The ESG perspective: It’s going to be an interesting year for ESG

MARK PATTON, CONTRIBUTING EDITOR 

Of all the things we expected out of a Trump administration, uncertainty within oil and gas was not one of them. We knew “drill, baby, drill” was going to lead to a rollback of legislation that hinders oil and gas, and that energy independence is the ultimate goal, but having excess natural gas and oil is also a powerful geopolitical tool. I can see the tariff war turning into “Buy our exported natural gas to narrow your trade imbalance.” So, where is the uncertainty? Well, it’s in the rollback of some ESG-related initiatives.  

Will the entire Inflation Reduction Act (IRA) get rolled back, or will some of the methane and carbon credits remain? If selling into the EU is a goal, then we need to meet the EU requirements for methane reduction and potentially carbon offsets. Meaning, we keep some of the IRA, or potentially use the threat of tariffs to get the EU to back of the requirements for imported natural gas to meet their methane standards (part of a Global Methane Pledge under the Paris Accords that we already terminated). Almost every oil major has created a “methane team” within their respective companies, and it would seem they plan on continuing to look at methane reduction. 

When Responsibly Sourced Gas (RSG) was established, it was used as a tool to sell natural gas at a premium when meeting an RSG standard that was primarily a voluntary program. So, that began a baseline for methane reduction. The IRA went further with what was referred to as the Methane Emission Reduction Program (MERP) which was designed to meet the Global Methane Pledge for the Paris Accords. If we are out of the Paris Accords, I guess were out of the Global Methane Pledge, right? But if we need the MERP to meet EU standards to sell natural gas to the EU, are we back in? 

Now let me add another layer here. The Carbon Border Adjustment Mechanism (CBAM) is something the EU implemented that taxes carbon emissions from certain products imported into the EU, which goes beyond just the methane program. So, when I mentioned earlier in this column that we had methane standards and potentially carbon offsets, I was referring to CBAM. The thing about CBAM is if the product is already subject to an offset tax, like cap and trade in California, it no longer has to pay anything under CBAM. 

Refined products have been a topic of discussion, with most people agreeing that we should comply here in the U.S., supporting job creation before paying a tax to an external party. It makes sense that we keep some parts of the MERP to comply with EU requirements and take a serious look at carbon offsets. 

Unlike other countries, the U.S. adopted 45Q — a tax credit program for carbon offsets. A program I’m fond of and have talked about before. This program was initiated in 2008, and oil companies have been a big beneficiary in the use of CO2 in EOR. Recently, the IRA increased the tax credit, paving the way for major investment in carbon capture and sequestration. Much of the billions pouring in have been from major oil companies like Oxy, ExxonMobil and Chevron. Do we keep moving forward here, or will there be a rollback? 

Canada’s new Prime Minister, Mark Carney, recently eliminated their consumer carbon tax and UBS just pushed back their carbon zero pledge by 10 years. So, is there a softening on carbon offsets? 

This is all going to make 2025 very interesting. With billions already invested, it’s hard to see a rollback on the carbon tax credit happening. More importantly, we will avoid taxes under CBAM when importing natural gas or refined oil products into the EU if we continue the program. Our current tax credit program still allows the CO2 to be sold on the voluntary market. Many believe that major oil will turn carbon capture and sequestration into a for-profit business with the combination of tax credit and voluntary offset credit. Then they can sell natural gas into the EU and avoid the CBAM as they have already offset that product. In most other countries they are paying a penalty or carbon tax, which should give us an advantage when selling those products into the EU.  

This all makes a case for continuing our MERP or parts of it under the IRA and continuing with the changes made to 45Q under the IRA. Even with some carbon zero pledges being moved back, the voluntary carbon market may soften, but it won’t go away as the carbon zero pledges are still there. 

But wait, there’s more. HR 1946 was introduced on March 6, 2025, with the goal to repeal 45Q entirely. It is sponsored by Republican Scott Perry, but co-sponsored by Democrat Ro Khanna. They call 45Q a wasteful tax credit that needs to be eliminated. A direct quote from cosponsor Khanna is very telling as to his motivation: “Subsidizing carbon capture and utilization undermine our ability to hold Big Oil accountable for the climate crisis.” Let me give you my rendition of his statement: “If we let our oil industry decarbonize, then they will be cleaner than solar or wind and we can’t blame them for everything anymore.” This is almost comical; I thought reducing emissions was good? Except when it’s oil and gas, I guess. The text for this bill is not available and the bill has moved on to the Ways and Means Committee. There are many groups already lining up to oppose this bill and according to GovTrack.us, this bill has zero percent chance of passing according to a formula they use, but don’t disclose.  

CCUS and Methane are two big items in the ESG world of oil and gas and it will be interesting to see how these two programs progress in 2025. Personally, I’m looking forward to the next four years and to see how our industry transforms. 

About the Authors

Mark Patton

Hydrozonix

Mark Patton is president of Hydrozonix and has more than 30 years of experience developing water and waste treatment systems for the oil and gas industry. This includes design, permitting and operation of commercial and private treatment systems, both nationally and internationally. He has seven produced water patents and two patents pending. He earned his B.S. in chemical engineering from the University of Southern California (USC) in 1985.