Bush Shift on CO2 Emissions Cuts Gets Mixed Reviews from Industry

There was a divergence of opinion last week within the gas industry on President Bush's broken campaign promise to press for restrictions on carbon dioxide (CO2) emissions from power generation. Several energy officials, some within the same industry associations, had different positions on the matter.

The apparent split occurred over the need to avoid exacerbating the current energy crisis while at the same time maintaining a fuel neutral energy policy that doesn't jeopardize the position of natural gas as the fuel of choice for power generation over the long-term.

While many agreed Bush's decision not to push for curbing CO2 emissions was a political reaction to energy prices and the California crisis, some said his letter to several Senators on the matter had a distinctly anti-natural gas tone that could return to haunt the gas industry unless corrected.

Curbing CO2 emissions certainly would boost demand for natural gas at the expense of other dirtier fuels, particularly coal and oil. CO2 reductions had been promoted recently by Environmental Protection Agency Administrator Christine Todd Whitman, who may have been a little ahead of Bush on the issue. In recent testimony before a Senate subcommittee and in other recent statements, Whitman advocated the regulation of carbon dioxide under the Clean Air Act. She called for "putting [carbon dioxide] into the process and recognizing that we have to deal with it, which would be to put a cap of some sort, a target anyway."

That drew a response from Sens. Chuck Hagel (R-NE), Jesse Helms (R-NC), Larry Craig (R-ID), and Pat Roberts (R-KS), who requested clarification of the Administration's policy. The senators urged the president to consider the opinions of some prominent scientists who say CO2 emissions are less harmful than other gases and particulates.

But Bush chose to focus instead on the more important and more immediate impact on the price of energy. He cited recent analysis from the Department of Energy indicating that greater restrictions on CO2 would lead to "an even more dramatic shift from coal to natural gas for electric power generation and significantly higher electricity prices compared to scenarios in which only sulfur dioxide and nitrogen oxides were reduced. This is important new information that warrants a reevaluation, especially at a time of rising energy prices and a serious energy shortage."

Bush added that while California and other western states are concerned about price volatility and energy shortages this summer "we must be very careful not to take action that could harm consumers," particularly when there is incomplete scientific proof that such restrictions would improve climate conditions.

In his response to the senators he said he intends to work with Congress on a multipollutant strategy to "require power plants to reduce emissions of sulfur dioxide, nitrogen oxides and mercury. Any such strategy would include phasing in reductions over a reasonable period of time, providing regulatory certainty and offering market-based incentives to help industry meet the targets.

"I do not believe, however, that the government should impose on power plants mandatory emissions reductions for carbon dioxide, which is not a 'pollutant' under the Clean Air Act," said Bush.

His apparent reversal on CO2 was sharply criticized by Democrats and environmentalists, and the president was accused to caving into demands from special interests. However, gas distributors lauded the change.

"We appreciate that President Bush expressed sensitivity to homeowners and businesses that have encountered sticker shock from recent higher natural gas bills, which resulted from increased demand, tight supply and colder than normal weather," said American Gas Association President David Parker. "The president indicated that imposing CO2 controls on coal and oil could have put upward pressure on the market price of natural gas, and we agree with this."

Bob Cave of the American Public Gas Association, which represents municipal gas utilities, told the president he shares his concern about relying too heavily on natural gas as a fuel for future power generation. "By some estimates 90% of the 393 gigawatts of new electric generation expected to come on-line during the next 20 years will be fueled by natural gas," he noted in a letter to Bush. Currently gas fuels only 16% of the nation's power generation. Such a complete reliance on gas for generation will "place an incredible demand on a finite supply of fossil fuel and will cause even higher prices for energy consumers in the future." But fuel diversity and conservation are the "fundamental elements of a sound and successful national energy policy," said Cave.

Major gas and oil producers share that view, according to John Sharp of the NGSA. Sharp said the president's decision was a rational one given the current energy market. "The facts have changed in the market since the debates during the campaign," he said, noting the California energy crisis has worsened. "As a consequence, I think he is more than entitled to change his position on it. I think he is doing it to respond to current market needs." However, others at NGSA warned of a growing bias against natural gas.

Gas pipeline representatives said they hope the decision is not a permanent one. Interstate Natural Gas Association of America (INGAA) Chairman Stan Horton said although it was a good short-term political move, over the long term CO2 emissions restrictions should be revisited. "First of all, I think it was a political decision driven by immediate things that are happening in the market," Horton said at last week's Natural Gas Roundtable in Washington, D.C. "We have high prices for electricity in many regions of the country. People are concerned that some of the problems we are having in California are going to spread to other regions of the country. If you impose additional air quality standards on electric utilities, the result would probably be that more coal plants might not be able to run and you are going to exacerbate the current problem.."

However, INGAA would hope that in the next 12 to 18 months as prices come down and return to more normal levels that the issue of possibly restricting CO2 emissions would be reconsidered, said Horton.

Rocco Canonica

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