Absent the necessary technology, the aggressive carbon dioxide (CO2) reduction targets in the Senate climate change legislation will result in large-scale utility fuel switching that could send natural gas prices soaring during the next decade, according to an analysis of the bill conducted by energy research and consulting firm Wood Mackenzie.

“The aggressive CO2 reduction targets contained in the [climate change] bill, combined with the absence of readily available technology and infrastructure for carbon capture and sequestration, will result in unprecedented new demand for natural gas,” said Williams Durbin, head of global gas and power research at Wood Mackenzie.

“Without the necessary technology for zero-emission generation, large-scale fuel switching will occur and natural gas prices would increase dramatically — to the detriment of gas-dependent industries and consumers alike,” he noted.

The analysis showed that the bill (S. 3036) would result in allowance costs of $2.3 trillion to the U.S. natural gas and power sector and cause delivered domestic natural gas prices to climb upwards of $6-9/MMBtu — an increase of up to 90% from current levels, according to Wood Mackenzie. The power sector also would need incremental investment of $500 billion in baseload, zero-emission technology, for a total impact of $2.8 trillion through 2030, it said. Other key findings in the study included:

The Senate climate change measure was crafted by Sen. Barbara Boxer (D-CA), chairman of the Senate Environment and Public Works Committee, and Sens. Joseph Lieberman (I-CT) and John Warner (R-VA).

Before any action was taken in the Senate, President Bush Monday signaled that he will veto the legislation if it remains in its current form. The bill would impose roughly $6 trillion of new costs on the U.S. economy, he said. It would “sharply raise the price of gas, raise taxes or demand drastic emissions cuts that have no chance of being realized and every chance of hurting our economy.”

The outloook for climate change in the Senate is not very encouraging. “Few in Washington anticipate the long-awaited debate on climate change legislation to come to much. Indeed, much of the speculation is how long it will last before the bill is either withdrawn from consideration or fails to overcome a possible filibuster to end debate,” said energy analysts Christine Tezak and K. Whitney Stanco of Stanford Group Co. in a “policy research” paper.

The Senate measure seeks to cut CO2 and other greenhouse gas emissions from affected industries by 19% below current levels by 2020, and by approximately 70% below current levels by 2050.

The legislation would limit the amount of CO2 that affected industries could emit. It would set up a program for trading allowances. Companies would buy allowances if they were not able to meet the emissions cap, or sell allowances if they were successful in meeting the cap.

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