Taking action on climate change is good business strategy

A new C2ES report highlights lessons useful for companies and policymakers as more states and countries consider carbon pricing to spur innovative technologies and cut emissions at the lowest possible cost.

The report, written for the World Bank’s Partnership for Market Readiness (PMR), examines how three companies — Pacific Gas and Electric (PG&E), Rio Tinto, and Royal Dutch Shell -- prepared for carbon pricing programs.

The PMR shares this type of information with developing countries to help them create their own market-based policies. We were pleased to partner with the PMR to explore how a few of the companies in our Business Environmental Leadership Council prepared for carbon pricing and we thank the companies for sharing their expertise.

The lessons they shared fall into two categories – what business can learn from other companies operating in carbon markets and what governments considering market-based climate policy can learn from business.

Reducing methane emissions from the oil and gas sector

The Environmental Protection Agency (EPA) is pursuing regulatory and voluntary steps to reduce methane emissions from the oil and natural gas production system, the largest manmade source of this potent greenhouse gas.

On January 14, 2015, EPA announced a goal to cut methane emissions from the oil and gas sector by 40 – 45 percent from 2012 levels by 2025. As part of achieving this goal, it will release proposed regulations under Section 111(b) of the Clean Air Act in the summer for new and modified sources of methane emissions from the oil and natural gas sector.

EPA also plans to work collaboratively with industry and states, including expanding its voluntary Natural Gas Star program, to reduce methane from existing oil and gas operations.

Steps to reduce methane from other sources, such as landfills and coal mines, are also part of President Obama’s Climate Action Plan.

What is methane?

Methane, or CH4, is the main component of natural gas. When combusted as fuel, natural gas produces half as much carbon dioxide emissions as coal, and one third less than oil (per unit of energy produced). However, natural gas that is released into the atmosphere without being combusted is a potent greenhouse gas.

Why is it important to reduce methane emissions?

Methane is the second biggest driver of climate change. It is much more potent than carbon dioxide (CO2) at increasing the atmosphere’s heat-trapping ability, but it remains in the atmosphere a much shorter time (a little more than a decade compared with hundreds of years for CO2).

Averaged over a 100-year time frame, the warming potential of methane is about 21 times stronger than that of CO2. However, in a 20-year time frame, it is 72 times more potent. (The most recent report by the Intergovernmental Panel on Climate Change raises estimates of the global warming potential of methane to 34 times stronger than CO2 for the 100-year time frame, and 86 for the 20-year time frame. However the earlier estimates are still used to maintain comparability among U.S. Greenhouse Gas Inventory reports.)

Because methane is potent and short-lived, reducing methane emissions can have a more immediate benefit, and is especially important at a time of growing U.S. oil and natural gas production.

What are the primary sources of methane emissions in the United States?

Natural gas and petroleum systems are the largest emitters of methane in the U.S., according to EPA estimates. These emissions come from intentional and unintentional releases.

Agriculture, solid waste landfills, and coal mines are also major sources and are addressed by other EPA programs.

Figure 1: 2012 U.S. Methane Emissions, By Source

In 2012, U.S. methane emissions totaled 567 million metric tons of carbon dioxide equivalent.

Source: U.S. Environmental Protection Agency, “Draft Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012” (Washington, DC: U.S. Environmental Protection Agency, 2014), http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html.

How much methane is released in oil and natural gas production and how will this announcement improve the accuracy of measurements?

Methane is released unintentionally and intentionally from oil and gas systems. According to EPA, natural gas and petroleum systems were responsible for 29 percent of methane emissions in 2012. The rate of methane emissions from the sector has decreased in recent years even as natural gas production has surged.

However, independent studies estimate a wide range of leak rates from natural gas production, from 0.71 to 7.9 percent. More comprehensive studies are needed for accurate results.

EPA has committed to examining options for applying remote sensing and other technologies to improve methane emissions data accuracy and transparency, and strengthening reporting requirements for methane in its Greenhouse Gas Reporting Program.

Why is methane intentionally released?

In the production process, small amounts of methane can leak unintentionally. In addition, methane may be intentionally released or vented to the atmosphere for safety reasons at the wellhead or to reduce pressure from equipment or pipelines.

How does EPA propose to address methane emissions from oil and natural gas production?

EPA will propose standards by summer of 2015 for methane emissions from new and modified oil and gas production sources and natural gas processing and transmission sources. A final rule is expected in 2016.

EPA already regulates Volatile Organic Compounds (VOCs, which are ozone-forming pollutants) from new oil and gas production sources, which has the side benefit of also reducing methane. EPA plans to apply VOC standards to existing oil and gas systems in areas that do not meet the ozone health standard and in northeastern states in the Ozone Transport Region.

For other existing oil and gas production, EPA said it will work collaboratively with states and industry, including the One Future Initiative and the Downstream Initiative, to reduce methane emissions through voluntary programs, such as the Natural Gas STAR program. The goal is to encourage innovation, provide transparency, and track progress toward specific methane emission reduction goals. The announcement noted that voluntary action by industry may reduce the need for future regulation, referring to regulation of existing sources under Section 111(d) of the Clean Air Act. However, the administration noted that they will be evaluating progress on voluntary actions and determining if any additional steps are needed.

In addition, the Interior Department’s Bureau of Land Management will update its standards, to be proposed in spring 2015, to reduce leaks and flaring of methane from both new and existing oil and gas wells on public lands.

What entities will be covered by the regulations?

The proposed rule would cover new and modified oil and gas production sources, and natural gas processing and transmission sources. Specifically, EPA notes it will look to reduce emissions from five specific sources discussed in technical papers in spring 2014: oil well completions, pneumatic pumps, and leaks from well sites, gathering and boosting stations, and compressor stations. In developing new standards, EPA says it will focus on in-use technologies, current industry practices, emerging innovations and streamlined and flexible regulatory approaches to ensure that emissions reductions can be achieved as oil and gas production and operations continue to grow.

How would the EPA’s proposed methane actions complement existing regulation?

In April 2012, the U.S. Environmental Protection Agency (EPA) finalized new source performance standards (NSPS) and hazardous air pollutant regulations for oil and gas production and gas processing, transmission, and storage facilities. While primarily aimed at reducing smog-forming and toxic air pollutants, known as Volatile Organic Compounds or VOCs, the rules also have the indirect effect of reducing methane emissions. These rules include the requirement to use "green completions" at natural gas wells to limit emissions from hydraulic fracturing, a rapidly growing means of drilling and production. In a “green completion,” special equipment separates hydrocarbons from the used hydraulic fracturing fluid, or “flowback,” that comes back up from the well as it is being prepared for production. This step allows for the collection (and sale or use) of methane that may be mixed with the flowback and would otherwise be released to the atmosphere.

In its January 2015 announcement, EPA said it will develop new guidelines to assist states in reducing VOCs from existing oil and gas systems in areas that do not meet the ozone health standard and in states in the Ozone Transport Region. Like the earlier NSPS, these guidelines will also reduce methane emissions.

What other non-regulatory steps has the administration announced it will take?

The president will request $15 million for the Department of Energy (DOE) to develop and demonstrate more cost-effective technologies to detect and reduce losses from natural gas transmission and distribution systems, including leaks repairs and developing next-generation compressors. The president’s budget will also propose $10 million to launch a program at DOE to enhance the quantification of emissions from natural gas infrastructure for inclusion in the national Greenhouse Gas Inventory in coordination with EPA. Congress must appropriate funding for these programs for them to be implemented. DOE will also be responsible for other recommendations to reduce emissions from the natural gas system.

Q&A: EPA Regulation of Greenhouse Gas Emissions from Existing Power Plants

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On June 2, 2014, the U.S. Environmental Protection Agency (EPA) released its proposed Carbon Pollution Standards for Existing Power Plants (known as the Clean Power Plan), per its authority under Section 111(d) of the Clean Air Act (CAA). The development of this rule was announced by President Obama during his June 25, 2013, climate policy speech. The Clean Power Plan would establish different target emission rates (lbs of CO2 per megawatt-hour) for each state due to regional variations in generation mix and electricity consumption, but overall is projected to achieve a 30 percent cut from 2005 emissions by 2030, with an interim target of 25 percent on average between 2020 and 2029.

See more resources and maps at the C2ES Carbon Pollution Standards Resource Page.

Why is regulation of greenhouse gas emissions from existing power plants important?

Electric power generation is responsible for nearly 40 percent of U.S. carbon dioxide emissions.

Figure 1: 2012 U.S. CO2 Emissions

Source: Energy Information Administration

Since the federal government adopted new vehicle efficiency standards last summer to address transportation emissions through 2025, the power sector represents the greatest opportunity for greenhouse gas reductions.

Figure 2: Electric Power Sector Carbon Dioxide Emissions without Proposed Emission Standards

Source: Energy Information Administration

Power sector emissions have declined over the past five years in part due to the economic downturn, increased energy efficiency, greater use of renewable energy and a switch from coal, the most carbon-intensive fossil fuel, to natural gas, the least carbon-intensive (in terms of combustion). In the absence of any policy changes, the U.S. Energy Information Administration projects that as the economy grows and natural gas prices rise slowly over the next five years, emissions will rise. The Clean Power Plan will have to push against these underlying trends.

Figure 3: Distribution of Fossil Fuel Power Plants across the Contiguous United States

Source: Energy Information Administration

What is in EPA’s proposal?

Typically, EPA regulations are set at the federal level and then administered by states. For example, EPA sets a limit on the level of smog in the atmosphere, and states then submit plans for how they will meet that standard. Once approved by EPA, states then administer these plans, known as State Implementation Plans.

The proposed Clean Power Plan is similar in that states would be given a target emissions rate, but have broad flexibility to determine how to achieve that target. Each state would be assigned a carbon emissions baseline based on its level of carbon emissions from fossil-fired power plants divided by its total electricity generation. (See our Proposed State Emission Rate Targets Map.) Electricity generation in this case includes fossil generation, nuclear, renewables, plus generation avoided through the use of energy efficiency programs. A target for 2030 is then established for each state based on its capacity to achieve reductions using the following four “building blocks” identified by EPA:

1. Make fossil fuel power plants more efficient.

2. Use low-emitting natural gas combined cycle plants more where excess capacity is available.

3. Use more zero- and low-emitting power sources such as renewables and nuclear.

4. Reduce electricity demand by using electricity more efficiently.

Each state could then meet its established target however it sees fit. States could join multi-state programs to reduce emissions collectively, for example through a cap-and-trade program.

How much flexibility will states have to minimize costs?

States would have considerable flexibility to adopt a variety of approaches to reduce carbon dioxide emissions from the power sector, if they can demonstrate that they will achieve the emissions target.

Among the possibilities:

  • States could allow emissions credit trading among power plants owned by the same operator. This means that if one power plant reduced its emission rate below the state target, it could trade credits to a power plant that could not meet the target so that the company overall would be in compliance.
  • States could allow emissions trading between power companies and even across state lines (such a program would be similar to the Regional Greenhouse Gas Initiative). Averaging or trading across power plants, companies, and states cut overall compliance costs by taking advantage of the lowest-cost opportunity for emissions reductions.
  • States could use energy efficiency or renewable energy for compliance, provided that the total emissions met an EPA-approved target.
  • States could also set a standard that is more stringent than what would be required by EPA's guidelines.

How much will this rule cost?

EPA projects that the compliance costs for this rule would be between $7.3 billion and $8.8 billion annually by 2030. EPA projects that this would lead to about a 3 percent increase in electricity rates by 2030. The rule would deliver considerable benefits as well, including a total of $55 billion to $93 billion in public health benefits by 2030, as projected by EPA. The rule could also reduce electricity consumption, meaning a homeowner’s electricity bill could stay the same or even decrease. It is important to weigh any costs of the Clean Power Plan against the costs of allowing carbon dioxide emissions to continue to rise unabated, contributing to climate change. The costs of climate impacts such as more frequent and intense heat waves, higher sea levels, and more severe droughts, wildfires and downpours, are projected to be much higher.

What can power plants do to reduce emissions?

An individual power plant could reduce its greenhouse gas emission rate by using fuel more efficiently or by switching to a lower carbon fuel, such as natural gas or biomass instead of coal. However, states would be complying with this rule on a statewide basis using any number of emission reduction options. As long as states met carbon dioxide targets broadly, action would not necessarily be required at particular power plants. States could meet their emissions targets by increasing their consumption of renewable electricity relative to fossil-generated electricity or improving energy efficiency. Options to reduce carbon dioxide emissions in the power sector are illustrated in Figure 4.

Figure 4: Opportunities to reduce carbon dioxide emissions in the power sector

How will existing state policies, such as the Regional Greenhouse Gas Initiative, be affected?

States would have significant flexibility in setting regulations for existing power plants within their borders, but are required to follow the broad limits in EPA’s proposed rule. Since states have been given the authority to use market-based mechanisms, the nine Northeast states participating in the Regional Greenhouse Gas Initiative (RGGI)would be able to demonstrate that their cap-and-trade program for power plants satisfies the required emission reductions, and that further regulation is therefore unnecessary. Policy measures that states might employ to achieve their carbon targets are listed in Table 1.

Table 1: Policy options to reduce power sector carbon dioxide emissions

Power plant performance standardEach power plant must achieve a set emissions intensityCalifornia, New York, Washington
Renewable Portfolio StandardUtilities must deliver a set percentage of renewable electricityColorado, Hawaii, Kansas, Missouri, Nevada, Rhode Island, and others
Energy Efficiency Resource StandardUtilities must cut demand by a set amount by target yearsArizona, Connecticut, Maryland, Minnesota, Texas, and others
DecouplingReduce utility incentive to deliver more electricity by decoupling revenue and profitCalifornia, Idaho, Massachusetts, Michigan, Oregon, and others
Net MeteringEncourage residential solar by paying homeowners to put excess electricity back on gridArkansas, Colorado, Georgia, Louisiana, and others
Cap & TradeIssue a declining number of carbon allowances, which must be surrendered in proportion to each plant’s emissionsCalifornia, Regional Greenhouse Gas Initiative
Carbon TaxCharge a tax for emitting carbonBritish Columbia
Grid Operator Carbon FeeAdd a carbon price to grid operator decision over which power plants to runNone currently
Appliance Efficiency StandardsRequire new appliances sold to meet set electricity consumption standardsCalifornia, Florida, New Jersey, and others
Commercial & Residential Building CodesRequire new buildings to include electricity saving measuresCalifornia, Illinois, Maryland, Mississippi, and others

What happens now?

EPA has been directed by President Obama to work closely with states, power plant operators, and other stakeholders as it finalizes its guidelines due to their novelty and far-reaching implications. Administration officials have said they aim to issue a final rule in the summer of 2015. The target date for states to submit their proposed plans to EPA is June 30, 2016, but states can apply for a one-year extension. After a plan is submitted, EPA will have a year to either approve plans or send them back to states for revision. If a state does not submit an adequate plan, EPA is authorized to impose a federal plan to drive the necessary reductions.

It is important to note that this action is not voluntary on the part of EPA. According to the Supreme Court in Massachusetts v. EPA (a decision that was recently reaffirmed), EPA is legally required to regulate greenhouse gases under the Clean Air Act if it finds them to endanger public health and welfare, just as EPA has addressed more traditional pollutants for the past 43 years. In 2010, EPA settled a suit with several states and environmental groups by agreeing to finalize greenhouse gas standards for existing power plants by May 26, 2012.

Additional resources can be found on the C2ES Carbon Pollution Standards Resource Page.

U.S. Department of Energy Investment in Carbon, Capture and Storage


The U.S. Department of Energy (DOE) oversees federal efforts to advance the deployment carbon capture and storage (CCS) technology. In addition to working on the research and development of CCS component technologies, DOE has provided financial support to multiple commercial-scale CCS projects in the power and industrial sectors. This brief examines DOE’s support for CCS through the American Recovery and Reinvestment Act of 2009 and through its annual budget.




Download the Brief


Country Emissions Targets

International Emissions Targets



Kyoto Target 2008-2012

Pledged targets under the UNFCCC [1]

Domestically mandated targets


8% above 1990 levels

5% below 2000 levels by 2020

15%-25% below 2000 levels by 2020 under different conditions of a global agreement that stabilizes GHG levels

Clean Energy Future Legislation: 80% below 2000 levels by 2050

Default emissions cap for cap-and-trade system starting in 2015 consistent with target of reducing emissions 5% below 2000 levels by 2020


6% below 1990 levels

17% below 2005 levels by 2020


European Community

EU-15: 8% below 1990 levels

EU-27: 20% below 1990 levels by 2020

30% below 1990 levels by 2020 if comparable and adequate actions by other countries

EU-27: 20% below 1990 levels by 2020, translated to 14% below 2005 levels by 2020

21% reduction from 2005 levels for ETS sectors

10% reduction from 2005 levels for non-ETS sectors


8% below 1988 levels

Part of EU


Czech Republic

8% below 1990 levels

Part of EU



8% below 1990 levels

Part of EU



6% below average1985-1987 levels

Part of EU



8% below 1990 levels

Part of EU



8% below 1990 levels

Part of EU



6% below 1988 levels

Part of EU



8% below 1989 levels

Part of EU



8% below 1990 levels

Part of EU



8% below 1986 levels

Part of EU



6% below 1990 levels

25% below 1990 levels by 2020 on condition of fair, effective international framework with ambitious targets by all major economies


New Zealand

Remain at 1990 levels

10-20% below 1990 levels by 2020 if comprehensive global agreement



Remain at 1990 levels

15-25% below 1990 levels by 2020; range depends on accounting of forestry sector and actions by all major emitters


United States


In the range of 17% below 2005 levels by 2020, in conformity with anticipated legislation



5% below 1990 levels

5% below 1990 levels by 2020, to be replaced upon EU accession (1 July 2013)



10% above 1990 levels

Same as EU target



8% below 1990 levels

Same as EU target



8% below 1990 levels

Same as EU target



1% above 1990 levels



30% below 1990 levels by 2020

40% below 1990 levels by 2020 as part of a global and comprehensive international agreement

Strengthening Kyoto target to 9% below 1990 levels

30% below 1990 levels by 2020

Targets in the Report No. 34 (2006-2007) to the Storting (Parliament)

Political pledge to achieve carbon neutrality by 2050


8% below 1990 levels

Same as EU target



Remain at 1990 levels

20% below 1990 levels by 2020 under certain conditions


United Kingdom

12.5% below 1990 levels

Same as EU target

Domestically legislated emissions target of 34% below 1990 levels by 2020 and 80% below 1990 levels by 2050



5-10% below 1990 levels by 2020, conditional on access to carbon markets, technology and capacity assistance, as well as clarity on accounting rules for forestry and land-use




15% below 1992 levels by 2020




36.1-38.9% below business-as-usual projected emissions level in 2020

Presidential Decree of 9 December 2010: 36.1-38.9% below business-as-usual projected emissions level in 2020 (3236 MtCO2e)



20% below business-as-usual projected emissions in 2020, projected from 2007 levels, requiring international support




40-45% reduction in CO2 emissions per unit of gross domestic product (GDP) from 2005 level by 2020

12th Five Year Plan: 17% reduction in CO2 emissions per unit of GDP from 2010 levels by 2015

Costa Rica


Carbon neutral by 2021

Carbon neutrality goal in 2008 Climate Change Strategy



20-25% reduction in emissions per unit of GDP (excluding agriculture sector) from 2005 level by 2020




26% below business-as-usual projected emissions in 2020

Presidential Decree No. 61 2011, National Action Plan for Reduction Greenhouse Gas Emissions



20% below business-as-usual projected emissions in 2020

41% below business-as-usual projected emissions in 2020 with international support




30% below business-as-usual projected emissions in 2020, subject to provision of adequate support

General Climate Change Law, April 2012: 30% below business-as-usual projected emissions by 2020 and 50% below 2000 levels by 2050

Korea (Republic of)


30% below business-as-usual projected emissions in 2020 (4% below 2005 level)

Cabinet decision of 17 November 2009: 30% below business-as-usual projected emissions in 2020



7-11% below business-as-usual projected emissions in 2020

16% below business-as-usual projected emissions in 2020, contingent on legally binding global agreement

2009 Sustainable Singapore Blueprint goals expected to lead to 7-11% reduction in business-as-usual projected emissions in 2020


South Africa


34% below business-as-usual projected emissions in 2020

42% below business-as-usual projected emissions in 2025, extent of implementation dependent on level of support


Marshall Islands


40% below 2009 levels by 2020 (CO2 only)




Carbon neutrality by 2020


Antigua and Barbuda


25% below 1990 levels by 2020



European Community

Kyoto Target [2] 2008-2012

EU Climate and Energy Package Effort Sharing targets for 2013-2020 [3]



13% below 1990

 16% below 2005 level



7.5% below 1990

 15% below 2005 level




20% above 2005 level


Czech Republic


 9% above 2005 level




5% below 2005 level



21% below 1990

 20% below 2005 level




11% above 2005 level



1990 levels

 16% below 2005 level



1990 levels

 14% below 2005 level



21% below 1990

 14% below 2005 level



25% above 1990

 4% below 2005 level




10% above 2005 level



13% above 1990

 20% below 2005 level



6.5% below 1990

 13% below 2005 level




17% above 2005 level




15% above 2005 level



28% below 1990

20% below 2005 level




5% above 2005 level



6% below 1990

 16% below 2005 level




14% above 2005 level



27% above 1990

 1% above 2005 level




19% above 2005 level




4% above 2005 level




13% above 2005 level



15% above 1990

 10% below 2005 level



4% above 1990

 17% below 2005 level


United Kingdom

12.5% below 1990

 16% below 2005 level




1. United Nations Framework Convention on Climate Change 2011, FCCC/AWGLCA/2011/INF.1 and FCCC/SB/2011/INF.1/Rev.1

2. The EU-15 nations have joined a "bubble" which allows the joint fulfillment of emissions commitments and preserves the collective emissions reduction goal of 8% below 1990 levels by 2008/2012. http://europa.eu.int/eur-lex/pri/en/oj/dat/2002/l_130/l_13020020515en00010020.pdf

3. http://ec.europa.eu/clima/policies/effort/index_en.htm. The EU’s collective 20% reduction target from 1990 levels translates to a 14% reduction from 2005 levels, split into sectors covered by the ETS (21% reduction) and those not covered by it (10% reduction). These targets apply to sectors not covered by the EU Emissions Trading System (ETS), such as buildings, transport, and other commercial activities. The EU ETS applies a sectoral cap and reduction target across the EU countries for emissions from power and heavy industry, and aviation from 2012. The ETS reduction target is 21% below 2005 levels by 2020. 


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