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

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Rakesh  Sharma's picture
Journalist, Freelance Journalist

I am a New York-based freelance journalist interested in energy markets. I write about energy policy, trading markets, and energy management topics. You can see more of my writing...

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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. 

Discussions
Michael Keller's picture
Michael Keller on Jul 19, 2021

You might want to check the sources for your claims. Coal is a very large part of the US generation mix and CO2 emissions per mWh production are about twice that of natural gas plants. I believe natural gas may have slightly surpassed coal in terms of energy generation, but it is not twice that of coal.

I do not believe natural gas plants have a $/mWh production subsidy like renewable energy. You need to use proper comparisons.

The energy cost debacle in Texas was fundamentally greed generated by the financial sector, aided and abetted by the Texas ERCOT organization. There is absolutely no justification for a +$9000/mWh energy cost.

Rakesh  Sharma's picture
Rakesh Sharma on Jul 26, 2021

Hi Michael, You might want to read the article carefully. I haven't stated that natural gas generation is twice that of coal. The subsidy comparison is for total amounts and not for the specific types of subsidy. Comparing on a per unit basis is not fair because each source type has different energy production and extraction methods.  

Joe Deely's picture
Joe Deely on Jul 27, 2021

I haven't stated that natural gas generation is twice that of coal. 

Well, if you had, you would have been correct - assuming you meant for last year. In 2020, natural gas generation was more than twice coal. 

  •  NG - 1,617 TWh
  • Coal - 774 TWh

However, you are incorrect in saying:

But it is also, as I pointed out earlier, the biggest emitter of greenhouse gas emissions in the power sector. 

While true that NG is the biggest emitter of greenhouse gas emissions across ALL sectors it is not the largest emitter in the power sector. In that sector, coal still "wins".

For the power sector in  2020, coal had 786 MMT of CO2 emissions vs 635 MMT for NG.

Rakesh  Sharma's picture
Rakesh Sharma on Jul 27, 2021

lol

Michael Keller's picture
Michael Keller on Jul 28, 2021

Coal is the largest emitter of CO2 in the power sector, not natural gas, as I previously pointed out.

All sectors should receive the same subsidies, or none should receive subsidies. Subsidies inevitably create abuse, as those for green energy routinely prove. Those subsidies were suppose to have been phased out years ago. Ditto for ethanol from corn subsidies.

Rakesh  Sharma's picture
Rakesh Sharma on Jul 29, 2021

Hi Michael, you are right and I am wrong. Coal is, indeed, the biggest source of emissions in the power sector. I apologize for my error.

I am not sure I agree with your statement that all sectors should receive same subsidies. The amount and type of subsidies really depends on priorities and production and extraction methods. Just like One could argue that the fossil fuel industry has also abused its subsidies.  

Michael Keller's picture
Michael Keller on Jul 29, 2021

All industries that receive subsidies have more or less abused the advantage they receive. When you mix different types of subsidies, the opportunity for gaming the system becomes bigger. Subsidies should be limited to help that is (a) temporary and (b) well defined. For instance, a tax credit for constructions costs that are funded through Owner’s equity (as opposed to a loan). Under no circumstances should on-going production subsidies be used because of the long history of abuse.

Matt Chester's picture
Matt Chester on Jul 29, 2021

Subsidies should be limited to help that is (a) temporary and (b) well defined.

Well said-- for decades subsidies have been given to all sorts of energy techs but without much success at stripping them away, seemingly because the politicians don't want to be the one taking the candy away. Would love to see hard lines implemented 

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