Natural Gas & The Low-Carbon Economy


BOX 1: Important US Policy Changes Required for a Low-Carbon Economy & Energy Independence


1. Putting an Effective Price on Carbon By attaching a cost to CO2 emissions, a cap-and-trade system or a carbon tax will tend to favour natural gas at the expense of


coal and oil. According to some analysts, fuel switching in the power sector could contribute significantly to the 17% emissions reductions called for by climate legislation passed by the US House of Representatives in June 2009. However, other studies have found that because that bill includes a range of allowance giveaways to coal-burning power companies based on their historic emissions, it would actually discourage fuel switching, forcing utilities to turn to more expensive alternatives such as CCS. Moreover, by protecting the market for coal, such legislation could leave gas, efficiency, and renewables fighting among themselves for limited market share, rather than working together to build a better energy system. Their opportunity is to create a carbon market with a level playing field, reducing the cost to consumers and spurring rapid emissions reductions. Such a policy would allow the replacement of the oldest, least-efficient coal-fired power plants with a robust combination of gas and renewable generators.


2. Advancing Clean Air Standards Installing pollution controls can significantly increase the construction and operating costs of coal-fired power plants. Both


the EPA and Congress are moving forward on measures to mandate large reductions in electric utilities’ emissions of SO2, NOx, particulate matter, and mercury – all air pollutants associated with coal. In addition, a multi-pollutant power plant bill introduced in the Senate in February 2010 would create the Clean Air Interstate Rule (CAIR), a cap-and-trade program for SO2 and NOx. The need to purchase allowances for these pollutants would make coal plants even more expensive. More recently, a Supreme


Court decision has extended the EPA’s jurisdiction under the Clean Air Act to cover CO2. As the EPA and Congress consider stricter regulations on SO2, NO2, mercury, and CO2, coal plants will become increasingly riskier investments for utilities and rate-payers. In general, fuel-neutral standards that do not allow indefinite grandfathering of older plants are likely to have the biggest impact on emission trends – in part because they will motivate fuel switching from coal to gas.


3. Reforming Electric Utility Dispatch Rules Utility regulation at the state level and to a lesser extent at the federal level has a major impact on utility decisions regarding


which plants they build and dispatch, and consequently on their emissions. In most states, electric utilities are strictly required to ‘dispatch’ their power plants based on the cost of generation, which means that a gas-fired plants will be idled if it is even slightly more expensive to operate than a coal plant. Because natural gas plants are generally more efficient, an analysis by the EIA concluded that in some areas of the US, even a slight convergence in coal and gas prices would move many gas plants up in the dispatch order. Shifting dispatch requirements so that environmental performance is a consideration in these decisions – with resulting costs passed through to consumers – could have a substantial environmental benefit even beyond the impact of putting a price on carbon.


4. Strengthening Environmental Controls & Transparency in the Gas Industry Environmental problems caused by the natural gas extraction process are damaging the gas industry’s reputation in many communities and must be addressed promptly. During the past decade, the industry successfully obtained key exemptions for hydraulic fracturing, including under the Safe Drinking Water Act. Although several other parts of the shale development process are federally regulated under the Safe Drinking Water Act, Clean Water Act and Clean Air Act, hydraulic fracturing is left to the states, not all of whose environmental agencies are adequately equipped to deal with the range and scale of environmental issues posed by the rapid development of unconventional gas. A bill introduced in the US House and Senate last year, known as the FRAC Act, would require producers to publicly disclose a list of all chemical constituents, though not proprietary formulas, in their fracking fluids. It also demands that companies disclose the details of their proprietary formulas to treating physicians in the case of medical emergencies. In the meantime, the EPA has embarked on a new study of the potential environmental and health impacts of hydraulic fracturing. Members of Congress have also requested eight service companies to provide information about the chemicals they use in fracturing fluids. The industry has so far resisted efforts to regulate hydraulic fracturing at the federal level, creating concern among local


stakeholders and environmental groups about the process’s lack of transparency. Gas companies would be well advised to take a more cooperative approach to these issues, both at the state and federal levels. More transparency and tighter regulations are needed if unconventional natural gas is to play a constructive, sustainable role in a low-carbon energy future.


122 worldPower 2010


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