Several news releases and recent conferences might indicate that things are heating up on the global climate front. Here is an edited version of some events reported by several sources that could impact your bottom line:
- “Climate change has moved to the top of everyone’s agenda, including world leaders, businesses, and citizens,” said Christopher Flavin, president of the Worldwatch Institute, at the recent American Gas Foundation’s Natural Gas & Climate Change Forum.
- A Canadian news source reports: “If the momentum on the environment seems large now, it’s likely to be unstoppable as 2007 progresses. One reason is that the current year stands a good chance of going down as the hottest since modern recordkeeping began in the 1850s.”
- In his speech to a conference of energy representatives of world leaders in the first major economics meeting on Energy Security and Climate Change last month in Washington, D.C., President Bush said it’s time for some serious attempts by his administration to set mandatory standards for reducing greenhouse-gas (GHG) emissions. He emphasized that it’s time to “consider national goals and strategies over the mid-term – reflecting each nation’s own mix of energy sources, future energy needs, and development priorities – to address the challenges of energy security and climate change, and discuss what more needs to be done.”
But, that effort runs squarely into the economic and political interests of the participating nations, none of which want to sacrifice growth to alleviate climate threats to the planet. The White House stipulates, “The President's international energy security and climate change initiative recognizes that responsible action to address climate change and economic growth go hand in hand. It is only through strong economies that we can sustain the investment necessary to achieve lasting solutions. While all countries must do their part to reduce emissions, we should not seek to impose on any countries’ measures or frameworks that thwart their efforts to meet the legitimate aspirations of their people for better and more prosperous lives.”
The push behind these remarks is that more climate-linked changes have become evident. The North Pole is still covered in ice, but – at the peak of melting in September – Flavin noted that “one need not go far to find open water. It could only be a few decades before the pole is ice-free in the summer.” Shipping lanes have already been changed to take advantage of the new open waters. Greenland’s nearby ice sheet also is melting, which could raise sea levels by up to 20 feet. That could destroy the seashore habitats of many species, including humans. Never before in the 200,000-year history of people on earth have carbon levels gone above 280 ppm, but now they are at 380. Scientists believe CO2 levels have to be held at 450 to 500 ppm to avert the worst affects of climate change. “The planet could be nearing a tipping point where big changes happen, such as tundra melting, releasing methane that will speed up climate change,” says Flavin.
The electric-power sector expects to attract the biggest cuts of CO2 under a carbon cap and trade system “simply because it’s the easiest industry to transform,” says Energy Information Administration Deputy Administrator Howard Gruenspecht. Transportation seems to be lower on the list. Panelists at the Gas Foundation conference said natural-gas-powered generation will likely grow with a mandated price on carbon, but it can’t be the only answer. “Relying exclusively on gas just isn’t economically feasible,” says Wood Mackenzie’s manager of North American Power Research, Anthony Damiano. “Electric power produces 40 percent of the nation’s GHG emissions, and coal generation is 80 percent of that, thus major cuts would have to come from that fossil fuel. To get back to 1990 emissions levels by 2025 with gas alone would require shutting down 40 percent of coal generation and replacing it with gas plants,” says Damiano. “That would boost the demand for gas by the power generation sector from 17 bcf/day to 35 bcf/day. Those examples were meant to be silly,” he adds, in an effort to show that a wide portfolio of technologies is needed.
A solution to GHG reduction that is economically benign seems remote. A carbon-trading scheme seems to be in the works. Beyond generation fuel strategies, “carbon offsets can have a big impact on the cost of a GHG program,” says the EPA’s Climate Economics Branch Lead Economist Allen Fawcett. A climate bill proposed by Sens. Joe Lieberman (I-CT) and John McCain (R-AZ) allows for 30 percent of its domestic carbon cuts to be offset by credits. “Without the offsets, mandatory compliance doubles the negative impact on economic growth,” he explains. “Lifting the cap limit would cause one-third the impact on the national economy.” If the United States accepted Lieberman’s proposed 60-percent carbon cut by 2050, it would trim CO2 concentration by 23 ppm – overall world levels would still hit close to 700 ppm. Scientists believe the world needs to thin CO2 concentration to the 450 to 550 ppm range – a goal that can only be achieved with worldwide political support, which still is beyond the planning horizon.
Early on in the proposed offset system, coal plants wouldn’t be shut down, but less would be planned. The cap-and-trade system would boost nuclear, renewables, and efficiency, and lead to more gas use. Carbon capture and storage wouldn’t come online in the first few decades, but the entire power sector would need to be essentially de-carbonized by 2050. Even if electricity is the easiest sector to transform, building more nuclear generation to serve a growing load while cutting emissions is still a tall order under current political conditions.
Flavin believes that natural gas will be a big winner in the new energy economy created to address climate change. Nuclear power faces environmental opposition while long lead times and carbon capture and storage will take decades to commercialize clean-coal technology. Renewables and efficiency can play important roles, he concedes, but more gas will be needed to provide reliable, cleaner base-load generation. Renewables can help in the interim, but siting the transmission lines to them is difficult and their intermittent output requires gas backup anyway. Flavin doesn’t the world is running out of gas (as some predict). The industry has been living in oil’s shadow and not much new independent gas exploration has happened. Micro-generators that run on gas could be installed on-site without transmission lines to power buildings and homes. “The only problem is utilities don’t have a way to recover the investment to sell such generators or else they would be here already,” says Flavin.
Natural gas utilities don’t want to see gas-power generation grow too much because it could become too expensive for consumers. The utility industry has favored gas generation almost exclusively for years, but that pushed up the price of gas and, in turn, power. Energy Secretary Samuel Bodman told attendees at another conference, “Someone once said that using natural gas to make base-load electricity is like using good Scotch to wash the dishes.” So, utilities started favoring coal plants, with 150 new ones on the books at one point, but many of those are likely to be canceled. Nuclear, advanced clean coal, and renewables will help cut CO2 , but gas demand will have to grow. “The United States must open up more public areas to gas drilling so that more supply can meet the higher demand,” says CenterPoint Energy CEO David McClanahan. The technology is proven: It’s cleaner than coal, easy to site, and easy to build. The build-out of gas power plants clearly will boost prices since power already represents 30 percent of its demand and it’s the only growing sector. But, U.S. gas production is leveling off and Canadian imports are falling. Thus, liquid natural gas from the former USSR and the Middle East is gaining demand – bringing international energy security concerns that only the politicians can solve.
The bottom line is that climate change seems finally to be on the table in energy-policy discussions, increasing demand for gas likely will spur higher prices, and international politics makes for some interesting and potentially dangerous times ahead.