Quick Facts

• In 2012, natural gas constituted 25 percent of total U.S. energy consumption[1] – and 24 percent total global energy consumption[2] – and provides roughly one fifth of all U.S. electricity generation.[3]
• About 24 percent of U.S. carbon dioxide emissions are related to natural gas, 1,296 million metric tons in 2011.[4]
• No one sector dominates natural gas consumption; rather, the electric power, industrial, residential, and commercial sectors are all significant end users.
• Replacing diesel with natural gas could reduce fuel lifecycle greenhouse gas emissions from  heavy-duty vehicles by up to 29 percent , depending on leakage rates^.[5],[6]
• Comparing coal to natural gas, natural gas power plants emit half as many greenhouse gas emissions.[7]
• atural gas-fired electricity power plants are expected to continue to increase in importance – accounting for 37 percent of the planned capacity for 2012 and 60 percent of capacity additions between 2010 and 2035.[8]
• Natural gas can supplement intermittent energy sources such as solar and wind, potentially allowing for more opportunities for clean and renewable energy deployment.
• The natural gas policy landscape is diverse; addressing fuel sourcing, distribution, power production, and end use consumption.
• An estimated 36 gigawatts (GW) of coal generation is expected to be retired between 2014 and 2016, largely in response to lower natural gas prices and, to a lesser extent, new environmental regulations.[9]
• Proposed greenhouse gas emissions standards by the U.S. Environmental Protection Agency favor natural gas technologies for new fossil fuel power plants[10]

Background

Constituting 25 percent of total U.S. energy consumption, natural gas is important in almost every economic sector, used to produce heat and electricity, and as a feedstock in manufacturing (see Figure 1).[11] [1] Natural gas is composed primarily of methane (CH₄) – a very potent greenhouse gas. During various steps of natural gas extraction, transportation, and processing, methane is released to the atmosphere. These “fugitive” emissions can represent an opportunity to reduce greenhouse gas emissions, maximizing the potential climate benefits of using natural gas.

Recently, natural gas reserves have dramatically expanded because of technological advances allowing access to unconventional sources in shale formations, coal beds, and sandstone formations. For background information on natural gas not covered in this factsheet, including supply, demand, and pricing see C2ES Natural Gas Overview [2].

Figure 1: U.S. Natural Gas Consumption by Economic Sector (2011)

[3]

Source: Energy Information Administration, U.S. Department of Energy 2012.[12]

Description

In the last few years, the outlook for U.S. natural gas supply has changed dramatically, with predictions no longer showing the United States becoming increasingly reliant on natural gas imports (particularly imports of liquefied natural gas, or LNG); rather, technological advances in seismic imaging, horizontal directional drilling and hydraulic fracturing over the past 30 years have led to dramatically increasing economically recoverable North American shale gas. Because of this increase, the United States is expected to become a net exporter of natural gas in 2022.[13] Shale gas has been the primary source of U.S. natural gas growth since 2000, increasing from 2 percent to approximately 22 percent of the natural gas supply in 2011.[14] Shale gas is expected to grow fourfold by 2035, making up nearly 50 percent of total U.S. natural gas production.[15]

In 2012, U.S. natural gas consumption averaged 69.8 billion cubic feet per day (Bcf/d), a 4.8 percent increase (3.2 Bcf/d) from 2011 (see Figure 2).[16] Growth in natural gas consumption is expected in all sectors except the residential sector, with the most dramatic increase in transportation (an estimated 5.9 percent increase, though it is starting from a low baseline).[17]

Figure 2: Projected Total Natural Gas Consumption (2012-2035)

[4]

Source: EIA Annual Energy Outlook. 2012. Total Energy Supply, Disposition, and Price Summary.[18]

Natural Gas Applications

Natural gas has a wide range of applications in all economic sectors.

Electric Power: Natural gas can provide baseload, intermediate, and peak demand electricity. The electric power sector is using an increasing percentage of natural gas, over 31 percent in 2011, up from 17percent in 1990.[19] Natural gas-fired electric power plants are expected to continue to increase in importance – accounting for 37 percent of 23.5 GW of electric power generation planned for 2012 and 60 percent of capacity additions between 2010 and 2035 (for more, see C2ES resource Natural Gas in the U.S. Electric Power Sector [5]).[20]

• Besides the appeal of a low-cost domestic fuel source, natural gas power plants can be constructed in as little as 20 months for approximately one third the levelized capital cost for a typical coal plant.[21] Natural gas electricity generation relies on three basic technologies:
  • Steam turbine plants: These plants operate like traditional coal-fueled power plants where fossil fuel (in this case natural gas) combustion heats water to create steam. The steam turns a turbine, which runs a generator to create electricity. These typically have thermal efficiencies of 30 – 35 percent.
  • Combustion turbine plants: These plants are generally used to meet peak electricity demand. They operate similarly to jet engines: natural gas is combusted and used to turn the turbine blades and spin an electrical generator.[22] The typical size is 100 – 400 MW with a thermal efficiency around 35 – 40 percent.[23]
  • Combined cycle plants (NGCC): Combined cycle plants are highly efficient because they combine combustion turbines and steam turbines; the hot exhaust from a gas-fired combustion turbine is used to create steam to power a steam turbine.[24] High efficiency combined cycle plants emit less than half the CO₂ per megawatt-hour as coal power plants, and operate with a 50 – 60 percent thermal efficiency range.[25] A typical natural gas combined cycle power plant has a heat rate (i.e., the amount of fuel used per unit of electricity generation) that is about one third lower than for a combustion turbine or gas-fired steam turbine plant.[26] The newest NGCC systems claim efficiencies of greater than 61 percent.[27]

Figure 3: Combined Cycle Power Plant

[6]

Source: Global-Greenhouse-Warming.com, 2010.

• Alongside renewables: Natural gas can have an important relationship with renewable energy production because of its ability to respond quickly to short-term energy supply fluctuations. As a highly responsive energy source capable of providing baseload and short-term energy supply, it can supplement intermittent energy sources such as solar and wind, allowing for more opportunities for clean energy deployment.[28]
• Greenhouse Gas Abatement options:
  • Fuel switching: Fuel switching refers to displacing traditional coal-fueled electricity generation with less carbon-intensive natural gas generation. Activities include: modifications to existing coal plants to instead utilize natural gas; operating fewer coal power plants; operating those plants at lower output levels; ramping up generation from natural gas power plants; and/or building new natural gas plants to replace coal generation. From 2002 to  2010, the number of natural gas electric utility power plants increased by 10 percent, from 699 to 775, while the number of coal electric utility power plants fell by 7 percent, from 363 to 333.[29]
  • Distributed Generation (DG): Traditionally, electricity is produced in large centralized power stations, which is transported to end-users over long distances. Contrarily, DG produces smaller amounts of electricity closer to the consumption site. DG benefits include fewer losses from long distance transmission lines, increased reliability, reduced peak power load, and increased responsiveness. Some technologies use less primary energy and emit fewer greenhouse gases than the centralized power system, especially when they are used in combined heat and power operations (see C2ES resource Distributed Energy and Emerging Technologies [7]).[30]
  • Carbon capture and storage (CCS): Similar to its application with coal-fueled power plants, CCS can be coupled with natural gas power plants to capture and permanently sequester large percentages of the CO₂ emissions from electricity generation (see Climate TechBook: Carbon Capture and Storage [8]).
  • Supply Side Efficiency: Modern natural gas combined cycle power plants have higher efficiencies than gas-fired steam cycle plants; replacing the latter with the former can reduce the greenhouse gas emissions from gas-fired electricity generation.[31] Increasing the thermal efficiency of electricity production can reduce emissions, as higher thermal efficiencies mean less fuel is required to produce each kilowatt-hour of electricity (see C2ES resource Natural Gas in the U.S. Electric Power Sector [5]).

Industrial Sector. Natural gas can be used in a diverse array of industrial sector applications, including heating and cooling, electricity generation, food processing, and as a feedstock in chemical products, plastics and fertilizers (see C2ES resource Natural Gas in the Industrial Sector [9]).[32] In 2011, natural gas accounted for 58 percent of industrial electricity generation produced onsite, up from 51percent in 2005.[33] That year, the industrial sector consumed 6.91 quadrillion Btus of natural gas with 72 percent (4.98 quadrillion Btus) in heat and power operations.[34] Industrial sector usage resulted in the release of 433 million metric tons of CO₂ that same year.[35]

• Greenhouse Gas Abatement Options:
  • Boiler Efficiency: Because of the widespread use of natural gas in heat and power provision, upgrading boiler equipment to the highest efficiency possible can provide considerable emission benefits. For example, gas fueled boilers tend to have a long operational life; many in current operation are no longer considered efficient options. Replacing inefficient pre-1985 boilers, with average efficiency rates between 65 and 70 percent, with new boilers reaching efficiencies of up to 95 percent, could reduce emissions between 4,500 to 9,000 tons of CO₂ per boiler.[36]  
  • Combined heat and power (CHP, or cogeneration): In natural gas-fueled industrial CHP applications, natural gas is used to generate both useful heat and electricity. CHP has much higher efficiency than separate generation of heat and electricity from the same fuel supply. Therefore, replacing separate power and heat generation with CHP reduces fuel use and lowers emissions. As noted earlier, some of the most efficient uses of natural gas are in distributed generation applications in CHP operations. However, utility safety concerns, lack of additional expertise, lack of utility financial incentive to encourage its use, and the need to provide sufficient backup are barriers to CHP development.[37]

o   Other efficiency measures: Measures such as preventive maintenance and advanced steam systems process controls can lead to more efficient energy use and thus lower emissions.[38]

Natural Gas Industry Operations. Natural gas systems involve the production, processing, transmitting, and distributing as well as the storage of the resource.

• Formation CO₂: Often found in raw natural gas, formation CO₂ is separated and generally vented to the atmosphere during natural gas processing.
• Fugitive emissions: Fugitive emissions, also called “leakage”, are primarily from equipment or pipeline leaks as well as routine venting activities.[39] Estimates of leakage rates within the natural gas system are changing as more information becomes available. Greenhouse gas monitoring, measurement, and regulation in other sectors and the recent expansion of natural gas production and use have increased attention to the issue and spurred efforts to measure leakage.
  • Other CO₂ emissions:[40] “Lease gas” is combusted to power gas and oil field operations (e.g., dehydration, compression). Flaring is the burning off of unwanted gas, which yields CO₂ as a byproduct. “Plant fuel” is natural gas used to power gas processing plants; likewise, “pipeline fuel” is natural gas used to power natural gas transmission and storage operations.
• Greenhouse Gas Abatement options
  • ?Carbon Capture and Storage (CCS): Natural gas processing facilities remove CO₂ and other impurities from raw natural gas, generating highly-pure streams of CO₂. [41] Such facilities offer some of the least expensive opportunities for deploying carbon capture technology at a commercial scale, since processing produces high purity streams of CO₂ that can be captured with less difficulty than potential CO₂ emissions from fossil fuel combustion. For several decades, CO₂ from natural gas processing has been captured, transported via pipeline,  injected underground  for use in enhanced oil recovery (CO₂-EOR) (see C2ES resource: National Enhanced Oil Recovery Initiative [10].[42]
  • Methane mitigation: Mitigating fugitive emissions provides an opportunity to maximize the potential climate benefits of using natural gas. Additional field testing should be performed to gather up-to-date, accurate methane leakage data. A better understanding and more accurate measurement of the emissions from natural gas production and use could identify additional cost-effective emission reduction opportunities along the natural gas value chain, and aid policymakers in creating effective regulations to address methane releases. Fugitive emissions can be reduced by upgrading equipment (e.g., valves), changing procedures to reduce venting, and improving leak detection and measurement efforts.[43]

Transportation: Natural Gas Vehicles (NGV): Natural gas can be compressed (CNG) or converted into liquid (LNG) fuel for use in place of conventional fuels in modified engines, or in fuel cell vehicles. Globally, there are more than 15 million NGVs; almost three quarters in just five countries (Pakistan, Argentina, Brazil, Iran, and India).[44] In 2010, compressed natural gas (CNG) and liquid natural gas (LNG) vehicles comprised about 0.05 percent (about 120,000 vehicles) of the U.S. vehicle stock (for more, see C2ES Natural Gas in the Transportation Sector [11])[45] – over 45 percent of which were medium- or heavy-duty vehicles.[46] Gas to liquid technology (GTL) is another fuel technology that converts natural gas into diesel or gasoline, able to be utilized in the existing fleet and fuel distribution infrastructure. Finally, electricity can be produced using natural gas that can in turn power electric vehicles.

• Vehicle Types:
  • Dedicated: completely natural gas reliant
  • Bi-fuel: vehicles with separate fuel systems allowing them to run on conventional fuels or natural gas
  • Dual-Fuel: typically heavy-duty vehicles that use diesel for ignition but run on natural gas
• Fuel types: to provide vehicle fuel, natural gas is most commonly used as either compressed natural gas (CNG) or as liquefied natural gas (LNG). Both CNG and LNG are less dense than gasoline and therefore require larger tanks in vehicles.
  • LNG is produced by super-chilling the natural gas to -260ºF. Usage requires vehicle tanks to be insulated to keep the fuel chilled, leading this technology to be primarily used in heavy-duty trucks.[47]
  • CNG is produced by compressing natural gas in cylinders at a pressure of 3,000 to 6,000 lbs per square inch and is used in light-, medium-, and heavy-duty vehicles. These vehicles get about the same fuel economy as a conventional gasoline vehicle.[48]
  • Fuel Cell vehicles can be fueled with hydrogen gas extracted from a secondary fuel that contains hydrogen, such as natural gas. The secondary fuel is first converted to hydrogen gas, for example, by an onboard reformer. These vehicles produce only small amounts of air pollution.[49]
• Greenhouse Gas Abatement Options
  • ?Fuel substitution: Increasing the use of natural gas vehicles and decreasing other is an example of transportation-based fuel switching. Because of its lower carbon intensity, natural gas combustion can produce fewer lifecycle greenhouse emissions than gasoline or diesel.[50] In 2009, California Air Resources Board (CARB) found that substituting natural gas for diesel in heavy-duty vehicles could provide a 29 percent reduction in emissions. A higher leakage rate during the natural gas production and distribution process, however, would reduce these benefits.[51] Fuel substitution in heavy-duty vehicle fleets may present opportunities to reduce emissions in government and commercial fleets because of available technology and refueling options.[52]
  • Overcoming infrastructure barriers: Using natural gas in vehicles in place of gasoline or diesel reduces greenhouse emissions. Although widely dispersed fueling infrastructure remains a barrier to increasing use of natural gas, municipalities and certain scale commercial fleets could utilize centralized refueling stations. Intercity or regional heavy duty vehicles are ideal candidates, particular those with consistent travel requirements and predictable range such as buses and garbage trucks. A small number of refueling stations can serve a large percentage of this sector. For more, see C2ES resource Natural Gas in the Transportation Sector [11].

Residential and Commercial: Natural gas has extensive residential and commercial applications.  As a fuel source consumed onsite, natural gas provides an option to increase fuel efficiency in buildings while decreasing emissions when compared with centrally produced electricity.

• Residential: Natural gas is most commonly used in thermal applications, particularly space and water heating. Space heating use varies regionally, and natural gas provides a greater proportion in colder climates whereas homes in warmer climates tend to prefer electric heating. Natural gas is also used in various appliances such as clothes dryers, ovens and cooktop stoves. For more information on the residential applications see Climate TechBook: Buildings Overview [12] and Residential End-use Efficiency [13].
• Commercial: These buildings include offices, health care facilities, warehouses and storage, food service and preparation, and educational institutions, where natural gas is used to heat water, for large appliances, and most predominantly, space heating (see C2ES resource Natural Gas in Commercial Buildings [14]).
• Greenhouse Gas Abatement Options:
  • Codes, Standards, and Labeling. Mandatory or voluntary building codes and standards adopted by state and local governments can improve efficiency by encouraging equipment updates, improving building envelopes, and providing information resources to building managers and occupants about reducing fuel use. New appliance labeling efforts may offer an opportunity to inform consumers about energy efficiency and emissions benefits of different fuel choices, including natural gas.
  • Increased Deployment: Producing heat onsite from natural gas appliances is more efficient than producing heat through electricity transmitted from a central power plant. Assuming natural gas is displacing fossil fuel produced electricity, increased deployment of natural gas technology will increase energy efficiency and reduce greenhouse gas emissions by 40 to 60 percent per appliance (see C2ES resource Natural Gas in the Residential Sector [15]).

Environmental Benefits / Emission Reduction Potential

Among fossil fuels, natural gas is the least carbon intensive and burns efficiently with fewer air pollutants (including particulates, nitrogen oxides, sulfur dioxide, lead, and mercury).[53] Combustion of natural gas emits approximately half as much carbon dioxide (CO₂) as traditional coal and 33 percent less than oil.[54] As described natural gas heavy-duty vehicles could achieve a nearly 29 percent reduction when compared to diesel vehicles, depending on natural gas leakage rates.[55] While natural gas still produces significant emissions, when it displaces more carbon-intensive fuels like coal and oil, it can lower greenhouse gas emissions.

Natural gas emissions consist primarily of methane (CH₄), which is a greenhouse gas about 21 times more powerful in terms of its heat-trapping ability than CO₂ over a 100 year time frame.[56] Methane is emitted through venting and fugitive releases during the processing, transporting, and storage of natural gas.[57] Currently, venting and fugitive emissions from natural gas systems are around 3 percent of total U.S. greenhouse gas emissions. However, to fully realize the benefits of increased natural gas usage these fugitive emissions must be addressed.  Fortunately, there are technologies that can help reduce emissions from oil and natural gas systems. Some analyses suggest these technology-based investment options for reducing greenhouse gas emissions have short payback times, depending on the price of natural gas.[58]

The role natural gas plays in overall greenhouse gas emission reductions depends on the extent to which natural gas is used to fulfill energy needs, the efficiency of the technology used, and the effectiveness of efforts to limit emissions. First, increasing direct use of natural gas in residential, commercial, and industrial sectors can reduce greenhouse gas emissions because of increased efficiency inherent in natural gas transmission and distribution when compared to electricity. A full fuel cycle assessment of the emissions impacts from all stages of fossil fuel production, processing, and end-use more accurately assesses its true climate impacts (see C2ES resource Natural Gas in the Commercial Buildings [16]). Also, fuel switching from coal to natural gas in large power plants creates an opportunity for emissions reductions. Additionally, though no commercial-scale projects have been developed, natural gas power generation with carbon capture and storage (CCS) could provide further opportunity to diminish emissions (see C2ES Climate Techbook: CCS [8] and C2ES resource Natural Gas in the U.S. Power Sector [5]). Interest in building the world’s first commercial-scale natural-gas fired CCS power plant has grown in recent years. Notably, CO₂ captured from natural gas processing or power generation can be used in enhanced oil recovery (CO₂-EOR) and stored underground (see C2ES Enhanced Oil Recovery Overview [17]).

However, inexpensive natural gas has the potential to outcompete renewables and nuclear projects, potentially hurting emission mitigation efforts.[59] Nuclear becomes less tenable because of its higher upfront capital costs when compared to natural gas (see Table 1).[60] Using natural gas in combination with renewables could provide lower emissions and a more flexible energy production system compared to centralized provision based on a single fuel source such as coal or nuclear power.

Cost

Price volatility is an important component of natural gas history, but it is unclear if this will remain so in the future (see Figure 4). Historically, natural gas cost fluctuations were due to regulatory changes, weather patterns, and large market trends (see C2ES resource U.S. Natural Gas: Overview of Markets and Uses [18]). However, the market is expected to remain more stable in future years because of increased supply due to development of shale gas resources, advanced reserve identification and extraction techniques, and storage capabilities.[61]

Figure 4. U.S. Natural Gas Monthly Average Wellhead Prices (USD/mcf)

[19]

Source: U.S. Energy Information Agency, 2012.[62]

In the U.S. electric power sector, public utility commissions are approving natural gas power production based on fuel source economics, increasing deployment of natural gas electricity production. The degree of fuel switching is also dependent on cost differences in utilizing existing natural gas power plants compared with coal plants. For new construction, natural gas power plants can be built on a levelized cost basis for much less than competing fuel sources, including coal, nuclear, and renewable resources (see Table 1). When compared to traditional coal power production, new natural gas power plants provide a lower cost option to provide electricity with reduced carbon emissions.

Table 1. Levelized Comparisons of New Power Plants Entering Service in 2017

Source: Annual Energy Information Administration of the Department of Energy. 2012.[63]

Current Status of Natural Gas

Due to the range of applications, the natural gas policy landscape is diverse and addresses extraction, distribution, energy production, and end use consumption. The recent boom in shale gas extraction in areas of the country unaccustomed to this manner of industrial development has caused concerns in some communities and some calls for policy action. As part of this development, and particularly related to hydraulic fracturing, the U.S. Department of Energy’s Secretary of Energy Advisory Board (SEAB) recently released recommendations for improving operational safety and reducing potential environmental impacts in drilling operations.[64]

One area of policy attention is water quality impacts of shale gas development. The Environmental Protection Agency (EPA) is undertaking a study on the effects of hydraulic fracturing on drinking water, to be completed in 2014.[65] The Energy Policy Act of 2005 amended the Safe Drinking Water Act (1974) to exempt underground injection of fluids for hydraulic fracturing related to oil, gas, and geothermal production from regulation by the Environmental Protection Agency.[66] This lack of regulation has led to some concerns that water resources are not effectively protected from hydraulic fracturing activities.

Currently, 15 states have requirements for chemical disclosure in fracturing operations (see C2ES resource Hydraulic Fracturing Chemical Disclosure Map [20]). Though requirements can vary widely, they generally outline what must be disclosed, identify the monitoring authority, set disclosure deadlines, and outline trade secret protections.[67] Regulations are changing quickly as states respond to new market conditions, recoverable gas resources, and potential environmental impacts.  At the federal level, legislation has been put before Congress to promote transparency, particularly concerning the chemicals used in fracking operations.[68]

EPA, using its authority under the Clean Air Act (CAA), promulgated New Source Performance Standards [21] (NSPS) and National Emissions Standards for Hazardous Air Pollutants (NESHAP) for the oil and gas production sector in 2012. The NSPS requires facilities, including hydraulically-fractured wells  to reduce emissions to a certain level that is achievable using the best system of pollution control, taking other factors into consideration, like cost.[69] Under the NESHAP program, the Agency sets technology-based standards for reducing certain hazardous air pollutants emissions using maximum achievable control technology. The regulations directly target the emission of volatile organic compounds, sulfur dioxide, and air toxics, but have the co-benefit of reducing emissions of methane by 95 percent.[70]

Also in 2012, EPA proposed a court-mandated NSPS to regulate greenhouse gas emissions from newly-constructed power plants. The rules would require that all new power plants meet the emission rates of highly efficient NGCC power plants. Therefore, NGCC power plants would comfortably meet the new standards, favoring new natural gas electricity generation in the future. Coal power plants can only meet the standard using CCS technologies. With an estimated 14 GW of coal generation being retired by 2015 because of other regulations and market forces, natural gas has an opportunity to capture an expanded percentage of power markets.[71] EPA is also required to set additional NSPS rules for greenhouse gas emissions from existing power plants, expected in the next few years. Additional pollution regulations impacting the power sector are found here [22].

Finally, proposals for a Federal Clean Energy Standard (CES) have been before Congress in recent years (see C2ES resource Clean Energy Standard [23]). A CES would act similarly to state-level renewable portfolio standards (RPS) – which mandate a certain percentage of renewable-sourced electricity – by allowing credits for renewables as well as “clean” energy. “Clean” energy encompasses various technologies, such as NGCC and CHP, which create significantly less CO₂ than traditional coal-fired power plants.[72] Currently, some states have policies that operate similarly to a CES in that they allow for some compliance through clean non-renewable energy resources (for more, see C2ES report Clean Energy Standards: State and Federal Options and Policy Implications [24].

Policy Options to Help Optimize Natural Gas Use

• Putting a Price on Carbon. A policy that puts a price on greenhouse gas emissions would lead firms and households to make investment and operating decisions that reduce greenhouse gas emissions—ranging from fuel switching by electricity generators to investments in home insulation or programmable thermostats by households.
• Policies to Address Impacts of Shale Gas Production. Abundant and low cost natural gas results from shale gas production. Local, state, federal, and corporate policies will be required to address concerns about water quality and availability, air pollution, community disruption, and climate change, among other topics, if this production is to continue at levels that maintain or expand supply. Policies such as public disclosure requirements regarding toxic chemicals used during hydraulic fracturing will improve understanding of risks, protect public safety, and boost confidence in shale gas drilling operations.
• Alleviate Legal and Regulatory Barriers. Certain natural gas deployment options related to natural gas are constrained by legal and regulatory barriers. A policy of decoupling, which separates revenues from natural gas sales, can incentivize state-regulated local distribution companies to help customers pursue end-use efficiency measures. Another issue, the deployment of CCS with natural gas processing facilities, or natural gas-fueled electricity generation, requires a fully-developed regulatory and legal framework at the federal and state level to ensure the long-term safety of geological carbon storage (see Climate TechBook: Carbon Capture and Storage [25]). Additionally, CHP deployment can face regulatory hurdles related to grid integration and electricity tariffs (see Climate TechBook: Combined Heat and Power [8]).
  • Further control fugitive releases of methane through expanded policies. Policymakers have begun to create regulations that address fugitive releases, but better understanding and more accurate measurement of the emissions from natural gas production and use could potentially identify additional cost-effective emission reduction opportunities along the natural gas value chain.
• Create Greenhouse Gas Reduction Credits or Offsets. Addressing fugitive methane emissions from oil and gas industry operations will prove administratively difficult to do directly under an emissions pricing policy such as cap and trade. Implementing a policy allowing projects that reduce methane emissions to qualify for offset credits to be traded under a cap-and-trade program would provide a financial incentive for firms to undertake such projects. 
• Enact Policies to Encourage Efficiency and Natural Gas. A range of proven policy interventions can improve natural gas implementation. Decoupling utility profits from sales ensures cost-recovery and a rate of return for energy efficiency investments, and state regulators can address the disincentive utilities face regarding promoting customer energy efficiency measures (see C2ES factsheet Decoupling in Detail [26]). A lost-revenue adjustment policy can compensate utilities for lost revenue due to increased efficiency and can be particularly useful in encouraging CHP.[73]
• Promote distributed generation and direct use. Distributed generation and direct use of natural gas can be more efficient than producing electricity at a centralized location. By incorporating these uses into all levels of building policy – industrial CHP, residential, and commercial – major gains in energy efficiency can be seen.
  •  Energy Efficiency Product Standards. The government can and has set minimum efficiency standards for a variety of products including those that consume natural gas, such as furnaces, boilers, and water heaters (see C2ES resource Natural Gas in the Residential Sector [15]).
  • Education Programs. Education and information programs can take forms such as voluntary labeling of energy-efficient household products (e.g., the ENERGY STAR [27] program), publicly funded energy assessments, industrial energy efficiency case studies, and training (e.g., the Technology Deployment Activities [28] program of the DOE’s Advanced Manufacturing Office). Policy intervention should address potential energy and cost savings, misaligned incentives, and bounded rationality (e.g., the use of rules-of-thumb that can lead to suboptimal decisions).[74]
• Technological and infrastructure limitations. Policies should be implemented to expand infrastructure for natural gas applications, for example in buildings. In 2005, 71 percent of U.S. homes had access to natural gas, and yet only 61 percent of U.S. residences made use of natural gas in an appliance. Only 54 percent of new homes constructed in 2010 had natural gas service installed, and this access was primarily for heating.[75] Additionally, allowing for increased storage of natural gas and policies promoting CHP and district energy applications will also expand the role of the natural gas in energy provision.
• Research, Development, and Demonstration (RD&D). Continued and increased government financial incentives and cooperation with the private sector related to RD&D could accelerate technology advances and market penetration, with possible technology areas of focus including advanced natural gas turbines with higher efficiencies and carbon capture technology on a commercial-scale with natural gas fired electricity generation. Additional important research topics are the potential environmental impacts of unconventional gas production, especially with respect to drinking water, regulatory safeguards, improved fuel efficiency technology, advancements in reducing leakage, and greenhouse gas lifecycle analysis.

Related C2ES Resources

Natural Gas in the Industrial Sector [29]

Oil and Natural Gas Air Pollution Standards [30]

U.S. Natural Gas Overview of Markets and Uses [18]

Natural Gas Use in the Transportation Sector [11]

Natural Gas in the U.S. Electric Power Sector [5]

The Looming Natural Gas Transition in the United States [31]

Natural Gas Infrastructure [32]

Natural Gas in the Residential Sector [15]

Natural Gas in Commercial Buildings [14]

Distributed Generation and Emerging Technologies [7]

State Maps

• Appliance Efficiency Standards [33]
• Commercial Building Energy Codes [34]
• Decoupling Policies [35]
• Residential Building Energy Codes [36]

Further Reading / Additional Resources

Congressional Research Service (CRS)

• Displacing Coal with Generation from Existing Natural Gas-Fired Power Plants [37] (2010)
• Global Natural Gas: A Growing Resource [38] (2010)
• U.S. Natural Gas Exports: New Opportunities, Uncertain Outcomes [39] (2011)

U.S. Department of Energy

• Alternative Fuels and Advanced Vehicles Data Center: Natural Gas Emissions [40].
• Appliances and Commercial Equipment Standards [41]
• Modern Shale Gas Development in the United States: A Primer [42]
• Oil and Natural Gas Supply and Delivery [43]

U.S. Energy Information Administration (EIA)

• Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays [44] (2011)
• Natural Gas Page [45]

U.S. Environmental Protection Agency (EPA)

• Clean Energy – Natural Gas [46]
• Natural Gas STAR Program [47]
• International Non-CO2 Mitigation [48]
• Hydraulic Fracturing [49]
• Global Methane Initiative [50]

U.S. Department of the Interior, Bureau of Land Management

• Oil and Gas Page [51]

National Energy Technology Laboratory

• Life Cycle Analysis: Natural Gas Combined Cycle (NGCC) Power Plant [52] (2010)
• Life Cycle Greenhouse Gas Inventory of Natural Gas Extraction, Delivery, and Electricity Production [53] (2011)

Global CCS Institute

• The Global Status of CCS [54] (2012)

ICF International

• Integrating Variable Renewable Electric Power Generators and the Natural Gas Infrastructure [55] (2011)
• Availability, Economics, and Production Potential of North American Unconventional Natural Gas Supplies [56] (2008)

Related Business Environmental Leadership Council (BELC) Company Activities

Air Products [57]

ALCOA [58]

ALSTOM [59]

AREVA [60]

Bayer [61]

BP [62]

Cummins [63]

The Dow Chemical Company [64]

DTE Energy [65]

Duke Energy [66]

Entergy [67]

Exelon [68]

Ontario Power Generation [69]                                            

National Grid [70]

NRG [71]

NextEra Energy [72]

PG&E Corporation [73]

PNM Resources [74]

Royal Dutch/Shell [75]