A Low-Cost Policy for Reducing Methane Emissions in the Oil and Gas Industry

Methane emissions from the oil and gas sector are a major contributor to global warming, yet current mitigation policies often underperform due to weak enforcement and misaligned incentives. This study proposes a two-pillar policy reform to reduce routine flaring, venting, and leaks at low cost. The first pillar is a revenue-neutral tax shift from natural gas to oil, which incentivizes responsible gas management while minimizing financial impacts on firms, consumers, and governments. The second pillar enhances the cost-effectiveness of methane detection by transforming monitoring from a regulatory liability into a financial opportunity. Using U.S. oilfield data (2005–2020), we estimate that the first pillar alone could cut 90% of venting and reduce the industry’s greenhouse gas emissions by 27.73% — equal to 95,000 metric tons of CO₂-equivalent per day. The approach is scalable across diverse contexts, including OPEC and low-income countries.