New Debt Financing Structure Published to Scale Oil and Gas Methane Emissions Reductions

(NEW YORK) A coalition of financial, technical and environmental partners has developed a groundbreaking financial framework that aims to mobilize capital to reduce emissions from one of the most potent and preventable climate pollutants. The new guidance provides a market-ready structure to help investors, lenders, and oil and gas companies integrate methane and flaring performance into debt financing. 

Methane performance is a growing factor in global LNG markets, where buyers are increasingly evaluating upstream emissions when sourcing gas. As international scrutiny over lifecycle emissions intensifies, financial and operational methane transparency has become a competitive differentiator for producers and exporters. 

The guidance provides recommendations to adapt market-tested financial instruments to structure bonds, use of proceeds instruments, loans and other conventional debt transactions for concrete methane and flaring reductions from the oil and gas industry. It is designed to serve both lenders and borrowers. Similar bonds have been utilized successfully in other sectors, such as global power utilities, which has cumulatively issued $500 billion in labeled bonds. 

The utility sector’s success with thematic bonds demonstrates the potential of this source of funding for cutting emissions from the oil and gas sector, in addition to other hard-to-abate industries such as iron and steel, cement, chemicals and the responsible mining of critical minerals.

The new framework is particularly important for national oil companies, independent producers and their financial partners. The global oil and gas sector holds $3.2 trillion in disclosed outstanding debt, yet this funding typically comes with no conditions or requirements related to climate emissions performance.

“Reducing methane emissions across the oil and gas industry is one of the fastest and most effective ways to slow climate warming in the near term. But the financial system hasn’t been designed to support this at scale. This new guidance aims to fill that gap with proven debt tools that have already delivered financial returns and encouraged emissions reductions in other sectors,” said Dominic Watson, Senior Manager, Energy Transition at Environmental Defense Fund. “These practical financial solutions can accelerate methane reduction and help companies meet growing global demand for cleaner gas.”

According to the International Energy Agency, oil and gas operations worldwide released 80 million tonnes of methane emissions in 2024. The amount of wasted gas through methane emissions and flaring worldwide is equal to all the natural gas imported by Europe.

Although the technology for methane reduction exists, capital flows remain limited due to structural barriers. Many companies lack access to finance tailored to methane mitigation, while investors struggle to assess emissions performance consistently. 

“For institutional investors, these guidelines offer the clear, practical framework necessary to build market confidence and create a deep and liquid market for securities tied to methane abatement projects,” said Michael Federici, Managing Director of Fixed Income, New York State Teachers’ Retirement System.

The initiative, called the Methane Finance Working Group, was created at COP28 in 2023 to support implementation of the Oil and Gas Decarbonization Charter, which commits over 50 oil and gas companies, including 29 NOCs, to reduce methane and flaring emissions to near-zero. 

The guidance reflects growing momentum around credible transition finance, offering tools that can be used to direct capital toward real emissions impact. It builds on proven models from other industries that have used labeled bonds and tailored financial mechanisms to support low-carbon transitions. 

“As a national energy company committed to protecting environment, SOCAR is proud to support the launch of the Methane Finance Working Group,” said Afgan Isayev, Vice President, SOCAR. “We believe unlocking targeted finance is essential to accelerating the deployment of proven methane mitigation technologies across the energy sector. This initiative is an important step in mobilizing collective action toward more effective and transparent methane management.” 

The guidance is now available at: https://methanefinance.org/ 

What Methane Finance Working Group participants say about the new guidance:

Atlantic Council: “To achieve the oil and gas sector’s own methane reduction objectives, companies — especially national oil companies — need better access to capital. By aligning investment with real-world impact, this guidance can help accelerate the deployment of existing technologies that cut methane and flaring, strengthen the role of natural gas in global energy security, and deliver on both climate and commercial priorities.” - Landon Derentz, Senior Director, Richard L. Morningstar Chair for Global Energy Security 

Center on Global Energy Policy, Columbia University: “With the planet poised to exhaust its carbon budget within the next few years, it's imperative to reduce methane emissions, as it’s a highly potent greenhouse gas. One of the reasons methane abatement has lagged in the oil and gas sector is the lack of appropriate financial instruments to provide access to capital for this purpose. This Guidance aims to address this challenge by proposing labeled structures with activities, projects, and KPIs targeting methane to support the creation of an ecosystem where issuers, investors, and structuring agents can confidently engage in transactions.” - Gautam Jain, Ph.D., CFA, Senior Research Scholar

Clean Air Task Force: “Thanks to new technology and rules like the EU Methane Regulation, data on globally traded fossil fuels is improving rapidly. With these guidelines, investors have a unique opportunity to accelerate methane emissions reduction by tying financing to performance and backing impactful abatement projects.  With clear criteria and credible safeguards, these guidelines can direct capital towards the highest-reward, lowest-risk opportunities, and build momentum for transparent, differentiated energy markets that reward ambition.” – Brandon Locke, Senior Europe Policy Manager, Methane

Climate Bonds Initiative: “The ability to channel capital toward credible abatement projects across the oil and gas industry is both a climate necessity and a strategic investment opportunity. Such capital flows must be underpinned by credible and ambitious frameworks. This guidance provides investors with clear principles and examples for what constitutes credible and ambitious use-of-proceeds, helping align investments with climate goals and sustainable finance best practice." - Ana Diaz, Global Energy Transition Lead

MiQ: “By bringing together key players from across banking and finance, NGOs, and natural gas operators, the Methane Finance Working Group has initiated a lending market for projects that will reduce methane emissions in the oil and gas sector. The tools are in place and market forces are now building the incentives to drive change, so we are delighted to support this initiative and help channel finance towards projects that will accelerate methane abatement.” - Georges Tijbosch, CEO

RMI: “Slashing oil and gas methane waste is a triple-win opportunity for energy security, energy efficiency and the climate. The MFWG guidance gives financial institutions the clarity and confidence needed to unlock capital for NOCs and other companies to rapidly scale investment in methane abatement and keep our 2030 goals in reach.”  - TJ Conway, Principal, Climate Intelligence Program

Standard Chartered: “At Standard Chartered, we applaud those who are intentional about tackling methane emissions alongside carbon reduction efforts.  We are keen to collaborate with our peers in the industry and partner with clients who have signed up to methane pledges to support them with the capital to achieve their commitments.” – Marisa Drew, Chief Sustainability Officer

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The Methane Finance Working Group is a collaborative initiative driven by financial and environmental partners that was launched at COP28 in 2023. The goal of the collaborative is to deliver and deploy market-tested finance mechanisms that facilitate decarbonization across the oil and gas sector, while expanding the opportunities to achieve measurable methane emission reductions. The guidance provided by MFWG includes a third-party verification process from trusted scientific and engineering experts, establishing an independent benchmark to evaluate and assess company methane performance during the financing process.  https://methanefinance.org/