Category: Retiring Emitting Assets

As Public Funding Commences for Abandoned Well Program, Private Capital Can Help

U.S. State Eligibility for Initial + Formula Grants to Clean Up Orphaned O&G Wells 

Key Points: Initial funding eligibility for U.S. states for Oil and Gas well cleanup was announced at the end of January. We maintain the view that a “carbon avoidance credit” — a tradable carbon offset — tied to plugging abandoned wells could let private capital subsidize these public funds. In a PA example, the offsets could generate ~15% of well costs.

Initial grants and first phase of formula grant eligibility announced. At the end of January, The U.S. Department of the Interior announced the first phases of funding availability to clean up Oil and Gas (O&G) wells, part of the $4.7 Billion in total funding allocated to create this program under the Bipartisan Infrastructure Law.

The announcement addressed two of three authorized types of grant funding: 1) Initial Grants, which are a flat $25 Million per eligible state (26 states have engaged thus far), designed to help them establish clean-up programs and commence plugging wells; and 2) Formula Grants, which are allocated to the states based on a combination of the number of documented orphaned O&G wells in the state (private lands only), the number of jobs lost from March 2020 through November 2021 and the estimated cleanup costs per well in each state. Only the first phase, or $500 Million, of Formula Grants have been authorized thus far, but the eventual combined total of Initial + Formula Grants is to be $2.6 Billion (see the above chart for estimated allocations by state). The last grant type is Performance Grants to which $1.5 Billion is allocated; the balance of the $4.7 Billion reflects allocations to Federal and Tribal land well clean-up.

The opportunity for private capital to help subsidize the costs. As we addressed recently, abandoned wells have been shown to have consistent levels of methane emissions that are inexpensive to measure. Proper closure of these wells therefore creates a measurable benefit in terms of permanent GHG avoidance, which suggests they can constitute attractive carbon offsets. As illustrated in the above referenced article, avoided methane for an abandoned well in PA, priced comparably to recent trades on CBL Nature-Based Global Emissions Offsets (a voluntary market) suggests carbon offsets could fund ~15% of estimated plugging costs for that well.

The scope of the abandoned well problem in the U.S. The EPA has estimated there are 2.1 million unplugged abandoned O&G wells in the U.S. (for comparison, the 26 states’ Notification of Interest identified ~130,000 wells, which highlights the important challenge of well discovery in the program). The EPA has further estimated that average emission per well is 0.13 metric tons of methane per year. For more context on the abandoned well problem and current consideration of how to avoid adding more orphaned wells, please see a recent report by the Payne Institute here.

Crediting emissions saved in plugging oil and gas wells 1/26/2022

Crediting emissions saved in plugging oil and gas wells

Payne Institute Research Associate Brad Handler and Director Morgan Bazilian write about how avoided emissions could be credited as carbon offsets and sold on exchanges. Funds totalling $21bn have been allocated in the US’ recently passed Infrastructure Investment and Jobs Act to clean up former industrial and energy sites, including properly retiring some of the estimated 2mn of unplugged abandoned oil and gas (O&G) wells in the US. Those funds can be stretched further if the avoided methane is credited as carbon offsets and sold on carbon exchanges.  January 26, 2022.  

Colorado oil and gas wells are constantly changing hands. Some risk becoming costly “orphans” along the way 1/19/2022

Colorado oil and gas wells are constantly changing hands. Some risk becoming costly “orphans” along the way

Payne Institute Research Associate Brad Handler contributes to this article about how since 2017, more than 42,000 oil and gas properties have been bought or sold in Colorado. If they fall into the wrong hands, they risk ending up abandoned, leaving the state on the hook for cleanup.  Along the way there have been negotiations, a promised $1 million to the community, protests and lawsuits. In whose hands those wells and pipelines end up will determine if they are well run or turn into nuisances and environmental problems, and also whether they are properly plugged and abandoned when they no longer produce. January 19, 2022.

Phasing out coal plants worldwide won’t be easy. These four approaches could help 12/2/2021

Phasing out coal plants worldwide won’t be easy. These four approaches could help

Payne Institute Researcher Brad Handler, Katie Auth, and Director Morgan D. Bazilian write about how reducing coal use around the world is critical for decreasing air pollution and addressing climate change, yet global coal consumption continues to grow in some regions. At the recent U.N. climate negotiations, countries agreed to “phase down” coal use, but achieving these goals won’t be easy, or cheap — and that’s where innovative financing comes in. Our research suggests that getting the right financial structures in place can help countries bring the dirtiest forms of power offline faster and accelerate new clean energy deployment.  December 2, 2021.

A faster, fairer way to retire carbon-emitting assets 9/1/2021

A faster, fairer way to retire carbon-emitting assets

Payne Institute Senior Fellow Brad Handler and Director Morgan Bazilian write about how carbon retirement portfolios are a potential solution to the problem of retiring CO2-emitting assets.  They can benefit sellers, buyers and governments, while accelerating cuts in emissions.  This article describes how they could work – and five areas for stakeholders to consider.  September 1, 2021.

Exploring Carbon Retirement Portfolios 7/30/2021

Exploring Carbon Retirement Portfolios

Payne Institute Fellow Brad Handler and Morgan Bazilian write a commentary on there are new financial instruments that are being designed and brought into the fight against climate change. One such potential instrument is a Carbon Retirement Portfolio (CRP), a collection of carbon-emitting assets, including oil & gas (O&G) producing wells and coal-fired power plants (coal plants). A CRP would buy these assets with the commitment to retire them more quickly than their business-as-usual case. Thus, CRPs can be a vehicle to accelerate a country or region’s reduction of its greenhouse gas (GHG) emissions.  July 30, 2021.