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Methane emissions are in policymakers’ crosshairs

  • The “global” pledge to cut methane emissions by 30% this decade is a worthy aim, but the fact that the world’s biggest emitters have not signed up is far from helpful, and many of the obvious ways to reduce emissions should happen in spite of political targets, not because of them. While we expect human-driven methane emissions to decline this decade, we doubt that the goal of the pledge will be met.
  • Cutting emissions of carbon dioxide is crucial to limiting the extent of global warming later this century, but reducing emissions of methane and other potent but comparatively short-lived greenhouse gases would have a more immediate impact on the global average temperature. Indeed, estimates suggest that achieving the Global Methane Pledge’s goal would have the same effect on global warming by 2050 as immediately achieving net zero carbon emissions in the transport sector, and could eliminate over 0.2˚C of global warming over the period.
  • Encouragingly, there are a host of technically feasible ways to cut methane emissions in the energy and agricultural sectors (which together account for about 80% of the global total). For example, the IEA estimates that tried-and-tested methods such as stopping the routine flaring and venting of natural gas and finding and fixing leaks could halve emissions from the oil and gas sector, and so cut global methane emissions by 11%. Meanwhile, methane-reducing feed additives have been shown to reduce emissions from livestock by 15-20%, and so could potentially cut global methane emissions by another 5% or so.
  • Crucially, a large chunk of the potential reductions in methane emissions in the energy sector would not only be affordable, but potentially profitable once you allow for the ability to sell or use the natural gas that is currently wasted. These incentives have only been sharpened by the rise in the price of natural gas in recent years and is the main reason to be optimistic that progress will be more rapid in the coming 5-10 years than it has in the past.
  • That said, while ways to reduce methane emissions exist, this doesn’t mean that they will necessarily happen en masse. One problem is that three of the top-5 emitters of methane – China, India, and Russia – have not signed the Global Methane Pledge and so only about 40% of global methane emissions from the energy sector are covered by it. Even in the unlikely event that all the countries that have signed up to the Pledge completely eradicate methane emissions from their energy sectors by 2030, this would only reduce global methane emissions by about 15%.
  • The fact that a large portion of methane emissions in China and India stem from the production of coal is also problematic given that both countries plan to add coal-fired generating capacity to their power networks over the coming years. In theory, methane from active and closed coal mines can be captured and utilised/sold, but in practice there are a range of technical and legislative hurdles that make this difficult/uneconomic.
  • More generally, while politicians are happy to legislate to nudge companies into tackling the no-brainer options for reducing emissions, experience suggests that governments are slow and reluctant to take more difficult decisions that can change consumer behaviour, such as taxing methane-heavy produce including beef and dairy more heavily. Against this backdrop, the onus will remain on technology to deliver scalable and cost-effective methods to reduce the methane footprint of our lifestyles over the coming years.
 

Methane emissions are in policymakers’ crosshairs

Carbon dioxide is the poster child greenhouse gas, but awareness of the role that methane has played in global warming to date has grown in recent years, and efforts to reduce methane emissions are a crucial near-term priority for global policymakers.

Against this backdrop, this Focus takes a closer look at methane emissions. It is split into three sections. The first sets the scene; the second looks at the breakdown of methane emissions at a global and country level and by sector; and the third examines governmental efforts aimed at reducing methane emissions this decade, assessing how successful – and costly – such efforts are likely to be.


Section 1: Background on methane emissions

As is the case with all the other greenhouse gases, estimating annual emissions of methane into the atmosphere is subject to a wide range of uncertainty.

With this caveat in mind, some 580 million tonnes of the gas are estimated to be emitted each year, of which roughly 40% come from natural sources, mainly wetlands which provide the ideal anaerobic conditions for microorganisms to produce methane. The remaining 60% is caused by human activity (so-called anthropogenic emissions). (See Chart 1.)

Chart 1: Global Methane Emissions
(Million Tonnes, 2021)

Source: IEA

Note that there are significant differences between methane emissions derived from “bottom up” estimates as reported to public agencies such as the UN and “top down” estimates pieced together by scientists – particularly in the energy sector. (See Chart 2.) This is partly because some of the largest emitting events of methane occur as a result of leaks in oil and gas infrastructure, which are often not adequately reported by firms and countries but can be estimated by satellite. Satellite imagery shows that some of the biggest leaks are from the Permian basin in Texas and parts of Central Asia. (Turkmenistan alone was responsible for one third of the very large emissions events detected by satellites in 2021.)

Chart 2: Global Methane Emissions from
the Energy Sector (Million Tonnes, 2021)

Source: IEA

Just as comparing the size of economies requires local currency values of GDP to be converted into comparable units (typically the US dollar), aggregating the emissions of different greenhouse gases also requires expressing them in a comparable unit. This is almost always carbon dioxide, hence emissions of non-CO2 gases frequently being expressed in terms of “CO2-equivalent”.

Such conversions rely on estimates of the effect that a given mass of a given greenhouse gas would have in warming the earth over a particular time horizon relative to the same mass of carbon dioxide. Such estimates are known as “global warming potentials” (GWPs) and are updated periodically by the Intergovernmental Panel on Climate Change (IPCC), lastly in 2021. (See Table 1.) As the numeraire, carbon dioxide by definition has a GWP value of 1. A number higher than 1 shows a given gas is more “potent” than carbon dioxide at warming the earth.

Table 1: Global Warming Potentials
(Selected Greenhouse Gases)

Greenhouse gas

20 years

100 years

Carbon Dioxide (CO2)

1

1

Methane (CH4)*

81

28

Nitrous Oxide (N2o)

273

273

Source: IPCC AR6    *Average of fossil and non-fossil origin

It is commonplace to use the GWPs over a 100-year time horizon (ie, GWP-100) when aggregating greenhouse gases. On this basis, methane is about 28 times as potent a greenhouse as carbon dioxide (again see Table 1) and accounts for just over one sixth of global emissions of greenhouse gas emissions each year. (See Chart 3.) (Note that estimates of GWPs are adjusted periodically in line with the latest scientific evidence and judgement. For example, the GWP-100 for methane has increased from 25 at the time of the IPCC’s Fourth Assessment Report (AR4) in 2007 to about 28 at present, partly because the IPCC now attempts to account for potential feedback loops from methane to the wider carbon cycle. Many aggregations of greenhouse gases still use the set of conversion factors from AR4, which is not a big deal in the grand scheme of things but is something to be aware of.)

Chart 3: Global Greenhouse Gas Emissions by Gas
(Billion Tonnes of CO2-equivalent*, 2019)

Sources: CAIT, Capital Economics    *Based on GWP-100

However, given that methane does not persist in the atmosphere as long as carbon dioxide (it largely dissipates in 12 years), the GWP-100 conversion factors understate methane’s role in heating the globe over a shorter time horizon. Indeed, as shown in Table 1, methane is more than 80 times as potent a greenhouse gas than carbon dioxide over a 20-year time horizon. (Nitrous oxide is in a different league altogether.)

The upshot is that there would be a more immediate impact on global warming by reducing global emissions of methane than from similar-sized cuts in carbon dioxide emissions. Indeed, the IEA estimates that the Global Methane Pledge’s goal of cutting the world’s methane emissions by 30% over the next decade would have the same effect on global warming by 2050 as immediately achieving net zero CO2 emissions in the transport sector. On its own, this could save over 0.2˚C of warming by the middle of the century and explains why reducing methane emissions has become a key priority for policymakers. (More in section 3.)


Section 2: Country and sectoral breakdowns

This section looks in detail at which countries and sectors account for the bulk of methane emissions. It is broken into three separate sections.

Section 2.1: Country-level detail

The top-10 largest emitters of methane account for about 55% of total global emissions. (See Chart 4.)

Chart 4: Top-10 Emitters of Methane
(Million Tonnes of CO2-equivalent*, 2019)

Sources: CAIT, Capital Economics    *Based on GWP-100

Perhaps unsurprisingly, major natural gas exporters such as Turkmenistan and Qatar have some of the highest levels of methane emissions per capita. But New Zealand, a powerhouse in global dairy exports, is not far behind. (See Chart 5.)

Chart 5: Methane Emissions per Capita
(Tonnes of CO2-eq.*, 2019, Selected Countries)

Sources: Our World In Data, Capital Economics  *Based on GWP-100

This reflects the out-sized importance of the agriculture sector in New Zealand. Whereas methane accounts for just over one sixth of global greenhouse gas emissions, it accounts for about 40% of greenhouse gas emissions in New Zealand. (See Chart 6.)

Chart 6: Greenhouse Gas Emissions By Country & Gas
(% of Country Total, 2019)

Chart, bar chart, histogram  Description automatically generated

Sources: CAIT, Capital Economics   


Section 2.2: Global methane emissions by sector

Following on from Chart 1, Chart 7 shows the breakdown of global methane emissions that stem from human activities.

Chart 7: Breakdown of Human-Derived Methane Emissions (%, 2021)

Source: IEA

Agriculture

About 40% of global methane emissions that stem from human activity are emitted from the agricultural sector. About two thirds of such emissions originate from “enteric fermentation” (aka the digestive “emissions” from ruminants, largely cows) and one sixth from rice cultivation. (See Chart 8.)

Chart 8: Global Methane Emissions from
the Agriculture Sector (%, 2021)

Source: UN FAO

Energy

The energy sector also accounts for about 40% of global emissions. (Again, see Chart 7.) More than half of methane emissions from energy come from the oil and gas industries, predominately through the intentional venting of natural gas as well as unintentional leakages in production and distribution infrastructure (the latter are known as “fugitive” emissions). (See Chart 9.) And while the practice of flaring “unwanted” natural gas largely converts it into carbon dioxide and water, the small portion of flared gas that is typically not combusted completely is released into the atmosphere as methane.

Chart 9: Global Methane Emissions from
the Energy Sector (Million Tonnes, 2021)

Chart, pie chart  Description automatically generated

Source: IEA

The other major source of methane from the energy sector is coal mining. This includes methane emissions that escape from operating mines (imaginatively called “coal mine methane”) as well as closed mines, which can release methane for decades. Coal-related methane emissions from China, the world’s largest coal producer and emitter of coal mine methane, are equivalent to total CO2 emissions from international shipping.

About 7% of the energy sector’s emissions of methane come from bioenergy – produced via anaerobic digestion of energy crops and organic wastes to generate biogas and biofertilisers – and about 3% is estimated to come from large-scale leaks detected only by satellite. The IEA estimates that about 3.3 billion tonnes of methane escape in this way each year, although some estimate that emissions under these so-called “ultra emitter” events could be twice as large.

Waste

One fifth of global methane emissions stem from the waste sector, including methane released from landfill sites as solid waste decomposes, as well as waste water treatment plants.

Biomass burning

Finally, the IEA estimates that about 2% of global methane emissions come from incomplete combustion of biomass during its the traditional use for cooking in emerging market and developing economies.


Section 2.3: Sectoral breakdown by country

The sectoral composition of methane emissions differs substantially from country to country and depends on variables including the energy mix and the structure of an economy – notably the importance of agriculture in a given economy. For example, as shown in Chart 10, emissions from agriculture account for about 70% of total methane emissions from Brazil.

Chart 10: Breakdown of Methane Emissions in Top-10 Emitters By Sector (% of Country Total, 2021)

Sources: IEA, CAIT, Capital Economics    *Based on GWP-100


Section 3: Efforts to reduce methane emissions

Policymakers appear to have woken up to fact that while the long-term climate war is against carbon dioxide, the near-term battle is with methane and other potent greenhouse gases. Whereas cutting emissions of carbon dioxide will play a role in limiting the increase in the global average temperature in the latter half of this century, reductions in methane and other potent but comparatively short lived gases would have a discernible impact in the coming decades.

Numerous announcements have been made in recent years, notably the Global Methane Pledge signed at COP26 in Glasgow, which aims to cut global methane emissions by 30% between 2020 and 2030. It is estimated that meeting the pledge could eliminate over 0.2˚C of warming by 2050. Other steps include the recent announcement by the US Environmental Protection Agency at COP27 that it is strengthening its proposed regulations to require oil and gas firms to strengthen leak detection and repairs. Meanwhile, New Zealand is ploughing ahead with its proposal to impose levies on methane and nitrous oxide emissions from livestock – a measure intended to start in 2025 and which has been dubbed the “fart tax”.

There’s a will and there are ways

There are three reasons to be hopeful that a stronger focus on reducing methane emissions this decade will yield results.

First, in contrast to more intractable challenges such as decarbonising aviation, there are proven ways to cut methane emissions in the energy sector. Indeed, the IEA estimates that about half of the methane emissions from oil and gas – so about 11% of global methane emissions – could be cut using tried and tested policies including stopping routine flaring and venting of natural gas and focusing more closely on finding and fixing methane leaks.

As shown in Chart 11, Norway shows the extent to which it is possible to produce natural gas without allowing much methane to escape. This underlines that much of the problem is to do with implementation rather than what is technologically possible. According to the IEA, if all producing countries were to match Norway’s emissions intensity, global methane emissions from oil and gas operations would fall by more than 90%.

Chart 11: Kilograms of Methane Emitted per Gigajoule of Natural Gas Produced

Chart, bar chart  Description automatically generated

Source: IEA

Second, the IEA estimates that a large chunk of the potential reductions in methane emissions from the energy sector would not only be affordable, but would yield a net financial gain once you allow for the ability to sell or use natural gas that is currently wasted.

Admittedly, you do not need to be a trained economist to question why such steps have not happened already. But just as the incentive to accelerate the rollout of renewables has been bolstered by the added motivation of boosting energy security, the surge in the price of natural gas has increased the opportunity cost of allowing gas to go to waste. The IEA estimates that up to about 9% of total global methane emissions could be reduced in ways that would be commercially lucrative.

Finally, there are plenty of options to reduce emissions of methane from agriculture too. This includes alternative techniques for rice cultivation which reduce methane emissions and water usage whilst not affecting crop yields. Changing diets of ruminants as well as better manure management techniques can also help. For example, scientists in Australia have demonstrated that methane-reducing feed additives can reduce methane emissions from livestock by between 15-20%, and so could potentially cut global methane emissions by about 5%. (Adding a small amount of a certain type of seaweed to dry feed for cattle can reduce methane emissions by more than 80%, although these products have not been widely commercialised.) These could be key areas in which government regulations and mandates could help to nudge private behaviour towards a socially beneficial route.

“Global” methane pledge in name only

That said, As we have argued before, there has frequently been a big gap between rhetoric and action on the climate front.

The first problem is that three of the top-5 emitters of methane – China, India, and Russia – have not signed up to the Global Methane Pledge. Indeed, as shown in Chart 12, only about 40% of global methane emissions from the energy sector are covered by the Pledge – much less in the case of coal. And with all due respect to New Zealand, its efforts to reduce its methane emissions will be barely visible at the global level.

Chart 12: Energy Methane Emissions Covered by “Global Methane Pledge” (Million Tonnes, 2021)

Chart, bar chart  Description automatically generated

Source: IEA

Second, even if China and India follow suit by targeting methane, the fact that most methane emissions in China and India are a by-product of coal production will limit progress. India’s heavy dependence on coal has been a focus at COP27 with campaigners disappointed that India still plans to add coal-fired generating capacity to its power network over the coming years. India’s Coal Minister acknowledged that coal will continue to play a major role in India’s energy mix at least until 2040. So it’s likely to be slow progress on that front.

Third, while governments could help to reduce methane emissions by raising taxes and so diverting consumers away from methane-heavy products such as dairy and beef, experience suggests that governments are very slow and reluctant to impose such taxes/costs. In the absence of reduced demand for methane-heavy products, the onus will be on technology to reduce the methane footprint of them.

Finally, unilateralist approaches to a collective action problem by definition lead to sub-optimal outcomes, but they also run the risk of countries defining progress too narrowly. For example, in the same way that many developing countries “import” carbon dioxide emissions through trade, countries indirectly consume and import methane through imports of oil and gas produced elsewhere. Indeed, based on IEA data, we estimate that the amount of methane that the EU “imports” through its imports of oil and gas is equivalent to about 8% of its domestic methane emissions.

If governments are serious about reducing methane emissions from elsewhere, serious consideration would need to be given to taxing products with embedded methane emissions at the border – akin to the EU’s plans for a Carbon Border Adjustment Mechanism (CBAM). We doubt that there is the political will or capacity to do so. And even if there was, given that the CBAM in Europe will not begin until at least 2027 – about seven years after it was first proposed –meaningful progress would be unlikely to be made on an equivalent mechanism for methane quickly enough to make much of a difference this decade.


David Oxley, Head of Climate Economics, david.oxley@capitaleconomics.com