Utilities Lobby for Natural Gas Credits in Biden Administration's Clean Energy Standard

Should natural gas, a fossil fuel responsible for the biggest source of greenhouse gas emissions in the power sector, be included in a federally-mandated Clean Energy Standard (CES)? 

The Biden administration’s aggressive timeline to decarbonize the power sector is being complicated by efforts to include natural gas in a planned CES that will mandate generation sources for power producers. Several utilities, many of them dependent on natural gas for profits and as power sources, are lobbying the current administration to retain partial credits for the fossil fuel. Critics of the move say that partial credits would prolong and encourage natural gas in the grid.  

Should a CES End or Phase Out Natural Gas in the Grid? 

The CLEAN Future Act already proposes full credits for renewable energy sources. The biggest investor-owned utilities (IOU), including NextEra Energy and Duke Energy, are lobbying through Edison Electric Institute - a consortium of IOUs - to make sure that lawmakers take natural gas into consideration while designing a CES. 

A partial credit for natural gas could save significant investments in natural gas infrastructure and generation made by these utilities. The Institute’s general counsel and senior vice president Emily Fisher told an online publication that a CES “or any other policy tool has to create space in the near term for natural gas generation to continue to play a critical role in integrating more renewable energy generation.” “Electric companies and their customers cannot be penalized for keeping the system reliable as we work to achieve our clean energy goals,” she said. 

Rep. David B. McKinley (R-W. Va) and Rep. Kurt Schrader (D-Ore) proposed a clean energy standard legislation in December that takes a “technology-neutral” approach to power sector decarbonization and provides a partial credit to natural gas. Not surprisingly, the Institute is on board with the proposal. 

But efforts to include natural gas in a clean energy standard are facing opposition from environmentalists and researchers who say that the fossil fuel is already available in abundance and providing subsidies could hamper efforts to phase it out of the grid. “Gas is slightly more alarming (than nuclear or biomass) because there’s so much of it and it's comparatively younger. So giving an excuse to keep these facilities online is an especially concerning policy for us,” said Lukas Ross, program manager for Friends of Earth - one of the signatories to a May letter protesting the inclusion of nuclear, natural gas, and biomass in the CLEAN Future Act. According to Robbie Orvis, director of energy policy and design at Energy Innovation, partial credits for natural gas could incentivize build-out of more gas plants. “We are locking in the existence of those plants for 20 to 30 years,” he said.

Natural Gas Credits: A Complicated Equation 

The case against credits for natural gas might be a non-starter given the perilous state of renewable energy to handle such emergencies. The Texas freeze proved as much. But the question of whether to institute credits for the fossil fuel  is a complicated one. 

In the last two decades, natural gas has achieved two distinctions: one noteworthy and another dubious. It has become the biggest source of cheap and reliable power for utilities. But it is also, as I pointed out earlier, the biggest emitter of greenhouse gas emissions in the power sector. 

Natural gas has achieved these simultaneous feats on the back of a subsidy windfall. According to a 2018 report produced by the University of Texas Energy Institute, federal subsidies for hydrocarbon-based producers have jumped from $3.1 billion in 2010 to $6.2 billion in 2019. The Environmental and Energy Study Institute (EESI) estimated in 2019 that the fossil fuel industry annual subsidies amounting to $20 billion and 80 percent of that amount was allocated to natural gas and crude oil.  

Many of those subsidies were in the form of production credits that provided monetary incentives to utilities to invest in natural gas production and transmission. Among the top four investor-owned utilities, natural gas remains the dominant source of profits and power generation. 

NextEra Energy, which is the biggest electric utility by market capitalization, derives approximately 73% of its power (and approximately 98% of its revenues) from natural gas. Duke Energy sources 42% of its overall power and 39% of its electricity from natural gas. A 51 percent share for natural gas helps keep the lights on at Southern Company’s utilities and the fuel was responsible for 40.3% of overall capacity resource mix at Dominion Energy in 2019. 

Apart from helping safeguard their investments and providing returns on investments in natural gas, a partial credit for the fuel could also provide a golden ticket to utilities for already planned investments. Duke has already proposed building 9600 MW of new gas capacity while NextEra Energy is burnishing its “renewable energy giant” credentials by investing further in natural gas. There is also a case to be made for natural gas as a baseload generation source because natural gas turbines can cycle up and down much faster than battery storage or nuclear.    

But natural gas credits could create the conditions for a carbon lock-in, meaning utilities could remain shackled to fossil fuels due to the associated infrastructure. This lock-in has persisted through a vortex of external shocks, from summer heat waves to winter freezes, because a grid dominated by renewable energy is yet to prove itself during emergencies. What’s more, a sudden phase out of natural gas could create its own emergency and become an expensive proposition for utilities. The Texas freeze, a result of natural gas going offline and the state’s idiosyncratic price adders, provided an indication of the expenses that might be involved. According to a Bloomberg report published yesterday, natural gas generation companies made off with $11 billion as renewable energy sources faltered during a particularly cold snap this past February.