Exxon's $75 Million Methane Leak

by Dave Owen

December 18, 2019

Reposted by permission from the Environmental Law Prof Blog.

This morning E&E News reported that researchers from the Netherlands and the Environmental Defense Fund had quantified a massive natural gas leak at an Exxon-subsidiary-owned well in Ohio.  According to the study, the well leaked around 60,000 tons of methane.

That made me wonder: what might the carbon tax bill for a leak like that be?  The answer, of course, is $0, because neither the United States as a whole nor the state of Ohio has a carbon tax (or a cap-and-trade system that would also put a price on carbon).  But what if we did, and what if the tax rate approached the social cost of carbon?  How much would that one leak cost Exxon (and, of course, put into the United States treasury, for the benefit of the public)?

A rough answer is very simple to calculate.  The equation is: total bill = (tons leaked) x (methane CO2e factor) x  (cost/ton of carbon).  Methane's CO2e factor is generally set at 25, which means methane is twenty-five times more potent (over a 100-year period) than CO2.  I pulled a $50/ton social cost of carbon estimate from this Center for Policy Integrity report (which is from several years ago, and which notes that this value is more likely low than high).  The result is $75 million.

Compared to Exxon's overall revenues, that might seem like a rounding error.  But this was just one leak, and not every well operator has Exxon's capacity to absorb a multi-million dollar loss.  And if just one leak could generate that kind of bill, imagine what the threat of tax liability, perhaps in combination with heightened third-party monitoring of leaks, might do for the implementation of leak-detection systems.  

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Dave Owen is a Professor of Law at the University of California, Hastings, College of the Law.

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