Methane Border Adjustment Mechanism Act
The Methane Border Adjustment Mechanism Act would create a new tax regime inside the Internal Revenue Code to impose a border-adjusted methane tax on imported petroleum and natural gas. The basic idea is to charge importers a methane emissions-based tax (the “methane emissions charge”) that reflects how much methane is emitted by the country where the fuel was produced, relative to the fuel’s share of production. The tax is calculated using a country-by-country formula tied to what the United States would charge under the Clean Air Act for facilities in those countries. There is also an optional alternative tax method based on the supply chain’s methane emissions, available if certain reporting and trade program conditions are met. The bill would require international cooperation, create an international body to track and standardize methane emissions data, and encourage cooperation with other top oil and gas importers to harmonize or participate in similar border measures. The measure would take effect for sales and uses after December 31, 2025. In essence, the bill would make imported fossil fuels more expensive to reflect methane emissions embedded in their production, aiming to reduce overall methane releases, spur cleaner production practices, and align US policy with international efforts to curb methane pollution.
Key Points
- 1Tax on methane adjustment substances: The importer pays a tax on each petroleum or natural gas product (the “methane adjustment substance”) sold or used, with the tax designed to reflect the product’s share of methane emissions from its country of production.
- 2Calculation of the tax: The tax amount is proportional to the substance’s volume (or energy content for natural gas) relative to the country’s total production, using a “total methane emissions charge” that mirrors the charges that would be imposed under the Clean Air Act if the facilities in that country were in the United States.
- 3Targeted substances and potential expansion: The baseline substances are petroleum and natural gas. The Secretary must periodically study and report whether additional substances with notable embodied methane emissions should be added, after consulting with USITC and ITA, and with an analysis of the economic and environmental costs if expansion occurs or does not occur.
- 4Alternative tax based on supply chain emissions: An importer can opt for an alternative tax method that accounts only for the importer’s share of charges along the fuel’s supply chain, provided the importer supplies required information and the country has mutual recognition arrangements with C-TPAT.
- 5International cooperation and data standards: The bill calls for cooperation with major oil and gas trading partners, including facilitating the creation of an international body to collect data, establish interoperable standards, and track emissions across supply chains (updated at least every two years).
- 6Implementation and timing: The amendments would apply to sales and uses after December 31, 2025.