The prolific U.S. natural gas supplies will help the country reduce greenhouse gas (GHG) emissions, but only if coupled with an "effective" cap-and-trade system or carbon tax, Resources for the Future (RFF) reported last week.
In the study "Natural Gas: A Bridge to a Low-Carbon Future?" authors Stephen P. A. Brown, Alan J. Krupnick and Margaret A. Walls compared four scenarios through 2030 to reflect alternate perspectives on gas supply and climate policy. The scenarios used federal and publicly available data, including estimates from the Energy Information Administration's 2009 Annual Energy Outlook and from the Potential Gas Committee.
The RFF is an independent nonpartisan think tank based in Washington, DC, that studies energy, environmental and natural resource issues.
Without policies to restrict carbon dioxide (CO2) and other GHG emissions, more gas supplies "could hinder development of other low-carbon energy sources and undercut efforts to reduce emissions," the authors noted.
Absent a cap-and-trade system or a carbon tax on emissions and combined with an increased use of natural gas, projected gains in nuclear and renewable energy sources for electric power generation would be displaced, said the authors. As a result, "projected CO2 emissions are almost 1% higher" than if the new supplies did not exist at all.
However, higher gas use combined with a market-based policy could avoid the negative effects, the authors said.
"Because natural gas use yields CO2 emissions that are about 45% lower per Btu than coal and 30% lower than oil," the use of gas "provides an opportunity to reduce CO2 emissions. However, seizing that opportunity depends greatly upon future U.S. climate policy."
The United States, said the authors, "may now have recoverable gas resources trapped in shale deposits that could supply less expensive energy for many decades. With these enhanced natural gas supplies and carbon pricing policy, the costs of meeting targets for reduced CO2 emissions are lowered.
"The price of a carbon allowance falls slightly and costs to society fall by about $1 billion between 2010 and 2030. It is this ability to lower costs that allows abundant natural gas to ease the transition to a low-carbon future."
If the use of nuclear energy and renewable energy sources for electric power generation develops more slowly than is projected, "natural gas is likely to prove a more important bridge fuel to a low-carbon future."
The authors noted that previous research has shown how the use of narrow mandates, such as renewable portfolio standards, could interfere with market outcomes. "The interplay between such policies, the use of natural gas and the cost of reducing CO2 emissions will be the subject of future RFF modeling and research."
The most cost-effective way to reduce GHG emissions depends mostly on projected resource availability and technology changes, both of which are highly uncertain, said the study.
"If policymakers are to develop meaningful and cost-effective policies for controlling CO2 emissions, they must develop policies that are robust across different projected futures," said the authors. "Because cap-and-trade systems and carbon taxes provide prices for CO2 emissions, they will unleash market incentives that will yield the most cost-effective means for reducing CO2 emissions -- regardless of how technology evolves or how much natural gas or other energy resources are available."
The study was based on research conducted as part of a joint RFF/National Energy Policy Institute (NEPI) project on energy policy. Funding was provided by the George Kaiser Family Foundation through a grant to NEPI. Some of the report is available at www.rff.org/naturalgasreport. The complete report, which covers costs and effectiveness of a range of energy policy options, is scheduled to be available early next year.
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