would be cut by only about 40 and 70 percent of the reductions consistent with limiting warming to 1.5oC and 2oC, respectively.
- The emission gap reflects a combination of:
  - Inconsistencies between countries’ 2030 GHG pledges and long-term net zero pledges;
  - Exemptions of methane from some large emitters’ NDC commitments (for example, China, India, and Russia);
  - Non-signatories to the GMP, which account for about half of the global methane emissions.
- Policies to implement the pledge in signatory countries are largely in their infancy.

### Practical policy themes (summary)
- Putting a price on methane is generally a practical mitigation instrument for the extractive, and in some cases, agricultural sectors and can often build on business tax collection capacity.
- Direct pricing is feasible where firm-level emissions are monitored; in other cases proxy pricing can be implemented based on production levels and assumed emission rate factors, with rebates for firms demonstrating (through their own or third-party metering) lower emission rates than the default.
- Given competitiveness concerns, pricing is best introduced in a revenue-neutral way—for example, through adjustments to existing fiscal regimes for extractive industries or through feebates.
- At the global level, an international price floor arrangement would be effective from an emission and competitiveness perspective—for example, among GMP signatories.
- A uniform price on methane emissions of large emitters, rising to $70 per tonne of CO2e in 2030, would align their emissions with the goal of staying below 2oC warming, with two-thirds of emission cuts coming from the extractive sector.
- Mitigation burdens are disproportionally large on certain emerging market and developing economies, implying differentiated pricing and international climate finance are potentially important elements of an agreement on a minimum methane price.

### Background on methane emissions — contribution to warming
- Methane has a much higher global warming potential (GWP) than CO2 on time horizons of a century or less.
- The GWP of methane measured over a 100-year period is estimated at about 30, meaning each tonne of methane has the same cumulative warming effect as 30 tonnes of CO2.
- The average atmospheric life span of methane is 12 years; the life span of CO2 is about 100 years.
- Scaling anthropogenic methane emissions by their GWP implies emissions of about 9 billion tonnes of CO2e in 2021.
- Methane accounts for 30-40 percent of the 1.2°C rise in global average temperatures since the preindustrial era.
- Cutting methane could have a net cooling effect due to its much shorter residence time; cutting methane emissions by half over the next decade could cut global temperatures in 2040 by up to 0.3°C.
- Reducing near-term methane emissions could make an outsize contribution to mitigating tipping point risks, such as the breakup of the Greenland ice sheet or Amazon rain forest destabilization.

### Global methane emissions & sources — measurement approaches
- Two alternative approaches are used to measure total global methane emissions:
  1. National inventory approach (bottom-up): used for UNFCCC submissions; based on national activity statistics (for example, fuel or agricultural production) multiplied by a methane emission factor, with factors based on IPCC guidelines accounting for local characteristics (for example, surface versus underground mine, livestock breed and feed).

*Source: IMF staff climate note (Introduction section).*

### 2. Atmospheric observations approach (top-down):

### clnea2022008 - 2. Atmospheric observations approach (top-down)

### Overview of the top-down atmospheric observations approach
- Uses remote sensing from towers, aircraft, drones, and satellites to monitor emissions of individual facilities and regions.
- Atmospheric observations have been used to infer historical global emission trends and provide emission measurements at a spatial level, which can be mapped to individual facilities.
- GtCO2e = gigatonnes of CO2 equivalent.

### Key findings on measurement and reporting gaps
- Atmospheric observations suggest that methane emissions have been larger than stated by inventory approaches; country submissions to the UNFCCC may significantly understate actual emissions.
- Underreporting is most severe for the extractive sector and varies by country.
- Exact comparative statement in source: extractive emissions in our data are higher by 6, 23, 54, and 36 percent for Brazil, China, India, Russia, and the United States, respectively, than those reported in the UNFCCC data.
- Of global methane emissions:
  - 35 percent are from fossil fuel extraction.
  - 40 percent are from agriculture.
  - 20 percent are from waste.
- Sectoral shares change only moderately in BAU emission projections to 2035.
- If global efforts align fossil fuel CO2 emissions with limiting warming to 2°C, then:
  - methane emissions from extractives would be 50 percent lower in the 2035 BAU scenario;
  - global methane emissions would be 28 percent lower.
- Concentration of emissions:
  - The top 5 and top 20 total methane emitters accounted for 45 and 70 percent of global methane emissions in 2021, respectively.
  - 13 of the top 20 methane emitters have so far signed the GMP.
  - 11 of the top 20 emitters are not in the Group of Twenty (G20) countries.
- Underreporting drivers: methane leaks (especially by “super emitters”) that are not well captured under the current measurement framework; leaks may also affect waste sector reporting.

### Extractive emission sources and characteristics
- Oil, natural gas, and coal operations each contributed about one-third to methane emissions from extractives in 2021.
- About 80 percent of extractive emissions are “upstream” (from a mine mouth or wellhead), and 20 percent were “midstream” (from fuel processing and distribution).
- Venting is the primary cause of upstream methane emissions; smaller amounts are attributed to fugitive emissions (unintentional leaks) and incomplete flaring.
- For oil and natural gas, venting accounts for about 70 percent of (upstream and midstream) emissions and fugitive leaks for 30 percent.
- About 90 percent of emissions from coal extraction are from operational mines and 10 percent from abandoned mines.
- Country-specific shares:
  - Russia and the United States together accounted for 34 percent of methane emissions from oil/natural gas operations in 2021.
  - China accounted for 57 percent of coal mine emissions in 2021.
- Flared gas emissions note: A tonne of flared natural gas with complete combustion releases about three tonnes of CO2, implying a reduction in the GWP of methane by 90 percent (incomplete flaring leaves significant methane releases).

### Emission factors and intensities
- Methane emission factors vary across fuels and countries and with operation type, equipment, and flaring extent.
- Examples of methane emissions per gigajoule (GJ) of energy (from Figure 5 in source):
  - about 1 kg in Canada for coal;
  - 8 kg in Russia for oil/natural gas;
  - less than 1 kg in Norway for oil/natural gas;
  - 12 kg in Iran for oil/natural gas.
- CO2 emissions from fuel combustion by weight per GJ (approximate magnitudes in source):
  - coal: approximately 100 kg per GJ;
  - oil: approximately 70 kg per GJ;
  - natural gas: approximately 60 kg per GJ.

### Agricultural and waste emission sources
- Agriculture (2019):
  - cattle accounted for 55 percent of agricultural methane emissions;
  - other livestock (for example sheep, pigs) accounted for 22 percent;
  - rice cultivation accounted for 17 percent.
  - About 90 percent of livestock emissions are from enteric fermentation and 10 percent from manure management.
  - Methane emissions account for nearly half of total GHGs from the agricultural sector.
- Livestock emission intensity variation (Figure 7 in source):
  - methane emissions for cattle vary from 25 kg CO2e per kg of protein in eastern Europe to 200 kg CO2e per kg of protein in Sub-Saharan Africa.
- Waste:
  - landfill leaks account for 70 percent of global methane emissions from waste sites;
  - incineration accounts for 10 percent;
  - leaks from wastewater systems account for 20 percent.

### Policy instruments and mitigation options
- Mitigation approaches include reducing emission intensity of production and reducing demand:
  - Technological measures: flaring or capturing methane for use or sale; electrifying extraction processes; replacing natural gas pumps; improving leak detection and repair; upgrading distribution infrastructure; switching to higher-productivity livestock; enhancing livestock feed (for example, seaweed).
  - Demand-side measures: shifting from fossil fuel combustion to renewables and nuclear energy; shifting from meat to crop-based diets; recycling; domestic composting of organic materials; reducing packaging.
  - Demand responses generally play a minor role in efficient mitigation policy for extractives (given modest product price increases from methane policies).
- Focus in the Note: methane fees or variants thereof are emphasized because:
  - they can be integrated into existing fiscal regimes, especially on oil and natural gas extraction;
  - they limit administrative burdens by building on existing business tax regimes (or farm assistance programs);
  - a fee is potentially the most efficient instrument to exploit behavioral responses and offers greater rewards for technological innovation than regulation.
- Methane fee design and implementation options:
  - Direct levy on emissions:
    - firms develop emission-metering capacity and remit taxes based on reported emissions;
    - facilities subject to random or periodic government inspections, with penalties for non-compliance.
  - Interim indirect levy on production:
    - proxy emission fees based on observable output and/or input and default emission factors;
    - allow low-emission-rate firms to petition for rebates if monitored and certified rates are below the default;
    - rebates could be linked to observable technologies (for example, methane capture) or production methods (for example, more productive livestock herds).
  - Default emission factors could be based on zero-mitigation scenarios or worst-performing firms to ensure incentives to cut emissions below the default.
- Administrative considerations:
  - If the government lacks capacity to properly audit self-reported emissions, a rebate program could lead to fraud and may be less suitable.
  - It is important that governments increase their capacity to monitor emissions.
- Alternative instruments and additional discussions:
  - Emission rate regulations and technology requirements are discussed elsewhere in the Note (Box 1).
  - Private sector and financial market initiatives are discussed in Annex 5 (not reproduced here).

*Source: IMF staff climate note excerpt "2. Atmospheric observations approach (top-down)".*

### Box 1. Beyond Methane Fees: Alternative Instruments to Cut Methane Emissions

### Box 1. Beyond Methane Fees: Alternative Instruments to Cut Methane Emissions

### Overview
- Fees and their variants are regarded as the most flexible and cost-effective instruments for methane abatement, but numerous other options exist.
- Alternative instruments considered include emission trading systems (ETSs), emission rate regulations, technology mandates, subsidies, offsets, public investment, and incentives for decarbonizing food systems.
- Extractive-sector implementation considerations include integrating methane measures into upstream fiscal regimes, use of proxy fees when direct measurement is impractical, and supplementary measures for super emitters and abandoned sites.

### Emission Trading Systems (ETSs)
- ETSs are a quantity-based analog of a methane tax: firms must hold allowances, the government caps permit supply, and trading establishes a permit price.
- Advantages:
  - Can provide certainty regarding future emissions.
- Limitations:
  - Prices vary with market conditions, creating uncertainty that may deter high up-front investments (e.g., methane capture technologies).
  - Thin or manipulable markets where few firms or high transaction costs exist.
  - Countries may lack institutional capacity to implement and monitor ETSs.
- Note:
  - Where governments have established ETSs for CO2 emissions from the energy sector (examples: California, EU, Korea, New Zealand), they could be extended to cover methane emissions.
  - Price-floor mechanisms (e.g., gradually rising price floors) could partially address price uncertainty.
  - Permit trading is needed to promote least-cost abatement, but trading markets may be thin and subject to manipulation.

### Emission Rate Regulations and Credit Trading
- Emission rate regulations restrict firms’ methane emissions per unit of output, for example to a standard based on the best-performing firms in the industry.
- Characteristics:
  - Regulations do not charge firms for unabated emissions, limiting impact on production costs and competitiveness.
  - Credit trading among firms (allowing firms falling short to purchase credits from firms exceeding the standard) could promote cost-effective reductions across firms with differing abatement costs.
- Limitations:
  - Trading markets may be thin.
  - State capacity may be too low to monitor compliance effectively.

### Technology Mandates and Subsidies
- Technology mandates (e.g., requiring extractive operators to install methane capture technologies):
  - Generally not cost-effective due to varying costs across firms and incomplete coverage (existing firms may be exempt because of high retrofitting costs).
- Subsidies:
  - Can incentivize technology adoption while leaving adoption voluntary for firms.
  - Impose a fiscal cost on the government.

### Offsets
- Offsets can link methane-emitting sectors to carbon taxes or ETSs, allowing entities to pay for mitigation projects in other sectors instead of cutting their own emissions.
- Intended purpose:
  - Shift the location of abatement to more cost-effective sources rather than reduce total emissions per se.
- Limitations and risks:
  - Offsets may not be “additional”; projects might have occurred without the offset payment.
  - In some cases (e.g., a project that would have gone ahead on economic grounds), offset provisions could increase total emissions.

### Public Investment and State-Owned Enterprises (SOEs)
- Public investment may be needed for adoption of methane reduction technologies, especially when extractive activities are conducted by SOEs.
- SOEs should be subject to regulatory or pricing policies to promote emission reductions on par with private sector companies.

### Incentives for Decarbonizing Food Systems
- Especially important for countries with large agricultural emissions and low or limited institutional capacity.
- Possible measures:
  - Shift from livestock to plant-based agriculture.
  - Farm-level inducements to switch to more productive herds, better feed, and crop-based production.
  - Consumer-level incentives to shift from meat to plant-based diets or meat products with certified low emissions intensity.
- Capacity constraints:
  - About half of African countries signed the Global Methane Pledge, but capacity for emission monitoring and reporting systems, as well as tax collection, is severely constrained in many cases due to high informality and large share of family/subsistence agriculture.
  - In many Latin American countries (Argentina is a notable exception), governments do not collect business taxes or administer farm support programs and do not have data on farm-level output/input.

### Extractives: Fiscal and Measurement Considerations
- Revenue-neutral methane taxes are technically most feasible where upstream fiscal regimes are already established and spatial dispersion of firms facilitates atmospheric metering technologies.
- Observation:
  - All the top 25 methane emitters from oil/natural gas extraction have fiscal regimes that, loosely speaking, are designed to maximize government revenue while limiting deterrents to investment and production, though regimes vary in reliance on royalties, corporate income or profit-based taxes, and rent-targeting taxes.
- Integration options:
  - Production taxes related to methane emission rates could be integrated into royalties.
  - Countries without royalties likely have fiscal room to accommodate a methane tax because those regimes are currently more friendly to investment.
- Existing capacity:
  - Most oil and natural gas sector regulators already monitor venting and flaring; a methane tax could build on this capacity (Norway provides a prototype).

### Proxy Fees and Transition to Direct Measurement
- Where capacity and technological barriers make direct measurement impractical, an interim proxy fee could be used.
- Proxy fee design:
  - Assume emission intensities based on a limited number of observable project characteristics (e.g., installed equipment, drilling technique, reservoir type).
  - Scale assumed intensities by production to determine the tax base.
  - Couple the proxy tax with investments to improve measurement capacity, with the intention of transitioning to direct measurement in the medium term.
- Alignment:
  - This two-step approach broadly aligns with measurement policies in the EU Methane Strategy and Oil and Gas Methane Partnership, and generally follows the evolution of Norway’s methane fee.
- Caveat:
  - Assumptions used to determine emission intensities and processes to ensure installed technologies are operational will ultimately impact policy effectiveness.
- Methodological note:
  - A simplified version of the US Greenhouse Gas Reporting Program (GHGRP) methodology for determining emission factors could be used in the near term, ideally with adjustments for country-specific conditions and considering that the GHGRP has been shown to understate emissions (see EPA GHGRP Subpart W).

### Super Emitters and Abandoned Extractive Sites
- “Super emitter” definition and detection:
  - Refers to large extractives facilities with chronic leakage rates (e.g., due to damaged or poorly maintained pipeline infrastructure).
  - Usually detectable through atmospheric measurement.
- Recommended measures:
  - Supplementary emergency measures such as immediate shutdowns or large penalties until leakage rates are reduced.
  - As on-site monitoring improves, these emissions could then be included in ongoing measurement and pricing frameworks.
- Statistic:
  - Super emitters are usually excluded from reporting for the UNFCCC and account for up to 12 percent of methane emissions from oil and natural gas production according to Lauvaux and others (2022).

*IMF | Staff Climate Note 9 — Box 1. Beyond Methane Fees: Alternative Instruments to Cut Methane Emissions*

### Box 2. Methane Taxes in Norway

### Box 2. Methane Taxes in Norway

### Norwegian methane tax: design and enabling conditions
- Norway imposes a tax currently equivalent to about $50 per tonne of CO2e on methane emissions from oil and natural gas operators on the Norwegian Continental Shelf.
- Firms are required to measure and report their emissions and remit taxes to the Norwegian Petroleum Directorate.
- Factors favorable to implementation:
  - Upstream operations on the shelf account for about 95 percent of the methane emissions from the sector.
  - There are close links between the government and the industry: about 30 firms pay the tax, with the largest being Equinor, in which the government has a two-thirds share.
  - Firms use similar equipment and produce homogeneous output, facilitating consistent emissions calculations across firms.
  - Regulators held extensive consultations with industry, research institutions, and other actors capable of independently verifying emission measurement while developing guidelines for emission data collection and reporting.

### Relevance to other countries (example: United States)
- The U.S. Inflation Reduction Act includes a methane fee rising to $50 per tonne of CO2e in 2026.
- The average effective tax on total methane emissions in the U.S. will be much lower because the tax:
  - applies to oil and natural gas producers but not coal producers;
  - applies to large-emitting firms already subject to methane emission reporting requirements, which account for less than half of total oil/natural gas emissions;
  - applies only to firms with emissions above a threshold of 25,000 tonnes of methane.

### Competitiveness and leakage concerns
- A methane fee promotes reductions in demand and emission intensity in extractive and agricultural sectors and raises revenue.
- For illustration: for a 30 percent emission reduction, tax payments account for about 80 percent of the production cost increase and abatement costs for about 20 percent.
- Trade-exposed sectors (oil, coal, natural gas, agricultural products) face limited scope to pass increased production costs into domestic prices, with three consequences:
  - Domestic demand responses may be muted; taxes can cause switching from domestic to foreign production without reducing domestic demand.
  - Domestic producers may lose competitiveness as per-unit production costs rise relative to foreign producers.
  - Reductions in domestic emissions may be partially offset by increases abroad (emission leakage).
- Competitiveness impacts are generally modest: a $70 methane fee per tonne of CO2e in 2030 increases coal and natural gas production costs by about 1–7 percent and livestock costs by 1–8 percent across selected countries.
- Leakage is smaller when most domestic reductions come from reduced emission intensity rather than output migration; for extractives, reduced emission intensity predominates.

### Options for addressing competitiveness and leakage
- Border methane adjustment (BMA):
  - Imposes a per-unit charge on imported fuels or agricultural products equal to domestic methane fee times a methane emission factor.
  - The emission factor could be based on exporting country actual emission rates, importing country rates, a global average, or variations thereof.
  - Could rebate charges on domestic exports using industry-level emission factors to maintain incentives to reduce emission intensity.
  - Practical challenges:
    - Administrative complexities when applying charges to each imported product from each country, especially with country-specific emission factors.
    - Equity concerns if identical emission prices are imposed on advanced and developing economies.
    - Legal uncertainties regarding WTO challenges if BMAs are viewed as protectionist.
- Revenue-neutral approaches:
  - Make the fee revenue-neutral to mitigate average firm tax payments and dampen production cost increases and switching to foreign production; note this removes a domestic demand response.
  - Sector-specific recycling:
    - Extractives: reduce production-based or other distortive elements of the fiscal regime to keep discounted value of sector tax revenues constant; revenues from a $70 methane tax in 2030 would amount to only 1–6 percent of projected revenues collected under business tax regimes for oil and natural gas for the majority of countries shown.
    - Agriculture: return revenues in proportion to the value of output across all farm production to preserve relative production cost increases.
- Feebates:
  - Impose fees on firms with above-industry-average emission rates and rebates for firms with below-average rates.
  - Promote cost-effectiveness without trading markets and limit competitiveness impacts by not charging the average firm for remaining emissions.
  - Most effective when firm-level emissions can be monitored; can be linked to observable mitigation technologies or production methods.
- International minimum methane price:
  - An internationally agreed minimum methane price would be most effective in addressing domestic demand, competitiveness, and leakage concerns and could price methane emissions from traded products across participating countries.
  - Would be more efficient than unilateral BMAs and less likely to face WTO challenge, but significant setup and monitoring challenges remain.

### Quantitative assessment: $10→$70 per tonne scenario (T35 countries)
- Policy scenario:
  - Fee starts in 2024 at $10 per tonne of CO2e, increasing $10 per tonne each year to reach $70 per tonne by 2030.
  - Applies to the top 35 methane-emitting countries (T35), defined as the top 25 overall emitters plus an additional 5 large emitters each for extractives and agriculture.
  - T35 countries account for 85 percent of BAU global methane emissions in 2030.
  - Scenario includes methane taxes for extractive and agricultural sectors and a regulation reducing landfill emissions (with a shadow price or incremental mitigation cost equal to $70 per tonne).
- Outcomes:
  - Cuts T35 methane emissions by 2.5 billion tonnes below BAU in 2030, or about 30 percent.
  - Would align methane for large emitters in 2030 with limiting temperature rises to below 2oC; additional action required for a 1.5oC-aligned pathway.
  - Sectoral decomposition of simulated T35 emission reductions:
    - Extractive sector: 66 percent of reductions.
    - Agricultural sector: 17 percent.
    - Waste sector: 17 percent.
  - Within extractives, about one third each of reductions come from coal, oil, and natural gas production.
  - Most emission reductions come from reduced emission intensity rather than reductions in output:
    - Reduced emission intensity accounts for 95 percent of the response in extractives and 80 percent in agriculture.
- Distributional outcomes across countries:
  - Emission reductions below BAU in 2030 under the methane tax:
    - 16–32 percent across high-income countries (Australia, Canada, France, UK, US).
    - Exceed 40 percent in various emerging market and developing economies (for example, Algeria, Bangladesh, Indonesia, Iran, South Africa, Turkmenistan).
  - Emission reductions exceed countries' pledged reductions in 7 cases, fall short in 20 cases, and 9 countries have no (binding) pledges.
- Mitigation costs:
  - Mitigation burdens are estimated as welfare costs corresponding to integrals under marginal abatement cost schedules (annualized costs of using cleaner technologies, net of economic benefits).
  - At the global level, mitigation costs are about 0.1 percent of GDP.
  - Mitigation costs are less than 0.1 percent of GDP in high-income countries but exceed 0.5 percent of GDP in certain developing economies with large extractive industries relative to GDP (Mongolia and Turkmenistan).
  - Cost disparities reflect larger percentage emission reductions in emerging/developing economies and higher methane intensity of their GDP in BAU.
- Policy implications:
  - Differentiated pricing and financial/technological support are likely key elements of an international minimum pricing agreement.
  - Varying methane taxes according to broad country groupings by development level would promote a more progressive distribution of emission reductions and mitigation costs.
  - Support from high-income countries (e.g., donor support linked to verifiable emission reductions or technology transfer) would likely be needed to entice emerging market and developing economies into a minimum pricing regime.

*Source: Box 2. Methane Taxes in Norway, clnea2022008.*

### Conclusion

### Conclusion

### Importance of cutting methane emissions
- Cutting methane emissions is critical to stabilizing the global climate.
- Rising frequency of climate-related disasters, increasing knowledge of climatic tipping point risks, emerging technologies for monitoring emissions, and the GMP have raised the profile and importance of reducing methane emissions.

### Role of methane fees and policy instruments
- Methane fees—or variants of fees—are emphasized as a potential policy tool.
- These can be integrated into existing fiscal regimes in the extractives sector, where the bulk of the low-cost mitigation opportunities in the near term are located.
- There are various options for addressing competitiveness concerns (for example, revenue recycling and feebates).
- An international agreement on minimum emission prices could be most effective in scaling up global action.
- Methane pricing might also be viable in the agricultural sector, at least where most farms are already covered by business taxes or farm assistance programs.
- Beyond pricing, other options include regulatory and subsidy approaches (Box 1).
- Various initiatives in the private sector and financial markets are also helping combat methane emissions (Annex 5).

### Monitoring, methodologies, and knowledge dissemination
- Global and national strategies for cutting methane emissions need to be fleshed out, and the GMP provides a potential platform for discussion.
- Some countries will pursue pricing and others non-pricing approaches; thus, operational methodologies for comparing efforts across countries need to be approved.
- Continued refinement of methane monitoring technologies is needed, particularly atmospheric measures that can better map readings to specific emission sources.
- Successful methane abatement programs, such as Norway’s methane tax, need to be disseminated, along with lessons that can be drawn for other countries.

### Financing and international coordination
- Financing would need to be part of an international agreement, given that mitigation costs would fall disproportionately on emerging market economies.
- Dialogue is needed on design issues for internationally coordinated mitigation regimes as well as strategies for advancing critical methane abatement technologies.

*IMF | Staff Climate Note — Conclusion*

### Annex 4. An International Price Floor for Methane Emissions

### Annex 4. An International Price Floor for Methane Emissions

### Core proposal
- Coalition approach:
  - A coalition of willing countries with large collective methane emissions, such as GMP signatories, to facilitate negotiation while maintaining coverage of a large portion of global emissions.
- Price-floor focus:
  - A minimum methane emission price that each country would need to implement, given that emission pricing is an efficient and easily understood parameter—agreement on a price floor rather than a price level allows countries flexibility to set a higher price if this is needed to help meet a domestic methane emission target.
- Rationale:
  - Emission pricing provides a transparent, comparable policy parameter across jurisdictions while preserving flexibility for domestic policy design.

### Pragmatic design features
- Differentiated responsibilities:
  - Differentiate pricing requirements according to a country’s level of economic development to accommodate the differentiated responsibilities of developing economies.
  - Include robust, transparent mechanisms to transfer financial and technological assistance to low-income participants in the agreement.
- Political and institutional accommodation:
  - Allow countries for which methane pricing is difficult politically to participate by demonstrating equivalent emissions reductions through other instruments.
- Sequenced sectoral coverage:
  - Sequence sectoral coverage in line with institutional monitoring capacities, focusing initially on extractive emissions and subsequently extending to agriculture and waste as metering capability evolves.

### Measurement, enforcement, and institutional design
- Measurement:
  - The arrangement would need to encompass mutually agreed procedures for measuring methane emissions.
- Enforcement uncertainty:
  - Whether enforcement mechanisms are needed is not entirely clear.
  - A BMA could provide some deterrent to cheating on the arrangement, but it would complicate initial setup because countries would need to agree on design issues both for the price floor and the BMA.
  - Such a measure may not be needed since it is in countries’ collective interest to secure an effective agreement with no cheating.

### Comparison with alternative international regimes
- Pure price floor alternative:
  - All participants implement methane pricing at the same level.
  - Pros: promotes cost-effectiveness at the global level.
  - Cons: less scope for addressing differentiated responsibilities of developing economies and would exclude countries for which methane pricing is too difficult politically or institutionally.
- Country-level methane quotas alternative:
  - Regime focused on country-level methane quotas aligned with global mitigation objectives.
  - Pros: directly aligns national limits with global mitigation objectives.
  - Cons: more difficult to negotiate because of the much greater number of parameters (one quota per country) and does not directly address uncertainty over specific policy actions in other countries, which is key to addressing competitiveness concerns.
- Conclusion:
  - A pragmatically designed price floor for methane emissions may be more promising than these alternatives because it balances practicality, coverage, and flexibility.

### Precedents and analogues
- Tax and international cooperation precedents:
  - Tax floors for indirect taxes in the European Union and the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) under which over 135 countries collaborate to put an end to tax avoidance strategies.
- Climate policy precedents:
  - 1987 Montreal Protocol (phasing out substances that depleted the ozone layer and contributed to global warming).
  - 2016 Kigali Agreement (phasing out the most important fluorinated gases which also contribute to warming).

*Source: Annex 4. An International Price Floor for Methane Emissions (IMF Staff Climate Note).*

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_Source: https://www.imf.org/-/media/files/publications/staff-climate-notes/2022/english/clnea2022008.pdf_