The rapid proliferation of natural gas development has led to a variety of environmental concerns, such as air and water pollution, increased geological activity, and greenhouse gas emissions. A new paper from John Bistline, a doctoral candidate in Management Science and Engineering at Stanford University, investigates how “uncertainties in future natural gas prices, upstream methane emissions, the global-warming potential of methane, and the stringency of federal climate policy will influence optimal (GHG) abatement efforts” and the “future deployment of energy technologies.”
Generating capacity decisions are made along long and largely uncertain planning horizons, and plants often come online into very different regulatory and economic circumstances than those in which they were planned. This paper, Electric Sector Capacity Planning under Uncertainty: Shale Gas and Climate Policy in the US, explores the impact of several possible climate policy and regulatory options on the US energy sector and the deployment of energy technology through 2050.
Increasingly stringent environmental requirements, alongside a fleet of aging generators and the recently abrupt changes in fossil fuel economics, make it important for utilities and power system planners to “develop strategies that hedge against a variety of possible futures and that explicitly consider both the expected costs and robustness of proposed plans.” Bistline’s paper presents a model that weighs stringency of climate policy, natural gas price path, coal price path, the global-warming potential of methane, and upstream emissions from shale gas, and finds that the influence of shale gas on electric sector investments depends strongly on the stringency of the federal climate policy in addition to natural gas prices. It also suggests that utilities and shale gas developers would be willing to pay up to $36.3 billion for the development and deployment of control technologies that limit fugitive methane emissions from shale gas development, but if “policy makers fail to provide suitable incentives for firms to internalize climate-related externalities, utilities may overinvest in gas-related infrastructure and underinvest in low-carbon technologies relative to their socially optimal levels.”
Bistline’s model points out a course of action: limiting upstream methane emissions from shale gas gives the electric power sector the flexibility of waiting to observe the resolution of other uncertainties, such as the stringency of climate policy, before building new capacity. “That upfront investment could help to avoid large, irreversible expenditures on stranded assets” the author says, “Limiting these fugitive methane emissions allows less frequently used natural gas units to be utilized instead of building new power plants to keep up with demand growth while simultaneously reducing GHG emissions.”
Is the power sector taking into account possible climate change legislation in their current planning? How could natural gas developers be incentivized to address methane leakage? Is uncertainty about climate change policy as big a factor in planning as Bistline suggests?
From a tweet by OurEnergyPolicy.org Expert, Elias Hinckley (@EliasHinckley):
“There was good recent piece re methane leaks by @levi_m that ought to be included in discussion too @EnergyDialogue – http://blogs.cfr.org/levi/2012/10/12/revisiting-a-major-methane-study/“
This is a critical issue, how it is dealt with: if “policy makers fail to provide suitable incentives for firms to internalize climate-related externalities, utilities may overinvest in gas-related infrastructure and underinvest in low-carbon technologies relative to their socially optimal levels.”
What is the actual incentive for policy makers to ‘incentivize’ such processes? It again goes back to US public concern and pressure for regulations that benefit them in the long term. The short term economic ‘troubles’ still make that a difficult task.
I believe the power sector is taking into account climate change legislation – or it’s trying to. A widespread complaint has been the lack of certainty about where the US is going with energy, and the related environmental issues.
To put things another way, climate change has yet to come up in the US presidential debates. That’s a pretty good indicator that there isn’t enough grassroots critical mass to put pressure on legislation for climate change. Considering that, any regulatory uncertainty is likely to linger, and the incentive for natural gas companies to make any changes that would impact profits negatively seems unlikely.
This paper discusses how capacity planning would change under different incentives, if one assumes that investments are predicted by the GAMS model, which calculates an optimal investment path between now and 2050. I would have to study the paper more carefully to know exactly what it really shows. And maybe compare it to the EPA/EIA analysis from 2009, which they posted on the web, of what to expect if the Waxman Act were passed on not. (Though I think the EPA/EIA analysis did not use vigorous enforcement of the Clean Air Act as its base case.)
Fears about climate change legislation, both national and local, and about the Clean Air Act, and other factors, have led to very little new investment in coal, the most high carbon source. Yet I do worry we may be underinvesting in technologies to reuse the carbon in the flue gas of coal plants, because of the lack of more rational incentives.
In the mix between natural gas, fission and renewables, it is important, for example, what utilities expect future prices to be, and how they hedge their risks, and what PUCs tell them to do. Even under the Waxman Act, I would not have expected that big of an increase in renewables (relative to the size of the overall electricity market) in the next four years or so, and maybe that is for the best. The real urgency in policy is to reduce the COST of renewable electricity, both at the generation level and in the grid, and to overcome the more extreme kind of NIMBY permitting problems which recently killed SES
after it was well on the way to building a half gigawatt scale solar farm costing 13 cents per kwh initially (with lots of room for further cost reduction). In my view, simply building that kind of solar farm would have been more useful for renewable energy than the Waxman Act would have been.
But sequestration of carbon in the soil is another area where incentives could have massive effects, solving more of the problem than most people believe, even with
something as simple as a $30 per ton of CO2 pollution “user fee” and an accompanying rebate for farmers who sequester additional carbon into soil, to be measured/checked by USDA.