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Game changer, Part 2: Why unconventional natural gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet

By Joe Romm  

"Game changer, Part 2: Why unconventional natural gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet"


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In Part 1: Is there a lot more natural gas than previously thought? I asserted it now appears likely that, thanks to unconventional supplies, natural gas alone could meet a great deal of the Waxman-Markey CO2 target for 2020 “” without requiring gobs of new power plants to be sited and built or thousands of miles of new transmission lines.  In this post I will explain the two key reasons why.

First, today, dirty coal plants are being “dispatched” (or utilized) to provide electricity by grid operators first, while natural gas plants that could provide electricity with far lower emissions of carbon dioxide remain unutilized or underutilized — even though their electricity costs are only slightly higher.  This is occurring in at least two regions of the country, according to a major under-reported May study by the Energy Information Administration, “The Implications of Lower Natural Gas Prices for Electric Generators in the Southest.”  A cap on CO2 emissions and even a low price of CO2 will switch the dispatch order, generating large emissions savings at low cost (if the gas is available, as now seems likely).

Second, the fundamental flaw in Waxman-Markey is that the 2020 target is too weak both from the perspective of what climate science says is needed (see “The U.S. needs a tougher 2020 GHG emissions target“) and from the perspective of what straightforward energy analysis suggests can be done at $15 a ton of CO2 or less.

Let me run through a rough analysis.  The W-M bill requires a 17% emissions cut by 2020.  Now EIA’s amazing April report — Updated Annual Energy Outlook 2009 Reference Case Reflecting Provisions of the American Recovery and Reinvestment Act and Recent Changes in the Economic Outlook — forecasts that just on the basis of the clean energy deployment from the stimulus (together with the lingering impact of the recession), U.S. energy-related carbon dioxide emissions will be some 2% lower in 2020 than in 2005 (see “EIA projects wind at 5% of U.S. electricity in 2012, all renewables at 14%, thanks to Obama stimulus!“):

But then we have to throw in the oil reductions from Obama’s recent fuel economy deal (see Obama to raise new car fuel efficiency standard to 39 mpg by 2016 “” The biggest step the U.S. government has ever taken to cut CO2) — and, of course, from higher oil prices than EIA forecasts since it mostly ignores peak oil (discussed here).  Let’s call that another 2% emissions drop.

Then we have Waxman-Markey itself.  It achieves huge energy efficiency savings.  The American Council for an Energy-Efficient Economy (ACEEE) projects “such savings will avoid about 293 million metric tons of carbon dioxide emissions in 2020” (see “Waxman-Markey could save $3,900 per household“).  That’s another 5% drop.

So far we are maybe 9% below 2005 levels in 2020.  I’m going to skip the large low-cost savings potential from conservation — although I think by 2020 that the painful reality of global warming will be so obvious to all that a large fraction of the public and businesses will want to pitch in to avert Hell and High Water (but then, I’m an optimist or is that a pessimist?).

Now we have to meet the remaining 8% cut with some combination of low-cost renewables, natural gas, and offsets.  How will that break out by cost?

The EPA projected maybe 100 million domestic offsets in 2020 using the original Waxman-Markey draft (see here).  That version had tougher targets and more renewables and a higher 2020 permit price than the current bill does.  So let’s say 1% of the target will be met with domestic offsets.

International offsets are going to cost more than $25 a ton in 2020, as I explained here.  In 2020, the low-cost renewables and especially natural gas will cost a lot less than $25, as I will discuss shortly.  Let’s say 1% of the target will be met with international offsets.

So we are left with needing to meet another 6% reduction — some 360 million metric tons of reductions.  [Yes, I am slightly conflating carbon dioxide emissions with total greenhouse gas emissions, but that's because only 85% of total U.S. GHGs are capped by the bill and this is only meant to be a simple, rough analysis.]

What kind of low-cost renewables are available in quantity at a price of, say, $15 a ton of CO2?  Remember, we are competing to reduce coal use at existing largely-paid-for plants for which the primary operating cost is the purchase of coal.  At the margin, the price might be 2.5 cents a kilowatt hour — and $14 a ton CO2 price adds another 1.5 cents a kilowatt hour to coal power (and 0.5 cents a kWh to combined cycle gas plants) .  So we need renewables that can deliver substantial baseload-type electricity at around four cents a kilowatt hour.

There really is only one obvious choice — cofiring biomass in those same coal plants (see “If Obama stops dirty coal, as he must, what will replace it? Part 2: An intro to biomass cofiring.”  After all, those plans have already been sited, built, and largely paid for.  They are already connected to transmission and the country’s freight train delivery system!

You just need to pay for collecting the biomass and shipping it to the power plant.  That’s why a 1997 study by five U.S. national laboratories that I oversaw concluded biomass cofiring was the single biggest potential contributor to near-term greenhouse gas reductions of any renewable energy strategy.

We found that within 13 years (2010), you get get maybe a 60 million ton reduction in CO2 emissions and 3 times that by 2020 (again, starting in 1997).  Let’s say we try hard and get 2% of the 2020 target with cofiring.

So we still need some 240 million metric tons of reductions more to hit the target.  This requires switching, say, 350,000 gigawatt-hours of coal — maybe 50 GW (with 70% capacity factor) — to high-efficiency gas.

Two questions remain:  Are the gas plants there and will the natural gas be available at a reasonable price?

The answer to the first is definitely yes.  Indeed, EIA’s analysis “The Implications of Lower Natural Gas Prices for Electric Generators in the Southest” gives this stunning statistic for just two regions —  the East South Central (ESC) and the South Atlantic (SA):

The average utilization rate of natural”gas”fired capacity by electric generators was about 13 percent in the ESC in 2008 compared with nearly 68 percent for coal”fired capacity. In the SA, the average utilization of natural”gas”fired capacity by electric generators was about 11 percent in 2008, compared with more than 62 percent for coal.

That is, we built a lot of gas plants we are barely using.  And a large fraction of these natural gas plants are quite efficient.

The EIA has a detailed analysis of the dispatch curve in those two regions:

The Dispatch Curve

A simple measure of the generation cost for each facility can be determined by combining the facility’s heat rate with the delivered fuel price. This analysis ignores other costs such as emissions allowances and other variable operating and maintenance costs. Facilities with the lowest generation cost will generally be deployed first (Figures 7 and 8). As electricity demand increases, the next higher cost capacity will be utilized. Due to the distribution of heat rates for various coal” and natural”gas”fired electric power facilities discussed above, a significant amount of coal”to”gas switching is possible as delivered prices converge.

Note how flat the line is.  Virtually all of the capacity being used below about $27/MWh ($0.027 kWh) is coal.  But there is a huge amount of natural gas, some 10 GW or more, at just $5 to $10 a MWh more.

Again, note how flat the line is.  Most of the capacity being used below about $20/MWh ($0.02 kWh) is coal.  But there looks to be more than 15GW of natural gas for just $5 MWh more.

Now $14 a ton of CO2 adds $15/MWh to coal and $5 to combined cycle gas. So somewhere between, say $7 a ton of CO2 and $14 a ton you bring in a huge amount of gas in those two regions — assuming the gas is available at a reasonable price in 2020 (compared to coal).

So in just two regions, you could get 25 GW of fuel switching at a low CO2 price.  You just need to find another 25 GW of fuel switching in the entire rest of the country.  Not hard.

This post is long enough, so I’ll address the availability of gas — and the future price relative to coal — in Part 3.

But the key point for now is that the U.S. has so many domestic low-cost clean energy solutions that we can easily meet the Waxman-Markey 2020 target at a low cost, without relying on much more expensive offsets.

‹ GOP American Energy Act: Impact Of Global Warming ‘Shall Not Be Considered For Any Purpose’

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17 Responses to Game changer, Part 2: Why unconventional natural gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet

  1. Sasparilla says:

    This is a great article Joe. Maybe we could not just meet but beat those lowball targets with low hanging fruit that’s available.

    I’m still wary of how much the cost of natural gas went up last summer (2008) as it tracked oil – it was horrendously expensive (during the cheap part, for natural gas, of the year) – as I don’t think we’ve ever experienced those prices in the winter yet. So I’d be very wary of where natural gas prices are going after next summer. I didn’t check on coal prices during the same time period though.

    Thanks again for putting this up, looking forward to part 3.

  2. Omega Centauri says:

    Sasparilla coal prices -at least coal export prices from Australia had also spiked. I think all fossil fuel supplies participated in last years superbubble. My main concern with Joe’s plan is the future trajectory of natural gas supply and price. The current price is way to low to support unconventional natural gas drilling, they had a tremendous boom/bust cycle -much more severe than we’ve seen with oil. But, we might as well wait for Joe’s part three before discussing it.

  3. Matt Dernoga says:

    Interesting Joe, although I think you made the point I was going to make in your last sentence. You make the case in your post about how easy it is to meet the 17% target for the first half. Then you say “and now that we’re already almost all the way there, natural gas and bio-mass can do the rest”. I’m not arguing with this, but I would argue that natural gas doesn’t become a “game-changer” because it will help displace 240 million metric tons of CO2, which is a very small fraction of the overall target. I would say under your own estimates, natural gas plays a small role in hitting our target. Do you think it will help us overshoot the target?

    I did my own analysis of natural gas you can see here:


    Also, I thought you would be interested in that I had a phone conversation with Steny Hoyer’s Senior Policy Advisor on Energy and Climate. It shed some light on a few things for me regarding the politics of the Waxman-Markey bill, and I thought it might be worth your time.


    [JR: Your natural gas analysis is not correct because you merely compare the carbon content of the different fuels. You neglect the fact that gas can be and is burned far more efficiently than coal. Combined cycle gas turbines have under 40% of the CO2 emissions of your typical coal plant. unconventional gas should mostly kill LNG, which I agree is not terribly good idea.]

  4. PaulK says:

    If we could not just meet but beat its lowball targets with low hanging fruit that’s available, what is the point of Waxman – Markey?

    [JR: The bill is much, much more than its 2020 target. Through 2020, the point is to drive huge amounts of clean energy into the marketplace and get us off the business as usual path. But as we get into the 2020s, the targets really do start to bite. Overall, the bill will transform the energy economy of the country over the next few decades, get us close to the emissions path needed for stabilization at or near 450 ppm (with the possibility of tightening the targets in the future as the science requires), and allow us to negotiate with other countries, including China, since this is a global problem.]

  5. MikeN says:

    I thought consumers were going to save money. INdtead you are adding several cents per kilowatt hour in additional costs.

  6. Ken says:

    The implication is that carbon prices are more likely to be low (close to the $10/ton floor) than high (close to the $28/ton ceiling). That would be consistent with what has occurred with prior trading systems (the Acid Rain program, RGGI, EU ETS). So accepting a lower ceiling in exchange for a higher floor would be a good compromise.

    A more robust price floor (closer to the willingness-to-pay threshold) would solve a couple of problems. First, the anemic cap would effectively be tightened if the floor is higher than the unconstrained market price. Second, it would help alleviate the “additionality” problem with respect to state and local policies, as well as corporate and individual GHG-reduction actions. To the extent that such policies and actions affect emissions within the cap, they would merely free up surplus allowances that could be used to increase emissions elsewhere; hence they would provide no net environmental benefit and would only operate to subsidize fossil-fuel industries. But if allowances are selling at the floor price, then the surplus allowances would remain unsold because the total number of allowances distributed would be constrained by the number of buyers willing to pay the floor price, not by the total number authorized for distribution. Under this circumstance the additionality of supplemental GHG-reduction actions would be preserved.

    [JR: Yes, a higher floor price would make sense but seems unlikely.]

  7. Konrad says:

    Natural gas power generation can offer efficiencies over coal fired plants. Natural gas power plants utilizing modular arrays of gas turbines and generators respond more flexibly to fluctuations in demand. Such plants utilizing fossil reserves of methane can also use methane from bio reactors. And as I posted in an earlier thread, the waste co2 from power plants can be utilized in algae based biofuel production. In this scenario co2 can be traded as a commodity. Trading carbon emissions permits in comparison seems equivalent to trading hot air. Derivatives, futures and short selling – do we really need more of this?

  8. Peter Wood says:

    A $14 initial price floor would be an improvement. A $100 initial price floor would be even better!

  9. In the long term, it’s worth noting that beyond coalbed methane, which is now 10% of U.S. natural gas production (despite once being viewed as a nuisance) things like methane hydrates could fill the breach. In fact the single largest technically recoverable reserve of natural gas in the continental U.S. happens to be directly adjacent to a ton of other natural gas production, in Alaska. Thing is, it’s methane hydrate — the good news is we now know how to recover it. I just covered it, and the giant discovery of recoverable hydrates in the Gulf of Mexico here:


  10. MikeN says:

    The price for CO2 will essentially be the difference between renewable power and coal power, since the goal is to eliminate coal plants. I’d rather have nuclear be encouraged, so as to reduce this price.

  11. Kris says:

    It is somehow poetic that, at the same time we are beginning to come to grips with the relative lower abundance of “cheap” coal we are finding that we may have a gift of a period of relatively abundant unconventional NG. Good riddance to coal which *cannot* be made clean throughout its fuel cycle from extraction to transportation to combustion. There are obviously a number of “wrinkles” such as potential environmental issues of unconventional extraction and the fact that some NG plants are “peakers” and not suited to be run 24 X 7 as baseload – so some upgrading might be needed.

    Another “wild card” in the next 10-20 years is if we see a rapid electrification of the auto fleet which could increase electricity consumption considerably. This would have the benefit of reducing gas/diesel consumption and lowering GHG from that source, but will put additional demands on generation. Because of the inertia of changing from ICE to EV, I would expect that most of this shift will be beyond 2020.

    I think that a rapid move towards *cost-competitive* renewable technologies will help to alleviate this.

  12. Len Ornstein says:

    Add to the pot the following, from my peer-reviewed editorial essay, in press at the journal, Climatic Change on SENCH, sustainable, eco-neutral conservation harvest:

    “When a tree falls in a tropical old-growth forest, the above ground biomass decays fairly rapidly and its carbon is returned to the atmosphere as CO2. If the trunk of that tree were to be harvested, before decay, and were stored anoxically, or burned in place of coal, a net of about 2/3 of that amount of CO2 would be prevented from entering the atmosphere. If the ash-equivalent of each tree trunk (about 1% of dry mass) were recycled to the site of harvest, the process would be indefinitely sustainable and eco-neutral. Such harvest of the undisturbed old-growth forests of Amazonia and Equatorial Africa could effectively remove about 0.88 to 1.54 GtC/yr from the atmosphere. With care, additional harvest of adjacent live trees, equaling up to two times the mass of the fallen trees, might be similarly collected, just as sustainably, and with almost as little ecological impact. This very large contribution to the mitigation of global warming is discussed – with caveats. It could result in substantially reduced coal emissions, but without closing down many presently coal-fired power plants – and at much lower cost and lead-time than carbon capture and sequestration (CCS).”

  13. canbyte says:

    typical greenshirt – can’t handle a contrary point of view. And you wonder why this environmentalist can’t stand other environmentalists!

  14. RunawayRose says:

    Reply to MikeN: “I thought consumers were going to save money. INdtead you are adding several cents per kilowatt hour in additional costs.”

    Savings are from other effects of the bill. Increasingly efficient appliances using less energy, refurbished old buildings and efficient new buildings using less energy, more efficient transportation using less energy, etc.

  15. Ken says:

    Joe -

    Re “a higher floor price would make sense but seems unlikely.”

    I believe W-M mandates a price floor that starts at $10/ton and increases by 5% per year over inflation, which would put it at $15/ton (today’s $$) in 2020. The price ceiling ($28/ton in 2012, and 60% over a 3-year rolling average after 2015) could theoretically allow emission prices to rise by over 40% per year indefinitely. I would think there might be room for compromise between the initially low floor price and the uncertain ceiling price.

  16. Dennis says:

    Isn’t the low utilization rate of natural-gas-fired capacity due to their use as peak load?
    If the utilization rate is increased, the peak capacity is decreased, because coal plants can not be used for peak power.
    If the use of renewables, such as wind and solar is increased, we will need even more peak capacity.
    This means more natural gas plants and Solar Peakload.

  17. Chris Winter says:

    Christopher Mims, in your Technology Review article, you wrote:

    “Together with Chevron and the U.S. Department of Energy, the USGS discovered the reserve of hydrates in high concentrations in 15-to-30-meter-thick beds of sand—conditions very much like terrestrial methane hydrate reserves, which have already yielded commercially useful flow rates. These deposits are substantially different from the gas hydrates that have previously been discovered in U.S. coastal waters, which exist in relatively shallow waters at the surface of the seabed and have become a concern for climate scientists because of their potential to melt rapidly and release large quantities of methane into the atmosphere.”

    Let me see if I understand correctly. Methane clathrates are found underground as well as undersea. We know how to economically mine the underground clathrates for methane (aka NG) and are doing so on a limited basis. But ways to get at the submarine clathrate deposits are still being developed.

    Is that a fair assessment?