When governments wish to prevent or restrain something, they usually consider either of two choices – regulation accompanied with enforcement penalties or painful taxes. Alternatively, when governments want to stimulate or expand the availability of a service or product, regulation and taxes take a 180-degree twist – offering incentives or direct subsidies. No single one of these choices is inherently superior since each is best suited to specific circumstances for achieving a policy objective. Failing such strategic matching, regulation and taxes often can and do run astray.

President Biden’s reconciliation bill which recently passed the House and was then shuttled over to the Senate for its amendment and approval incorporates a new tax on natural gas that promises to accelerate inflation for Colorado residents. Taxes alone rarely produce their advertised purpose since they are readily passed along to customers in the price of whatever is being taxed at minimal cost to a targeted industry. Regulation that closely monitors polluting processes – such as compliance orders issued by the Environmental Protection Agency (EPA) – is far more effective and reliable. There is no better example than Colorado’s regimen for reducing methane emissions generated by its oil and gas operators. These measures have proven so successful it was expected the Biden administration might adopt them as a national model.

This may still happen, but the ‘Build Back Better’ (BBB) Act currently proposes a blanket tax – labeled as a ‘methane fee,’ on all petroleum producers which will be calculated using a national average index for oil field methane emissions. This tax is projected to generate $14 billion dollars annually and thereby helps meet the legislative goal of assuring the BBB legislation pays for itself. In truth this tax seems certain to drive up heating costs by nearly 20% at a time when inflation is becoming a problem. It would also unfairly burden consumers in Colorado where petroleum producers have dramatically reduced their methane emissions, in some cases by as much as 80%. If we are truly concerned about climate change, methane policy should be shaped by proven results.

The energy industry remains a major contributor to the economic health of Colorado, benefiting both state and local governments. The combined oil and natural gas sectors supported 340,000 jobs, paid out $34 billion in wages and pumped $46.1 billion into Colorado’s economy during 2019 according to a PriceWaterhouseCoopers audit. Taxing this energy industry solely to raise revenue in the same way government levies excise (sin) taxes on alcohol, gaming and marijuana is shortsighted.

There are good reasons why groceries, prescriptions, and most wholesale transactions are exempt from sales taxes. These are not moral decisions, but practical ones. Should home heating fuels be taxed heavily? No matter how concerned we are about global warming, I certainly come down on the side of caution and in support of curtailing emissions. It doesn’t make much sense to punish homeowners with a regressive tax that has been deliberately hidden from voters by collecting it from producers. These upstream revenues will be recovered prior to retail delivery through market pricing.

Reducing methane emissions should be a priority for the oil and natural gas industry. Fugitive methane can be captured and sold. A little regulatory prodding doesn’t hurt, of course. In Colorado, the energy industry has worked in concert with state regulators to develop what stands as a gold standard for methane reduction. Detection technologies have improved rapidly and while leaks will never be completely eliminated, their swift identification and remedy will continue to improve with innovative detection technologies coupled to prudent government regulation and oversight.

The proposed $1,800 per-ton fee on oil and gas production, accompanied by a built-in annual 5%-plus-inflation escalator, also applies to imports. This backdoor tariff scheme has never been debated in committee by either Congressional chamber and invites retaliation from both OPEC and our allies. It will surely destabilize energy markets worldwide and invite trade fights. The implications of what has traveled beneath Washington’s radar as a feel-good climate change policy deserves a thorough public vetting. There are significant foreign policy and domestic economic consequences that should be weighed and debated.

The EPA is well positioned to enforce a rigorous leak detection and prompt repair system that protects both public health and promotes environmental resilience. Colorado’s successful and hard-won regulatory program can serve as a basis for effective and intelligent oversight. A methane tax, not so much.

Miller Hudson is a public affairs consultant and a former Colorado legislator.