Executive Summary

Given methane’s potency as a greenhouse gas (GHG), its emissions have been brought into focus in the global fight against climate change. Methane, the primary component of natural gas, holds 28 times more global warming potential than the same mass of carbon dioxide emissions on a 100-year basis and over 80 times more on a 20-year basis. Methane accounts for 11 percent of GHG emissions in the United States, and 17 percent (Friedrich et al. 2023) to 25 percent of global GHG emissions. According to the International Energy Agency, the energy sector (oil, gas, coal, and bioenergy) accounts for about 40 percent of all anthropogenic methane emissions, of which about 60 percent are specifically from oil and gas operations (IEA 2023). Mitigating the methane emissions of these operations is therefore a key lever in efforts to mitigate climate change. Parties to the Global Methane Pledge, launched at the 2021 United Nations Climate Change Conference (COP26), committed to a collective effort aiming to reduce methane emissions by at least 30 percent from 2020 levels by 2030.

While some methane detection and measurement technologies already exist and new technologies are under development—especially for direct, continuous monitoring—an effective and cost-efficient industry standard is yet to emerge. Despite the prominence the issue of methane emissions has gained in recent years, the oil and gas sector, as well as environmental organizations, have only recently started to focus their efforts on developing and repurposing reliable and cost-effective methane detection technologies, which can effectively cover major sources of methane leaks. Reliable volumetric data are, therefore, available only for selected areas, and historical data, which would allow trend detection, are not available. A reliable baseline would be key to tracking changes in volume and imposing financial sanctions as well as providing incentives.

Governments have started to regulate methane emissions, but, as with the variety of measurement technologies on offer, a consistent approach is yet to emerge. The most common approach—and also the most promising, in terms of efficiency—is to cover fugitive methane emissions, flaring, and venting in a single piece of regulation. The underlying rationale is that a holistic approach to emissions from upstream operations can induce large reductions in the shortest possible timeline. Meanwhile, some jurisdictions have instead chosen to issue a separate regulation for fugitive methane emissions. While separate methane guidelines typically follow similar principles as those already set for flaring and venting, and are designed to be complementary, separation could make it challenging to find alignment. It remains to be seen which approach best facilitates the desired outcomes. Both approaches, of necessity, must rely on limited and inconsistent volumetric emissions data, which could entail challenges when it comes to imposing and enforcing sanctions.

The oil and gas industry’s role in efforts to reduce methane emissions is critical given the nature of these emissions and the industry’s technical and financial capabilities to address the issue. The industry is estimated to be responsible for about one-quarter of overall global methane emissions (McKinsey 2021), resulting predominantly from the deliberate venting of natural gas, inefficient flaring performance, and leakage due to poorly constructed or maintained facilities. Storage facilities for oil or condensate, compressor stations, and poorly performing flare stacks have been identified as the main sources of escaping methane in upstream operations. This knowledge, combined with the industry’s track record of being able to develop and deploy complex technological solutions, makes it a likely front-runner in the task of implementing targeted leak detection and repair programs at scale, which will effectively address the issue of methane emissions. According to the IEA (2023), existing technologies can help eliminate 70 percent of methane emissions in the oil and gas industry.

By focusing on methane emissions in addition to gas flaring and venting, a much wider spectrum of GHG emissions due to oil and gas production is now being covered. Since the early 2000s, many jurisdictions have made significant efforts to address flaring and venting in general, and routine flaring in particular. Often, venting has been prohibited to avoid methane emissions. A growing number of jurisdictions are now focusing on fugitive methane emissions across oil and gas value chains. This report pulls together the main findings from a review of the laws, regulations, decrees, standards, and other relevant government documents in 31 jurisdictions, including the European Union, and several subnational jurisdictions in Canada and the United States, through September 2023. The 31 case studies (covering 23 countries) are published in a companion volume (GFMR 2023). The present report draws lessons on the effectiveness of the legal and regulatory framework, fiscal incentives and disincentives, contractual arrangements, institutional governance, monitoring and enforcement practice, and public-private partnerships across a range of scenarios and operating environments. These lessons aim to provide guidance to jurisdictions planning to establish new, or improve on existing, laws and regulations to eliminate flaring and venting and address fugitive methane.

Gas flaring and venting have been in the spotlight much longer than methane emissions, but despite considerable advances, progress in addressing them has been much slower than what is attainable and has fallen short of government commitments. The Gas Flaring and Methane Reduction Partnership estimated that the total volume of natural gas flared globally decreased by more than 15 percent from 1996 levels to reach 139 billion cubic meters in 2022. Over the same period, oil production increased by a fifth. Despite these volumes, few oil-producing countries set specific targets for the reduction of methane emissions, gas flaring, and venting in their Nationally Determined Contributions, adopted as part of their commitments to curtail overall emissions under the 2015 Paris Agreement on climate change. However, 150 countries joined the Global Methane Pledge, including four-fifths of the countries covered in our case studies.

Across the 31 case studies, legal and regulatory approaches vary significantly. All the reviewed jurisdictions ensure that flaring and venting—although often not explicitly mentioned—fall under the responsibility of one or several dedicated authorities. A number of countries do not yet ban routine flaring and venting, and even fewer impose monetary fines and instead rely on market-based solutions.

Table ES.1 identifies the levers available for an effective legal and regulatory framework to reduce flaring and venting, and fugitive methane.

More than half of the 23 countries analyzed have reduced both flaring volumes and flaring intensity since 2012. While the top performers may deploy somewhat different regulatory instruments, all of them use an array of strong monetary incentives, including fiscal incentives, and nonmonetary incentives and disincentives, and all grant their regulators enforcement powers. Poor performers typically lack (1) clearly defined and fit-for-purpose laws and regulations that impose material penalties, or (2) the willingness and capacity to enforce the rules effectively.

Regulations governing gas flaring and venting, and fugitive methane, must consider the capabilities of and the resources available to the authorities responsible for enforcing them. Adequately resourced and trained institutions are key to ensuring effective reporting and enforcement. Where these capabilities are underresourced, underdeveloped, or selectively applied, policy, legal, and regulatory commitments fail to achieve the desired reductions in flaring and venting. Countries with a national oil company often entrust it with de facto regulatory functions and responsibilities for controlling gas flaring, venting, and fugitive methane. This in turn constrains the regulator’s authority and independence. It is good practice for regulators to consult with key public and private stakeholders on the development of new regulations.

The development of an effective regulatory framework requires monitoring, measurement, and enforcement capabilities, which may have to be introduced in a phased manner, especially for fugitive methane. Accurate and timely data are essential for designing efficient regulations. Lack of monitoring and enforcement capacity can hinder a comprehensive regulatory framework from producing the desired results. Where such capacity is weak, an effective approach could be to set different deadlines for bringing new projects and existing facilities into compliance with new regulations. Jurisdictions need to establish fit-for-purpose methods for measuring the volume of gas flared, vented, or lost as fugitive emissions (by metering, surveillance by various technologies, or using engineering estimates) and mandate reporting and disclosure. Another key differentiator between regulating (1) flaring and venting and (2) fugitive methane emissions is the ability to measure data and the availability of long-term records to evaluate trends. Since the availability of comprehensive and reliable datasets on methane is not yet a given, regulatory processes are being tested that mandate operators to develop measurement technologies and report emission data within certain time frames, typically 12–36 months.

The penalties, royalties, and fees imposed by some jurisdictions on gas flared and vented appear to be effective at curbing emissions—provided they are fully collected—and a few countries have begun applying them to fugitive methane emissions. Taxes on GHG emissions or equivalent emission trading schemes already cover methane emissions. Once a sectorwide solution for volume measurement emerges, more countries may implement methane-specific penalties, or make GHG taxes and systems for trading methane emissions more effective. Governments are encouraged to levy charges on all emissions, or at least on levels above certain limits or outside specific situations authorized by the regulator. An essential step is the collection of material payments from all producers, including national oil companies and small domestic companies. Market-based approaches (such as emission trading systems and offset credit schemes) can also create incentives for the internal use or commercialization of associated gas. Several emission trading and offset schemes have been developed, some of which are voluntary. Some trading schemes, such as the EU Emissions Trading System, may have helped reduce overall GHG emissions to date, but not necessarily from methane sources or due to flaring in the oil and gas industry. Offset schemes are under increasing scrutiny since it is difficult to demonstrate that activities qualifying for offset credits actually reduce net emissions.

Regulatory and governance issues beyond upstream operations may substantially affect the degree to which oil producers can address emissions due to flaring and venting, and fugitive methane emissions. The regulator in charge of midstream gas operations can take steps to facilitate the commercialization of gas by, for example, encouraging nondiscriminatory third-party access to gas processing and transport infrastructure. But even where the cost of gathering, treating, and transporting gas is “manageable” by the standards of well-functioning markets, oil and gas producers may not be able to recover the investments made to commercialize gas if gas tariffs in the domestic market are kept artificially low or large volumes of the gas “purchased” are not paid for on time or at all. A prime example is a financially nonviable power sector. It is typically the anchor customer for gas, but it may owe significant arrearages to gas producers; rectifying this situation is often outside the oversight of the ministry in charge of oil and gas. Balancing reforms in sectors outside oil and gas and imposing sensible regulations on gas flaring and venting require policy alignment and coordination across several line ministries and different levels of government. Regulators of midstream and downstream operations, especially of natural gas, can impose strict requirements on the monitoring and fixing of leaks in pipeline networks and storage facilities.

The elimination of methane leaks as well as routine flaring and venting should be a core component of the net zero emission and energy transition plans of oil-producing countries and companies. Endorsement of the World Bank’s Zero Routine Flaring by 2030 initiative and the Global Methane Pledge holds the promise of significant GHG emission reductions in oil- and gas-producing countries. The 2030 goal embedded in both these initiatives is also essential to reach the temperature goals of the Paris Agreement. Toward that end, clear and implementable national roadmaps for action are critical, yet most countries have yet to develop work plans through 2030 to deliver on their commitments. Meanwhile, many international oil companies have announced net-zero emission goals and plans, launched initiatives to monitor and reduce routine flaring and methane emissions, set internal targets, and expanded emission reporting in their sustainability reports. Third parties are emerging that certify oil and gas operations as low emissions. They are developing rating standards on emission intensity, deploying new measurement technologies, especially for direct measurement, or implementing new operational and engineering practices.

However, many national oil companies are struggling to raise the capital required to curb production emissions; they are falling behind in meeting the 2030 target. Growing consumer awareness about the carbon footprints of not only oil and gas combustion but also fugitive methane emissions and flaring and venting, could put pressure on producers and resource holders to free up the funding required to change practices—and remain competitive in global commodity markets.