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You might imagine that supply-side climate policies that advantage some fossil fuel producers over others would divide industry. But new research suggests that the need to hold business coalitions together and fears about regulatory precedent often unite firms.

Supply-side climate policies that require fossil fuels to be left in the ground are unsurprisingly opposed by fossil fuel producers. But not all supply-side measures represent an existential threat to the fossil fuel industry.

At the softer end of the spectrum are measures that raise the costs of production, or place conditions on extraction, while remaining compatible with ongoing production. These measures can include upstream taxes, emissions intensity standards and stricter production licensing conditions. Because these policies can affect different producers very differently, they have greater potential to create divisions within industry. 

Methane regulation is one example of these softer forms of supply-side climate policy. Methane is a potent greenhouse gas and cutting methane emissions is one of the fastest ways to limit near-term warming. One of the industries from which methane emissions reductions must come is oil and gas. According to the International Energy Agency, methane emissions from oil and gas need to decline by 84% between 2020 and 2035 to limit warming to 1.5°C.

Methane emissions occur during the production and transportation of oil and gas, from leaks or intentional releases. Methane regulation imposes costs on industry by requiring oil and gas operators to change equipment, alter operational practices, and detect and fix leaks. But unlike deep cuts to carbon dioxide emissions, methane abatement is a tractable problem for the industry. Indeed, around 40 per cent of reductions in oil and gas methane emissions globally can be achieved at no net cost to oil and gas operators. 

In articles in Business & Politics and Global Environmental Politics, I examined the political history of oil and gas methane policy in the United States. This history reveals something important about the politics of these ‘softer’ supply-side climate policy measures: distributional effects matter, but they do not necessarily dictate business positions.

Distributional effects matter but do not necessarily dictate

When the Obama Administration moved to regulate methane emissions during its second term (2013-2016), the oil and gas industry united against federal regulation. With methane mitigation and detection technologies still relatively nascent, a key driver of industry opposition was the costs of regulation. However, these costs were also distributed unevenly, and a small group of companies that were leading on methane reduction privately favoured methane regulation. Yet these leading companies did not back federal regulation publicly.

Internal business coalition politics help explain why. In an article in Business & Politics, I show that firms care about maintaining the effectiveness of their business coalition and their influence within it. Breaking ranks risks losing respect and influence among peers. It can also undermine the cohesiveness of a coalition that firms rely on to operate across multiple policy issues and rounds. As one company official I interviewed noted, “There’s a feeling that industry can’t advocate effectively…if industry is always being divided and conquered.”

Companies also worry about where regulation might lead when they consider their position on climate policy. Firms are aware of the risk of setting policy precedents that give impetus to further regulation, what I call precipitation risk. As one oil and gas executive put it in relation to methane regulation: “It is a slippery slope. If we give an inch, gosh knows where it will stop. And so we have to hold the line and be opposed in all respects to further regulation.”

In the case of US methane regulation, these forces for industry unity would eventually be overtaken. Under the first Trump Administration, technological advances and growing pressure from investors and NGOs over methane emissions shifted the calculus for some companies, spurring them to break from the broader industry and support methane regulation. Likewise, when the Biden Administration introduced a fee on methane emissions in the 2022 Inflation Reduction Act, a small number of influential companies — which would have incurred few costs from the policy — quietly accepted the fee, while the broader industry opposed it.

Yet as I show in an article in Global Environmental Politics, divisions over the Biden Administration’s methane fee did not last. When the second Trump Administration moved to dismantle the fee, the few firms that privately favoured it declined to publicly back the policy. As had been the case under the Obama Administration, private support for methane policy did not translate into public support. Companies instead prioritised their relationship with the new Trump Administration. As one source noted, “There was a recognition that politically speaking, when the Republicans came in, they would want to break things.… We have to give them something to use that sledgehammer on.”

The lesson from methane politics is that uneven distributional effects do not translate automatically into industry division. Firms also weigh up their relationships with peers, pressure from external stakeholders and the risk that supporting regulation today precipitates further regulation tomorrow. In short, the politics of softer supply-side policy depends not only how immediate costs and benefits are distributed across firms, but also on the political forces that pull business coalitions apart and bind them together.

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