A mandatory cap on carbon dioxide (CO2) emissions will not be a magic bullet to drive up demand for natural gas among power generators, according to research by Duke University’s Climate Change Policy Partnership (CCPP).
“For all primary scenarios, we found that climate legislation does not significantly increase natural gas demand, and coal electricity generation remains the primary baseload generation source in the United States,” said the study’s lead author, David Hoppock. “With the exception of one scenario after 2026, natural gas demand remains at a relatively constant level between 23 and 24 Tcf/year.”
In the study a team of CCPP energy and technology analysts modeled 10 gas market scenarios using Duke’s Nicholas Institute for Environmental Policy Solutions’ version of the National Energy Modeling System. A reference scenario and eight other primary scenarios assumed the passage of climate legislation based on the Lieberman-Warner Climate Security Act. One “business as usual” scenario, without a climate policy, was run for comparison.
In scenarios where the development of wind turbines, biomass power plants and other low-carbon electricity generation technologies was limited, natural gas prices were 20% higher in 2030 than in the reference scenario, Hoppock said. But in scenarios where these new technologies developed rapidly, natural gas prices dropped 9%. Varying rates of improvement for natural gas extraction had little influence on prices in any scenario.
The CCPP team also ran models to project how different technology scenarios might affect greenhouse gas (GHG) allowance prices. Allowance prices showed minimal variation across all primary scenarios except when carbon capture retrofits on existing coal plants were not allowed, the research showed.
“The takeaway message of the study is that if policymakers are concerned about the impact of climate change legislation on future natural gas prices, they should place a higher priority on investing in low-carbon electricity technology, such as renewable generation and carbon capture and storage retrofits, as a hedge against any future high natural gas prices,” Hoppock said.
The CCPP modeled natural gas markets prior to the ongoing financial crisis and collapse in gas prices. CCPP energy price forecasts are annual average prices and assume a constant rate of economic growth.
CCPP is a partnership of Duke’s Nicholas Institute, Nicholas School of the Environment, and Center on Global Change. For more information visit www.nicholas.duke.edu.
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