The Natural Gas Gamble: New UCS Report Highlights Dependence Concerns

Guest Blog | March 10, 2015 | Energy Policy, Natural Gas

The Natural Gas Gamble

Today, the Union of Concerned Scientists (UCS) released a new analysis, which shows that instead of aggressive over-reliance on natural gas by utilities as they phase out coal plants, a far better bet for achieving a clean energy future is to greatly expand the use of renewable energy and energy efficiency. Many U.S. electric utilities are doubling down on natural gas to generate power as they retire aging and polluting coal plants, particularly here in the Southeast. While this unprecedented shift does provide some near-term benefits, dramatically expanding our use of natural gas to generate electricity is an ill-advised gamble that poses complex economic, public health, and climate risks. By choosing clean energy pathways and avoiding an overreliance on natural gas, we can ensure a more consumer-friendly, resilient, and diversified electricity system, while also delivering cost-effective CO2 emissions reductions and improved public health.

The Natural Gas Surge

Recent increases in domestic supplies of natural gas and resulting low prices have impelled utilities and power producers across the country to become more greatly dependent on natural gas. And the transition toward greater use of natural gas has been particularly dramatic in a number of states. Florida, for instance, the third-largest electricity producer in the United States, now generates 62 percent of its electricity from natural gas—up from 44 percent just a few years ago. All told, 16 states generated more than one-third of their electricity from natural gas in 2013, with several of these states now using natural gas to generate nearly two-thirds or more of their electricity.

Here in the Southeast, a number of our states have seen significant increases since 2007 in their reliance on natural gas. In fact, five southern states rank in the top ten among states with the most increases in gas dependence between 2007 and 2013 (see Table 1 at left).

The Risks of Overreliance

The burning of natural gas instead of coal to generate electricity does offer important and immediate benefits, including reduced air and water pollutants, fewer smokestack carbon emissions, less power plant water use, greater flexibility of the power grid, and an economic boost to some regions of the country. But these rewards must be carefully weighed against the risks of natural gas as the electricity sector’s new primary fuel of choice. Central among them is historical and ongoing natural gas price volatility, which can lead to higher electricity prices. Price spikes not only harm consumers and the economy, but can also create perverse incentives for utilities to switch back to using old and polluting coal plants.

Report co-author and UCS senior energy analyst, Jeff Deyette, had this to say about Florida’s current natural gas situation:

“Florida has entered the danger zone of relying too much on natural gas. There’s a well-documented history of volatility in natural gas prices, including major spikes. In 2012, an increase in the domestic supply of natural gas, combined with the recession and a warm winter, resulted in low natural gas prices around the country. In contrast, we saw prices spike 7-fold in 2005 due to hurricane activity in the Gulf of Mexico. And last winter, when it was bitterly cold in much of the U.S., prices in some regions jumped 10- to 12-times higher than recent lows. These market trends could continue, and consumers in Florida and elsewhere that rely heavily on natural gas will end up paying the price.”

In addition, while natural gas plants’ smokestack emissions are significantly cleaner than those of coal plants, natural gas is still a fossil fuel that contributes to climate change when combusted. Even more concerning is that the extraction, distribution, and combustion of natural gas result in the leakage of methane, a powerful global warming gas 34 times stronger than carbon dioxide at trapping heat over a 100-year period. Methane leakage diminishes the climate advantages of natural gas over coal. Natural gas extraction and transport also threaten to degrade local land, air, and water resources and raise legitimate public health and safety concerns.

UCS’ analysis found that staying on our current electric sector trajectory would put the United States on a pathway of greater natural gas use, rising carbon emissions, and higher natural gas and electricity prices. In a Business-as-Usual scenario, they found that total natural gas use will increase by nearly 18 percent between 2013 and 2040, with the power sector representing the largest share of this increase at 49 percent. Additionally, natural gas prices would be 2.3 times higher for the power sector in 2040 than in 2013, and average consumer natural gas prices would nearly double over the same time period. This is clearly the wrong path for the United States.

A Better Path Forward

Where natural gas consistently comes up short, renewable energy and energy efficiency delivers. These technologies are already ramping up quickly across the country and demonstrating that they can supply affordable, reliable, and low-carbon power. Rather than making a wholesale switch to natural gas, UCS’ research shows that investing more heavily in renewable energy and energy efficiency offers a smarter, faster, and less risky means of achieving a more affordable, reliable, and diversified electricity system that delivers not just short-term economic and environmental gains but also long-term reduction of emissions causing climate change.

Using the Energy Information Administration’s National Energy Modeling System, UCS analyzed the effects of climate and clean energy policy scenarios on the electricity sector, consumers, the economy, and carbon emissions. In their core policy scenario, UCS examined the effects of a federal carbon emissions reduction standard on the power sector complemented by a suite of federal renewable energy and energy efficiency policies. For their study they assumed a more aggressive carbon reduction scenario than what is currently proposed by the EPA through the Clean Power Plan.

They found that pursuing such a strategy could cut coal and natural gas power plant carbon emissions 55 percent below 2005 levels by 2025 and 70 percent by 2040. In fact, investing in greater amounts of renewables and efficiency would deliver an additional 6.8 billion metric tons of carbon dioxide emission reductions cumulatively by 2040 than by implementing a carbon standard alone. These cumulative additional emissions savings would not only be a meaningful contribution toward a global effort to help limit some of the worst consequences of climate change; it can be done cost-effectively. In 2020, the net societal benefits of pursuing these reductions in carbon emissions and other harmful pollutants are 2.6 times greater than the consumer compliance costs, or nearly $36 billion. By 2040, the benefits grow to nearly $170 billion (see Figure 1).

Figure 1. Benefits and Costs of Policies That Limit Carbon Emissions, relative to Business as Usual Scenario

Businesses and shareholders may also see their bottom lines negatively affected if states like North Carolina, Georgia, and Florida continue to expand natural gas in their electricity mix. The UCS report cites natural gas industry data showing it would cost $313 billion to build the national infrastructure to transport, store, and process the amount of natural gas the U.S. would need overall through 2035 if use continues to grow along the current trajectory. In Florida, for example, the Sabal Trail underground pipeline—a project of Florida Power and Light and Next Era Energy—will cost over $3 billion and run nearly 500 miles through Georgia and Florida to provide more than 1 billion gallons of natural gas to the state daily.  As the U.S. strives to significantly cut carbon emissions and limit climate impacts—such as sea level rise—this natural gas infrastructure may eventually need to be abandoned, becoming a “stranded asset.”

Furthermore, increasing the share of renewable energy and energy efficiency is an important way to hedge against economic risks in a future including uncertain natural gas prices. Many of our southern states are woefully behind in capturing cost-effective energy efficiency and renewables. The Sunshine State gets less than one-tenth of 1 percent of its energy from solar despite its strong solar resource and rapidly decreasing prices. UCS’ core policy case in the analysis shows that a fully diversified electricity resource mix portfolio is 14 percent less sensitive to long-term fluctuations in fossil fuel prices.

Choosing a Truly Clean Energy Future

UCS’ report shows that the choice is clear. As the nation and the Southeast move away from coal, setting course toward a diverse supply of low-carbon power sources—made up primarily of renewable energy and energy efficiency—is far preferable to a wholesale switch to natural gas. For its part, natural gas could still play a useful—but more limited—role in the transition to a clean energy system, not as a replacement for coal but rather as an enabler of grid flexibility in support of renewable technologies.

To accelerate and maximize the use of renewable energy and efficiency in this transition will require stronger climate and clean energy policies nationwide, as well as appropriate planning and decision making by regulators, grid operators, utility companies, and power producers. By making smart energy choices today, we can transition to a more consumer-friendly and resilient electricity system, achieve cost-effective carbon dioxide emissions reductions, and face fewer risks stemming from an overreliance on natural gas.

That’s a bet you can bank on.

This blog was modified from an original blog post by UCS’ Jeff Deyette.

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