Methane Emissions Must Fall for World to Hit Temperature Targets

IMF Blog, November 2, 2022

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Global greenhouse gases must be cut by 25 percent to 50 percent from 2019 levels by 2030 to limit global warming to 1.5-2 degrees Celsius.
Methane has a more powerful near-term warming effect than CO2 because methane stays in the atmosphere for only 12 years on average compared with up to a thousand years for CO2.
Methane accounts for about 30 percent of the increase in the global temperature since industrialization.
Emissions rose by record levels for the second year in a row last year.
Most countries pledged to reduce their total greenhouse gases, including methane, as part of the Paris Agreement; 125 countries have signed a Global Methane Pledge.
Commitments and policies to cut methane still fall short of what is needed.

Extractive industries (gas pipelines, oil wells, coal mines): low-cost opportunities such as fixing leaks, curbing flares, and installing technologies to capture methane for sale or later use.
Agriculture: reducing livestock-based production in favor of plant-based food production or shifting to more productive cattle herds would likely reduce methane emissions.
Landfills: opportunities to capture methane emissions.

Methane fees are presented as a promising and practical instrument to lower emissions, especially if they build off existing business taxes common in the extractive sector and, in some cases, agriculture.
Fees could be designed to be revenue neutral to limit competitiveness concerns by lowering taxes on other parts of the business.
"Feebates" are an option: producers with above-average emission intensity pay high fees, while those below get rebates.
Given monitoring challenges, fees might be levied based on default emission rates with rebates for firms that can demonstrate lower actual emissions.
A global methane fee of $70 per tonne of CO2 equivalent among large emitters is estimated to be enough to drive down methane emissions to levels consistent with keeping global warming below 2 degrees.

An internationally coordinated arrangement focusing on minimum methane prices would be effective from an emission and competitiveness perspective.
The arrangement could initially start with key countries that have signed the Global Methane Pledge.
Costs of methane pricing would fall disproportionately on certain emerging market and developing economies.
Differentiated pricing and international assistance should be important elements of such an agreement.

Simon Black, Ian Parry, Nate Vernon-Lin; November 2, 2022.