Waxman-Markey is pro-coal???
Posted July 30, 2009 at 6:58 am 
Filed in: Electric Utilities, Energy Supply, Environment, Legislation, Natural Gas While you won’t hear many mining companies or coal-burning utilities express support for the proposition that the pending Waxman-Markey CLIMATE CHANGE and energy bill (it works best if you shout climate change and whisper energy — that’s about the balance in the current bill) is pro-coal, you do increasingly hear that argument from many in the natural gas sector. They are shaking their heads over the cumulative effect of several Waxman-Markey provisions: unaggressive near term targets for greenhouse gas (GHG)emissions reductions, a VERY generous authorized pool of offset credits that emitters could use instead of making emissions reductions, the VERY generous distribution of free allowances based on historic emissions levels, and — interestingly enough — the renewable electricity standard (RES) for utilities.
How does the RES favor coal? Well, the argument is that the RES will increase the cost of generation but not, by itself, require overall GHG emissions to decline. To hold down costs, the theory goes, a utility forced to use or build more expensive renewable generating capacity will balance that with the dispatch of cheaper coal — shedding more expensive gas — at least until stronger emissions reductions requirements kick in. And even when those stronger emissions reduction requirements kick in, the availability of cheap offsets may still make it more economical to burn coal rather than natural gas. While the latter is some 60% cleaner (on a GHG metric) than the former, coal remains cheaper in absolute terms.
So, taking all Waxman-Markey provisions into account, the calculus will be the extent to which coal prices plus carbon prices minus offsets credits is more or less expensive than natural gas. And many in the natural gas world are worried that, in the near-term at least, the calculus will be that it makes economic sense to continue to use coal for electricity. That might be good for consumers in the short run, bad for climate change in the long run — but also problematic in terms of energy security in the long run as well.
Why? Well, the fear is that without near term demand drivers for natural gas production, rigs won’t be deployed and gas fields won’t be developed. Then, when the carbon prices really begin to bite — or the offsets prove to be (as many believe they are) largely illusory — there will be a disconnect between available gas and electricity demand. And that, boys and girls, can be spelled B-L-A-C-K-O-U-T-S.
Is there a potential fix for this that allows appropriate, economical, and smooth fuel switching to occur in ways that maintains electricity reliability at affordable prices? Some think one key would be what are calleld “bridge fuel credits.”
A bridge fuel credit (BFC) is a compliance option currently not provided in Waxman-Markey. Under the sector’s proposal, each BFC would be worth one ton of GHG emissions reduction that would accrue when natural gas was substituted for coal in power generation. These bridge, or temporary, credits could be used in place of an emission allowance or offset credit, and would ensure that early reductions were real domestic reductions. The total volume of BFCs issued, and the time limit in which they could be used, would both be set by Congress.
To their credit, the gas guys recognize that natural gas prices have experienced a great deal of volatility. For example, August forward prices are now under $4 per million Btu, whereas a year ago prices were around $13. So their proposal includes a safety valve that would suspend issuance of BFCs if natural gas prices exceeded a set trigger price. BFCs would also, like emissions allowances themselves, be eligible for banking and borrowing, as another hedge against volatility.
That strikes this writer as a thoughtful policy proposal worthy of serious consideration — but labelling Waxman-Markey “pro-coal” is still a bit over the top.
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