Active oil wells create carbon emissions…but what happens once the drilling stops?

A new type of carbon credit aims to deal with abandoned oil wells. These have reached the end of their productive life but still leak substantial quantities of methane, a highly warming climate gas, and oil, which pollutes local water tables.

It’s estimated there are over 3 million of these wells in the USA alone, and it can cost up to $1m to decommission each one. So companies often walk away. The problems are even greater when no legal owner can be found (so-called 'orphaned’ wells).

But carbon credits can change the incentives - by financially rewarding companies for cleaning up fossil fuel infrastructure.

Here are three companies involved in the space:

In January 2024, Rebellion Energy Solutions became the first project developer to issue carbon credits from plugging orphaned wells in Oklahoma, using a methodology designed by American Carbon Registry (ACR).

In addition to plugging orphaned wells, Carbon Path encourages the owners of unproductive oil and gas wells to shut them down and seal them off, preventing methane and oil leakage. They have two projects already on the go, with credits priced at $25 per tonne. This is on par with high-end nature-based credits.

ZeroSix also also aims to shut down ageing, but still-functioning wells. It will issue credits in the range of $10-$20 per tonne, and is due to launch its first projects later this year.

Some people might be uncomfortable that these credits, like transition credits, can result in payments to fossil fuel producers. But if the payments are effective and don’t create perverse incentives, they’ll play a role in reducing the environmental impact of oil production.

Taking a broader view, if oil producers are incentivised to build in-house resources for cleaning up their operations, this could lead to cost efficiencies and perhaps shift institutional mindsets in greener directions…