Guest Blog: How the Voluntary Carbon Market Can Fund Orphan Well Remediation

by Brad Handler, Program Director, Energy Finance Lab

The following guest blog is a summary of the presentation Brad Handler made on Thursday, Oct. 23 at the North America Energy Capital Assembly in Houston, TX.

There are an estimated 1 million wells in the U.S., most drilled in a pre-regulatory era, that are orphaned and have either never been plugged or not to current standards. Many of these wells leak brines and other toxins, polluting land and groundwater. They are not infrequently located near where people live, work and congregate. They also emit collectively a lot of methane – by some estimates as much as 24 million tons per year of CO2 equivalent, which is comparable to the emissions of 5 million cars on the road for one year.

Orphan wells are left to the states to plug and handle any necessary remediation. But that is an overwhelming task for the states to handle, even with the additional funds that were allocated to the task starting a few years ago as part of the Bipartisan Infrastructure Law.

Born out of this burden is the idea to use the Voluntary Carbon Markets, or VCM, to raise funds to plug these wells.

The VCM is oriented around generating private capital to help stem carbon emissions. But to think of it only as a climate tool is to miss the point. The VCM uses CO2 as a currency. That currency can then be used to reflect other qualities, include benefits to the community and the environment.

The VCM Has Revamped

It has been challenging times of late in the VCM. Most importantly, the integrity of many projects has been found lacking. Yet, the long term prospects for the VCM remain robust, bolstered by two sources of demand. The first is from corporations. By the end of 2024, nearly 10,000 companies had made commitments to lower their GHG emissions, with most emphasizing a 2050 Net Zero reduction.

These commitments could of course change. But if the notion of climate responsibility remains relevant, as many companies have tried hard this year to reaffirm, we would expect a lot more carbon credit buying to offset the carbon emissions the companies cannot reduce operationally.

The second source is the establishment of a set of internationally accepted rules for countries to trade carbon credits to help them meet their stated commitments to lower their emissions. These are referred to as Paris Agreement Article 6 rules.

Importantly, the various actors that are part of the VCM have done a lot to raise the integrity of offset credits over the past two years. 

These actors include:

• Standards bodies established to set principles such as the ICVCM and CORSIA,
• Standard setting entities that set the protocols for specific activities and vet project applications,
• A growing set of companies that serve as verifiers for individual projects, and
• Rating agencies

The other evolution is greater transparency, so that assumptions and calculations can be assessed widely, and more input for setting the protocols.

The next evolution, I suspect, will relate to how these credits are transacted. The registries are by large rudimentary and are run by the standard setters themselves. Instead, these registries will have to look a lot more like commodity and financial securities markets to build trust and participation.

Plugging Orphan Wells Consistent with Higher VCM Standards

To bring us back to using the VCM to fund the plugging of orphan wells, the starting point is that this activity aligns well with the broader integrity criteria for the VCM. 

This includes:

• Methane avoidance is measurable
• There are clear benefits for the surrounding community
• There can also be confidence that the project is additional
• There is a manageable risk of leakage

What can also make this activity attractive in the VCM is that methane is being increasingly recognized as a powerful global warming gas. That is being reflected in VCM transactions, albeit off a very small base — sales volumes of non-CO2 gas credits are on pace to rise ~20% in 2025 over 2024 after having risen 70% in 2024 from 2023.

It is worth considering why the oil & gas industry is particularly well suited to support orphan well plugging on the VCM. One of the best reasons is the contribution to social license. The Oil & Gas industry gets “tagged” with the broad brush that hydrocarbon development creates environmental harm; the legacy of unplugged wells tarnishes it further. This ignores the efforts and advancements the industry has made regarding its operations. And it ignores the fact that the industry is filled with responsible operators who do plug their wells at the end of their useful lives. But it is what it is.

Supporting well plugging by buying offset credits provides an avenue for the O&G industry to help clean up the environment, while it can be clear that it is not today’s oil industry that it responsible for the damage.
At the same time, plugging these wells makes a powerful additional statement to communities that the industry is a partner in their social and economic development. Plugging these wells is an important source of high-paying, good jobs for oilfield workers that are no longer working in oilfield development or production. And reclaimed land offers the base for new economic and housing opportunity.

Also important is that the O&G industry is very well positioned to understand the high integrity associated with plugging orphan wells. Therefore, industry actors are best positioned to ascribe the value to well plugging operations that it deserves. For those not in oil & gas, it can take a long time to understand the idiosyncrasies of offset crediting for plugging wells. But what is confusing for them is intrinsic for the industry. That includes decline curves that are applied to capture the methane that is likely to be emitted over time if the wells aren’t plugged. And it includes that plugging represents a very long-lasting solution to avoid methane emissions.

In sum, well plugging of legacy orphan wells offers a tangible way to bolster the oil industry’s relationships with communities and broader society, while also helping it offset emissions to meet climate targets. It’s an opportunity the industry should not pass up.