NGC: Lieberman-Warner legislation would drive up gas demand

Nick Snow
Washington Editor

WASHINGTON, DC, June 4 -- A recent study from the Natural Gas Council concluded that legislation to be debated this week in the US Senate is likely to increase natural gas demand without addressing the need for increased supply.

American Gas Association Pres. David N. Parker was one of several council members to respond to the study's findings. "We take global climate change seriously and believe that natural gas will be a key part of any effective climate change initiative," he said.

"Our analysis suggests that achieving the carbon reductions required under S. 3036 [the Lieberman-Warner Climate Security Act] requires a mix of technologies and energy sources. Our study also found that demand for natural gas could increase by more than 30% by 2030," Parker said.

NGC, whose member organizations also include the Independent Petroleum Association of America (IPAA), Interstate Natural Gas Association of America (INGAA) and Natural Gas Supply Association (NGSA), released its study as two major national business organizations announced their opposition to the bill.

Officials from the US Chamber of Commerce and National Association of Manufacturers separately said the bill could lead to the loss of up to 4 million jobs by 2030, increase electricity prices by as much as 129% and gasoline prices by up to 145%, and reduce the average US household income by as much as $6,752/year.

Importance of offsets
NGC's study noted that offsets in the legislation would allow a regulated source, such as an electric power plant, to meet some of its compliance obligations by reducing an equal amount of carbon emissions from sources that have not been capped.

"The importance of offsets really jumped out at us," said NGSA Pres. Skip Horvath. "Congress needs to carefully think through the role of domestic and international offsets, because this mechanism significantly affects the United States' ability to achieve the legislation's carbon-reduction targets. The global market for offsets is going to be competitive as foreign nations move to meet their own carbon reductions," he added.

Under S. 3036, a company could meet as much as 15% of its compliance obligations with specified domestic offsets, while another 15% could come from Europe and other areas of the world.

The study found that in addition to driving up gas demand, the legislation would increase electricity production from nuclear power plants, wind, and solar power units. The bill also includes incentives to install carbon sequestration technology, now under research and development, which would remove carbon from emissions and sequester it underground.

"Given the uncertainties surrounding new energy technologies and implementation of the cap and trade program, we suggest that Congress incorporate a strong natural gas supply and infrastructure portfolio that will allow us to achieve the goals of a climate-change bill," INGAA Pres. Donald F. Santa said.

Higher gas demand, costs
NGC's study echoes previous studies by the federal government and other groups—studies that also indicate that the demand for, and cost of, gas could increase substantially if the legislation becomes law.

"What concerns us is that while some studies show natural gas use going up, perhaps dramatically under S. 3036, other studies found that the same legislation would cause the supply of natural gas to decline. That's a collision course for consumers," said IPAA Pres. Barry Russell.

"If Congress does not hamper existing production and allows more exploration, our industry could ensure a more-robust supply of natural gas, which would reduce price pressure. That supply increase would provide an economic relief valve if there are problems with sequestration or offsets," he said.

The analysis was conducted by Science Applications International Corp. (SAIC) using the National Energy Model System (referred to as NEMS-NGC version). NEMS-NGC used alternative input assumptions provided by the council.

An American Petroleum Institute official noted that NGC's study follows one that API issued in May, which concluded that the legislation would likely reduce US natural gas production.

'Troubling questions'
"Taken together, the two studies raise troubling questions," said API policy analyst Lou Hayden. "The high cost of allowances could lead to less US production of clean-burning, low-carbon, natural gas just when consumers are demanding more. The legislation appears designed to work at cross purposes." API's study, which ICF International conducted, estimated that the cost of allowances could lead to a US gas production decline of 12% by 2030. It also estimated a shift overseas of 3 million b/d of petroleum refining capacity.

"Lieberman-Warner fails to meet the criteria essential to a sound national climate policy: balancing reasonable cost burdens, encouraging low-carbon technologies, providing a uniform national policy, and finding the most cost-effective ways to reduce emissions without choosing winners and losers," Hayden maintained.

William Kovacs, vice-president of environment, technology, and regulatory affairs at the US Chamber of Commerce, said the bill fails to address global climate change realistically because it does not promote development and deployment of new technologies.

"The business community wants to be a leader in crafting a logical plan to address climate change. This is why the Chamber believes a major focus of any climate change strategy must be the development and rapid deployment of new energy technologies, not burdening businesses and consumers with new taxes," he told reporters at a June 3 briefing.

No technology funds
While Congress has discussed addressing climate change, it has failed to seriously fund development of the 64 nonfossil fuel technologies that the 2005 Energy Policy Act said were needed to address the issue, Kovacs said.

He said that the current bill, which Sens. Joseph I. Lieberman (I-Conn.) and John W. Warner (R-Va.) introduced in October and Sen. Barbara Boxer (D-Calif.) amended before it was brought to the floor on June 2, does not recognize the importance of technology in addressing global climate change.

"If we are to truly move away from fossil fuels, we must be able to replace these fuels with low or zero-carbon alternatives," Kovacs said. "A great deal of the technology isn't commercially available yet, and several of these technologies don't even exist."

In a June 3 letter to all 100 senators, National Association of Manufacturers Executive Vice-Pres. Jay Timmons said the organization and its members are committed to reducing greenhouse gas emissions provided any US action is mirrored by comparable commitments by trading partners, is based on sound science and cost-effectiveness, and is applied equally throughout the economy.

He said S. 3036 fails this test because its nationwide cap-and-trade program does not pre-empt conflicting state and local climate change laws and regulations, imposes new requirements without adequately protecting US competitiveness or funding research and development of essential new technologies, and unnecessarily increases natural gas demand, among other reasons.

Contact Nick Snow at nicks@pennwell.com.

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