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What Biden’s methane focus means for energy industry, its investors

By Ben Ratner

A journey of miles starts with a single step, and for the U.S. oil and gas industry and its financiers, supporting strong and swift methane regulation by the incoming Biden administration is a big step on the road to climate progress.

Cutting methane emissions from the oil and gas sector is the single fastest thing we can do to limit the rate at which our climate is warming. There is no more impactful way to make up for lost time than finally instituting stringent standards to slash methane emissions from all sources across industry.

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That’s because the emissions problem is egregious, the technology solutions abundant and cost effective, and the policy routes straightforward.

The old voluntary versus regulatory debate is behind us. Now, with the Biden administration firmly committed to reducing oil and gas methane emissions, a new era has begun.

The discussion now is how best to approach new, ambitious standards to make methane emissions a thing of the past. Because when it comes to industrial leaks of natural gas straight into the atmosphere, the only acceptable level ought to be zero.

That’s why leadership will be key to develop standards that bring speedy solutions, and private sector engagement will be judged by its ambition and urgency.

Risk and competitiveness fuel the need to act

Leading American companies understand that stopping methane emissions isn’t just the right thing to do, it’s also essential for business in the energy transition. And executives know that rules to accelerate industry-wide progress are vital, since industry is only as strong as its weakest link.

Methane has jumped from being a theoretical risk to license to operate to a very real one. From advocacy groups and public officials to investors and increasingly customers, the risk has spiked. With such a fragmented U.S. market structure, strong requirements that apply to all of industry are necessary to put a dent in industry’s reputational challenges.

Methane is now an issue of American competitiveness. Recently, for example, a major French utility backed out of a $7 billion liquid natural gas import deal over concerns about emissions like these. As European and other gas buyers determine which gas is (relatively) clean and which is dirty, it is in the commercial self-interest of American industry to help institute the most effective methane and flaring standards to restore the footing of their products.

A win for the taking for Paris-committed financial players

There is no Paris aligned pathway to retaining passive (let alone active) investment or lending in oil and gas without solving methane as a down payment in the energy transition.

For the growing group of financial players committed to net-zero, what comes next is implementation. That requires tangible wins in carbon intensive sectors, where financial pressure and support helps deliver quantifiable emission reductions at scale. Proactively helping the new administration solve the methane problem could be a potent Exhibit A.

Even during the hostile Trump administration, assets under management of firms that vocally supported federal methane regulation exceeded $5 trillion. That number should climb in 2021, with Biden at the helm and the world’s largest asset managers under increasing scrutiny for how they use their votes, voices and dollars to accelerate climate action — especially in carbon intensive sectors like oil and gas that require tightened regulation to improve.

It’s also time for the banking sector to break its longstanding silence on the need for government action that’s up to the task of solving methane emissions. Firms that laudably commit to align lending with the Paris Agreement have a clear risk management basis for supporting the kinds of emission standards required to make Paris aligned lending possible.

A book of loans riddled with financed methane emissions is neither acceptable nor inevitable, but it’s a risk unless and until the regulatory vacuum is filled. Meanwhile, rapidly advancing monitoring technologies are on the brink of delivering unprecedented transparency and accountability on financed emissions. Bank CEOs should take note, and help their teams clear any real or perceived barrier to responsibly advocating good policy.

Capturing every ton

The business case for strong federal methane regulation is so compelling that even in the most challenging political times, voices as diverse as Shell, BP, Pioneer, Jonah Energy, DTE, CalSTRS and Legal and General Investment Management spoke out.

Leadership examples like those matter.

As we enter the Biden era, we welcome every business voice who understands the benefits of regulating for maximum emission reductions. Every company across the value chain and every financial player with a stake can be part of the solution.

Business leadership now means bringing data, experience and technology innovation to bear to help the Biden administration capture every opportunity to achieve climate progress while helping industry improve.

Let’s get to it.

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