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Piecemeal Energy Policy Will Still cut Greenhouse Emissions

But the lack of comprehensive legislation could prevent international agreements needed to limit global warming.
December 14, 2010

It appears unlikely that the newly elected U.S. Congress will fare any better than the last in passing comprehensive, long-term climate and energy legislation. Without this kind of legislation, investors and utilities will find it difficult to make decisions about such things as what types of new power plants to build. But that doesn’t mean that progress on energy policy will necessarily grind to a halt. Smaller, more focused legislation, along with EPA regulations, could have a big impact on greenhouse-gas emissions. And yet these efforts may be too limited to spark the international agreements needed to limit climate change.

Methane mining: A rig in Washington County, Pennsylvania, drills for natural gas trapped in the large Marcellus shale formation. Tapping this formation could help keep natural gas prices low and promote a shift away from coal-fired power plants.

Last year, the House of Representatives passed a comprehensive climate and energy bill, including a cap-and-trade program to limit carbon dioxide emissions, but the bill died in the Senate, prompting policy experts and business leaders to search for alternative ways to encourage investment that would reduce emissions. Several groups have recommended increasing funding for the development of new energy technologies. But with the new Congress elected on a platform of reducing government spending, such increases seem unlikely to be approved. At least for next year, the bills that are likely to pass are those that don’t involve new spending.

The policies that could have biggest impact on greenhouse gases are those that promote a switch from burning coal to burning natural gas. Natural gas is abundant in the United States, and burning it releases only half the greenhouse gases that burning coal does, as well as less of other pollutants. Although many regulations are imposed by individual states, Congress in 2011 could make it easier to increase natural gas production by clarifying federal rules about extracting the natural gas found in shale deposits, says David Victor, director of the Laboratory on International Law and Regulation at the University of California, San Diego.

Meanwhile, relatively recent EPA regulations that lower emission limits on mercury and other pollutants, and new requirements for disposing of coal ash, could force utilities to shut down large numbers of old, inefficient coal plants over the next decade. Black and Veatch, a large construction, engineering, and consulting company, predicts that these regulations could lead utilities to shut down about one-sixth of the coal plants now in operation, representing over 50,000 megawatts of generation capacity. These would be replaced mostly by natural-gas-fired plants. Even more coal plants could be taken offline if natural gas prices stay low and extraction companies set up long-term supply contracts to guarantee these prices, making the economics of natural-gas power plants more attractive, says Mark Griffith, a managing director at Black and Veatch. Ultimately, Victor, at the University of California, says the EPA rules are likely to result in the closure of one-quarter to one-third of today’s coal plants over then next two decades.

Largely because of these shutdowns, coal’s share of U.S. electricity generation could drop from 47 percent now to 22 percent by 2030, according to a report from Deutsche Bank released in November. That in turn is likely to mean a 44 percent reduction in carbon dioxide emissions from power plants by 2030, relative to 2005 levels, and make it possible to meet the overall carbon dioxide reductions that last year’s failed House cap-and-trade bill would have required. However, replacing coal with natural gas won’t by itself reduce emissions enough to meet that goal: Deutsche Bank estimates that it will also be necessary to increase the proportion of electricity generated by solar and wind power from two percent today to 14 percent in 2030.

Developing new low-carbon energy technologies, such as cheap and efficient solar panels, will require both funding for R&D and incentives to increase demand for them. President Obama’s Council of Advisors on Science and Technology (PCAST), recently released a report that recommended boosting funding for new energy technology development to $16 billion a year—a $10 billion increase. The American Energy Innovation Council, led by business leaders such as Bill Gates and GE CEO Jeff Immelt, recommended an increase of the same size, while policy experts at the Brookings Institute, the Breakthrough Institute, and the American Enterprise Institute called for $25 billion in new funding. The groups argue that such funding is needed to help make American companies competitive in emerging markets for clean energy.

Where this money might come from isn’t clear. The President’s advisers said most of it could be raised by adding a tax of two cents per gallon to the price of gasoline or by increasing electricity prices by one-tenth of a cent per kilowatt hour. But Mark Muro, a senior fellow at the Brookings Institute, who crafted that organization’s recommendation of $25 billion for developing energy technology, says that passing even such modest price increases is likely to be difficult in the new Congress.

Even if substantial new funding for research materializes, however, it won’t create market demand for these technologies. Creating demand is a particular strength of well-crafted cap-and-trade legislation, provided it establishes strict enough limits on emissions, because it creates clear, long-term costs of carbon emission, giving utilities an incentive to invest in low-carbon power plants. Mark Griffith of Black and Veatch says that in spite of current pessimism, U.S. cap and trade could still be possible in a couple of years. As for what’s possible over the next twelve months, one mechanism for creating demand that might be politically acceptable is a nationwide renewable electricity standard. This would mandate that utilities either get a certain percentage of their electricity from renewable sources or implement measures to reduce electricity consumption. To make such legislation more likely to pass, President Obama has discussed including nuclear power plants—which many Republicans favor—as part of the renewable energy mandate, Muro says. Although the mandate could increase power costs by forcing utilities to use more expensive technologies to generate electricity, it would not require direct spending from the government.

The military is another potential source of demand for new technologies. The military wants to cut back its use of petroleum and replace it with biofuels and with other renewable power sources such as solar panels, to make military bases less dependent on civilian electrical grids and soldiers in the field less dependent on vulnerable supply lines. But Victor cautions that in the next few years the military will serve mostly as a market for proven technologies, not new ones.

Although specific policies and regulations can promote new technologies and reduce greenhouse-gas emissions, one big disadvantage of not having overall legislation setting clear national limits on emissions is that it makes it difficult to negotiate the international climate-change agreements that are needed to cut growth in global emissions, Victor says. In particular, EPA regulations, which are based on existing laws and are not contingent upon Chinese reductions of emissions, are “ineffective as a bargaining tool to get China to act,” he says. A new cap-and-trade law, however, could be written to take effect only if the Chinese also reduced emissions, thereby giving them a new incentive to do so.

Now that the current Congress has failed to enact cap-and-trade legislation, it may be too late to avoid some of the worst effects of global warming. “There’s a strong case that we’ve dithered much too long,” Victor says.

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