The innovative application of horizontal drilling technologies and hydraulic fracturing (sometimes called fracking) has vastly increased the amount of recoverable natural gas in the United States and elsewhere. These technologies are projected to keep the price of this lower-carbon fuel near historically low levels, which significantly alters the economics and politics of national energy and climate policy debates. Expanded use of gas in transportation, domestic manufacturing, and electricity is a likely outcome. This additional demand presents opportunities and challenges for reducing greenhouse gas (GHG) emissions.
To explore these issues, C2ES and the Energy Institute and Energy and Management Innovation Center at The University of Texas (UT) are jointly undertaking a rigorous examination of the potential climate benefits of increased natural gas use. The goal is to provide credible information to policymakers and stakeholders on ways that the natural gas boom can be leveraged to reduce GHG emissions in the U.S. and globally.
As an initial step, C2ES and UT convened a workshop on May 17, 2012, in Houston bringing together diverse stakeholders to examine options for increased use of gas. Participants included representatives of the business community (members of C2ES’s Business Environmental Leadership Council, UT’s business partners, and other companies); state government (energy departments, governors’ offices, and public utility commissions); and the environmental community.
As background for the workshop, C2ES and UT produced a series of working papers examining these issues across the U.S. economy and within key sectors:
- U.S. Natural Gas Overview of Markets and Uses
Natural gas plays a vital role in the U.S. economy, constituting 25 percent of total U.S. energy consumption and roughly one fifth of all U.S. electricity generation. This paper explores the history of natural gas prices, extraction technology advances, and market issues.
- Natural Gas Use in the Transportation Sector
While the transportation sector largely uses petroleum-based fuels today, natural gas can be used in a variety of forms in vehicles including: as compressed natural gas, as liquefied natural gas, through gas-to-liquids technologies, in fuel cells, or as a generation fuel for electricity for electric vehicles. This paper examines the potential for expanded use of natural gas in the transportation sector and its climate implications.
- Natural Gas in the U.S. Electric Power Sector
With the increasing likelihood of a carbon-constrained future, cleaner than coal emissions and forecasts of sustained low prices, natural gas has become the fuel of choice for electricity generation by utilities in the United States. This paper looks at the issues surrounding natural gas as a fuel for electricity generation including emissions, generation, policy decisions, and market supply.
- Natural Gas in the Industrial Sector
This paper examines how natural gas is used by the different segments of the industrial sector and the potential for expanded use in ways that reduce emissions, such as in highly efficient boilers and combined heat and power operations.
- The Looming Natural Gas Transition in the United States
Within one to two decades, natural gas has the potential to surpass petroleum as the dominant energy source in the United States. This paper lays out the underlying trends of natural gas in the current energy transition in the U.S. and the relationship between natural gas and renewable energy technologies.
- Natural Gas Infrastructure
There are more than 2.3 million miles of natural gas infrastructure in the United States in the form of gathering, transmission, and distribution pipelines. This paper examines the regional differences in infrastructure and expansion, direct emissions reductions from natural gas infrastructure and barriers to infrastructure development.
- Natural Gas in the Residential Sector
This paper examines energy use in residential buildings, site efficiency vs. full fuel cycle efficiency, the emissions of natural gas and electricity and barriers to increased residential natural gas access and utilization.
- Natural Gas in Commercial Buildings
This paper discusses commercial building emissions profiles as well as barriers to natural gas access and efficiency in the commercial sector.
- Distributed Generation and Emerging Technologies
The growing supply has put downward pressure on natural gas prices, making it an attractive and affordable energy source. Therefore, it is likely that natural gas consumption will increase in all sectors. This paper explores distributed generation and new ways to generated electricity, including microgrids, microturbines, fuel cells and Stirling engines. It also looks into policies to incentivize development of new technologies.
To provide feedback on these papers or for more information about the initiative, please contact firstname.lastname@example.org
This initiative is made possible with the generous support of:
American Clean Skies Foundation, American Gas Association, Cynthia and George Mitchell Foundation, and Energy Foundation
At the moment, our attention is riveted by the events unfolding at a nuclear power plant in Japan. Over the past year or so, major accidents have befallen just about all of our major sources of energy: from the Gulf oil spill, to the natural gas explosion in California, to the accidents in coal mines in Chile and West Virginia, and now to the partial meltdown of the Fukushima Dai-ichi nuclear reactor. We have been reminded that harnessing energy to meet human needs is essential, but that it entails risks. The risks of different energy sources differ in size and kind, but none of them are risk-free.
Coverage of Natural Gas Emissions & Flows Under a GHG Cap-and-Trade Program
Prepared for the Pew Center on Global Climate Change
Senior Vice President, ICF International
This paper provides an overview of the different point-of-regulation options for covering greenhouse gas emissions
from natural gas under a cap-and-trade program. The paper assesses the percentage of emissions covered under the different options and the type and number of entities and facilities regulated.
Greenhouse gas (GHG) emissions associated with natural gas make up nearly 18 percent of total U.S. GHG emissions.1 Regulation of GHG emissions from the natural gas sector under a cap-and-trade program presents challenges different from those associated with coal or petroleum for several reasons:
- End users of natural gas number in the millions and include not only large industrial facilities and electricity generators, but also a wide variety of smaller users in the commercial and residential sectors.
- Although the principal GHG concern for the sector is carbon dioxide (CO2) emissions from natural gas combustion, the sector also generates non-energy CO2emissions and fugitive emissions of methane (CH4), which are difficult to measure and monitor.2
- There are a number of different types of entities in the natural gas supply chain from production to end use making it difficult to apply the standard upstream vs. downstream dichotomy traditionally used to think about the point of regulation for petroleum and coal under cap-and-trade programs.
- Both physical possession and, in many cases, ownership of the natural gas commodity change multiple times within the value chain as natural gas moves from producers to end-use consumers.
These factors have made the treatment of natural gas a challenging issue in the design of a federal economy-wide GHG cap-and-trade program.3 Bills introduced in Congress have reflected a range of different approaches.4 Even different versions of the Lieberman-Warner bill (S. 2191) incorporated different approaches.
A particularly important design issue is whether to directly regulate GHG emitters or to regulate firms for the embedded emissions of the fossil fuels that they produce, process, transport, or distribute.5 For fossil fuels like natural gas, embedded emissions are the GHG emissions that will ultimately be emitted once the fuel is combusted (see box below for a discussion of the direct vs. embedded emissions and upstream vs. downstream points of regulation). A point of regulation for natural gas coverage under cap and trade that regulates embedded emissions would cover emissions by end users indirectly through the regulation of entities/facilities that produce, process, transport, or distribute natural gas.6 Under a cap-and-trade program, these entities/ facilities would be required to acquire and retire emission allowances equal to their embedded emissions—i.e. the CO2emissions from combustion of the natural gas that these entities/facilities produce, process, transport, or distribute. In theory, entities regulated for their embedded emissions would pass the cost of allowances on to consumers of natural gas thus providing the same economic incentive for emission reductions on the part of emitters as would a cap-and-trade program that regulated direct emissions.7
The reason for interest in regulating embedded emissions is that it may be possible to, in effect, cover the direct emissions of many diverse emission sources by regulating the embedded emissions of relatively few entities that produce, process, transport, or deliver fossil fuels. For example, GHG emissions from many millions of motor vehicles could be covered under cap and trade via regulation of the embedded emissions of approximately 150 U.S. oil refiners plus some importers of fuel. That said, there is concern as to whether in practice the price signal established by regulating embedded emissions is an efficient or effective way to ensure GHG reductions from end users.
In considering the point-of-regulation options, one must consider what percentage of GHG emissions from the natural gas sector each option would cover and how many and what kinds of entities/facilities would need to be regulated. The latter question is important from the perspective of allowing for the accurate measurement of direct emissions by regulated entities/facilities or embedded emissions from natural gas produced, processed, transported, or distributed by regulated entitities/facilities. Moreover, all else equal, a cap-and-trade program that limits the number of entities/facilities that must be monitored for compliance limits the associated administrative costs borne by government and industry. One should also consider the efficiency with which different point-of-regulation options achieve emission reductions because of differences in compliance options and responsiveness to price signals among entities at different points along the natural gas value chain. This last question is the subject of a forthcoming paper.
The following sections of this paper review the emissions profile of the natural gas sector, identify the key entities and associated facilities in the natural gas supply chain, provide an estimate of the emissions coverage and number of entities and facilities regulated under various point-of-regulation options, and provide a summary of the analysis.
About the Author
Joel Bluestein is Senior Vice President of ICF International and is a nationally recognized expert on the impacts of environmental and energy regulation with over 30 years of experience in the energy and environmental arenas. Prior to 2007, he was President of Energy and Environmental Analysis, Inc., now an ICF International company, which was nationally known for its analysis of natural gas supply, transportation, and market issues and provided strategic planning and regulatory support to all segments of the natural gas industry.
Mr. Bluestein has been directly involved in the development of emission trading programs and participates in the national debate on new environmental policies and their energy implications. He has testified before the Senate Environment and Public Works Committee on natural gas supply issues and their implications for multi-pollutant regulation of the electric generating sector. His work has included technology and market assessments, R&D planning, energy conservation project analysis, and long-term energy demand forecasting. He holds a degree in Mechanical Engineering from the Massachusetts Institute of Technology and is a registered Professional Engineer.