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Producer, Pipe Groups Want Bigger Gas Role in Climate Change Bill

A natural gas producer group and interstate gas pipeline association separately stepped up the pressure on Capitol Hill lawmakers last week by calling for an expansion of the role of natural gas in climate change legislation. The groups urged lawmakers to encourage greater use of existing gas-fired generation facilities in the legislation, provide incentives for natural gas carbon capture and sequestration projects, and address the recovery of gas pipeline costs to buy emissions allowances.

"Increased use of natural gas can have a significant and immediate impact on reducing carbon emissions and should receive similar consideration as renewable energy sources as we work toward a low-carbon future," wrote R. Skip Horvath, president of the Natural Gas Supply Association (NGSA), in a letter to Senate Majority Leader Harry Reid (D-NV).

Donald F. Santa, president of the Interstate Natural Gas Association of America (INGAA), echoed the sentiment in a letter to Capitol Hill lawmakers, saying that "natural gas can compete in the carbon-constrained market based on its inherent price, availability and environmental performance attributes, as long as legislation does not put it at a competitive disadvantage relative to other sources of energy."

Santa's letter was in response to remarks by Sen. Lisa Murkowski of Alaska, the ranking Republican on the Senate Energy and Natural Resources Committee, and Rep. Michael Bennet (D-CO) in September. The two lawmakers were part of a coalition that called on Sen. Barbara Boxer (D-CA), co-sponsor of the Senate climate change bill, to elevate the status of natural gas in the legislation.

In the event Congress implements a national renewable energy mandate, NGSA urged Senate leaders to "restructure the mandate to a 'Carbon Efficiency Standard,' which provides proportionate credit for increasing the use of any fuel source contributing to lowering greenhouse gases [GHG] by replacing a higher-carbon energy source," Horvath said.

"NGSA is not endorsing at this time any specific approach by which to reduce [GHG] emissions; however, we are pleased that at least the latest version of climate change legislation includes a clean energy and natural gas subtitle" proposed by Boxer, chairman of the Senate Environment and Public Works Committee, and John Kerry (D-MA), chairman of the Senate Foreign Relations Committee, he said (see NGI, Oct. 5).

But INGAA's Santa believes the natural gas provisions fall short. "The Kerry-Boxer bill...includes a 'placeholder' provision that would provide financial incentives to operate higher efficiency natural gas-fired electric generation facilities. This provision represents an important recognition of the benefits of using natural gas as a means to reduce [GHG] emissions.

"Still, as now drafted, the provision is subject to funding through future appropriations, rather than being funded via allowances or revenues from the sale of allowances, While we appreciate the 'placeholder' status of this provision, it is imperative that provisions in the final bill intended to promote consideration of natural gas as a compliance option have a less tenuous foundation," he said.

NGSA noted that climate legislation should encourage behaviors that reduce emissions, provide for market-based solutions to the largest extent possible, and treat all forms of energy fairly so that no low-carbon source of energy is disadvantaged. "We believe the Senate should stand firm and resist efforts to allocate excessive levels of free emission allowances that subsidize high-carbon emitters and mask the true price of carbon for decades to come," Horvath said.

The producer group also called on Congress to establish mechanisms to encourage power plant owners to retire their inefficient generators in the near term in an attempt to further cut back carbon emissions. The mechanisms could include economic incentives or allocations of free emissions allowances to be used to construct and/or operate more efficient generation plants.

A climate change bill should encourage greater use of existing gas-fired facilities, according to Horvath. "Although combined-cycle gas-fired generators in the U.S. are often the most modern generation facilities in service, they currently operate at only approximately 40% of their capacity. If these existing facilities were more fully utilized, it would immediately decrease the country's level of GHG emissions in the near term without requiring the construction of replacement facilities."

And if a cap-and-trade program is instituted to limit emissions, "the point of regulation should be as close as practicable to the point of emissions. Such a point of regulation maintains market incentives to reduce GHG impacts, encourages conservation by the consumer, minimizes administrative complexity and maximizes transparency," Horvath said.

In addition, "we urge the Senate to afford natural gas CCS [carbon capture and sequestration] projects the same opportunity to benefit from any economic incentives, including, if provided, free emissions allowances that are currently only designated for coal in House-passed legislation," he noted (see NGI, June 29).

On this point, INGAA agreed. "Natural gas CCS technology development and support should not be on terms that are less advantageous as those provided for CCS applications intended for coal," Santa said.

He further asked Senate leaders to address natural gas pipeline cost recovery in its climate change bill. "Traditional rate case proceedings are poorly suited for authorizing the recovery of costs incurred quarterly or annually by pipelines to meet their obligation to purchase emission allowances. Such costs are likely to be volatile and unpredictable, unlike the costs that pipelines typically include for recovery in a general rate case filing.

"INGAA requests that legislation expressly authorize FERC [Federal Energy Regulatory Commission] to establish a special rate 'tracker' process for regulated pipelines to recover the cost of compliance."

The pipeline association noted that the Kerry-Boxer bill is a "significant improvement" over the House climate change legislation in its treatment of fugitive emissions from natural gas pipeline systems. "Rather than requiring the Environmental Protection Agency (EPA) to create performance standards for such emissions, as is the case with the House legislation, the Kerry-Boxer bill acknowledges the potential for fugitive methane emission reductions to lower program costs, permitting EPA to count these projects as domestic offsets.

"Still the Kerry-Boxer bill only delays implementation of a performance standard for fugitives until at least 2020, and therefore only permits such reductions to be counted as offsets until performance standards are in place. INGAA suggests that the performance standard be eliminate altogether, so that these offsets can continue past 2020," Santa said.

He further recommended that a final climate change bill call for federal preemption of state and regional requirements. "To provide an effective response to what is, after all, a global issue, INGAA believes that federal climate change policy must preempt state and regional cap-and-trade systems, [GHG] reporting requirements, and [GHG] reduction performance standards. The Kerry-Boxer bill, unfortunately, goes in the wrong direction by encouraging states to develop their own [GHG] programs and regulations," Santa said.

In a related development, the Senate Energy and Natural Resources Committee has scheduled a hearing for Wednesday (Oct. 28) to examine the role of natural gas in mitigating climate change. Testifying at the hearing will be officials from the Energy Information Administration, Dow Chemical Co., BP America, Xcel Energy, TransCanada Pipelines and Calpine Corp.

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