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EIA: GHG Bill Could Drive Up Natural Gas Costs

The climate change legislation that the Senate is scheduled to begin debating in June would dramatically cut domestic greenhouse gas (GHG) emissions, but it could impact the economy and drive up the price of natural gas, according to an extensive review by the Energy Information Administration (EIA).

SB 2191, the Lieberman-Warner Climate Security Act of 2007, was introduced last year by Sens. Joseph Lieberman (I-CT) and John Warner (R-VA), and it cleared a Senate panel with few changes (see NGI, Dec. 10, 2007; Oct. 22, 2007). EIA Wednesday issued an energy market and economic impact report on the bill, responding to a request from the senators for an analysis (see NGI, March 24).

According to the federal analysis, the projected costs by 2030 from the bill per U.S. household would increase by around $76 a year to nearly 10 times that amount, $723/year. The amount of the cost increase would depend on how successful the United States is in replacing "significant" amounts of energy production from coal and oil to alternatives that include new nuclear and renewable facilities, as well as fossil fuel plants equipped with carbon capture and sequestration (CCS), EIA stated.

The enacted legislation also would lead to a rapid build-up in wind and solar energy capacity, which could provide a financial incentive for energy companies to deploy CCS technologies, EIA found.

However, if more alternative energy plants were not built, EIA warned that electricity generators likely would build more natural gas plants to offset reductions in coal-fired generation. More gas plants in turn likely would result "in markedly higher delivered prices of natural gas."

The bill would raise electricity costs by 5-27% by 2020 and 11-64% by 2030, according to EIA's analysis. Projected real U.S. gross domestic product (GDP) would be reduced as real economic output, purchasing power and aggregate demand for goods and services fell in response to the higher energy prices, EIA noted. And total discounted GDP losses beginning in 2009 through 2030 would range from $444 billion to $1.308 trillion under the base case analysis.

In addition, manufacturing and other industrial activity could feel a bigger impact from the legislation than the general U.S. economy, EIA noted. Excluding service costs, industrial shipments by 2030 could fall as much as $233-589 billion if the bill is enacted, the analysis found.

However, EIA's review found that without the legislation, the economic impact would be the same, said Lieberman and Warner in a joint statement. The cost to U.S. businesses of tradable allowances to emit GHG was below the amount projected in March by the U.S. Environmental Protection Agency, they said.

"Two separate government analyses have now come to the same conclusion," said Lieberman. "Our bill curbs global warming without harming the U.S. economy."

Warner added that the analysis was evidence that "Americans can make significant reductions in our greenhouse gas emissions in a manner that does not harm the economy." The findings, he said, "will further crank up pressure on the Senate to approve the bill when it is debated in early June."

The bill, however, faces considerable headwinds.

"The EIA analysis projected unacceptable increases in Americans' average annual household energy bill [of] up to $325 in 2020 and $723 by 2030, and this does not factor in transportation-related costs," said Sen. James M. Inhofe (R-OK), the ranking member of the Senate Environment and Public Works Committee. "Further, EIA's gloomy economic analysis is contingent upon the U.S. building more than two-and-a-half times as many nuclear plants as are now operating -- an increase so massive and unrealistic as to be fictional. EIA also found that Lieberman-Warner would result in a 9.5% drop in manufacturing output by 2030."

Sen. Pete Domenici (R-New Mexico) said the legislation would soundly impact the U.S. economy. Domenici is the ranking member of the Senate Energy and Natural Resources Committee.

"Four out of four major economic studies agree: Lieberman-Warner will increase energy costs and decrease economic growth," Domenici said. "At a time when Americans are increasingly concerned with the rising costs of energy and the state of the economy, it is rather shocking that Congress would serious consider measures which will send us on the wrong track on both."

Meanwhile, the head of the Texas Alliance of Energy Partners (TAEP) called upon the Senate to "proceed with caution" as it begins to deliberate the cap-and-trade system for the country. TAEP Chairman Mark Metzler asked Texas Republican Sens. Kay Bailey Hutchison and John Cornyn to oppose the bill.

"While the Lieberman-Warner bill has ambitious goals patterned somewhat after the sulfur dioxide reduction program from the 1980s, it is insufficient in many areas while creating massive, new federal bureaucracies in the process," Metzler said. "In 2007 the Congress passed and the President signed an energy bill that mandates massive expansion of ethanol use in the future. The impact of this legislation already has attributed to rising food prices and even food shortages."

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