The Natural Gas Model for Emissions Compliance

Mark Green
Posted October 27, 2016

In recent months we’ve posted a number of times about how increased U.S. use of natural gas is lowering carbon dioxide emissions by the electricity-generation sector while also making our air cleaner by helping reduce criteria pollutants. Looking ahead, using abundant natural gas offers states a path to continue reducing emissions in a way that’s clean, reliable and affordable.

That’s what ICF International modeling (on behalf of API) found. ICF analyzed each of the pathways under EPA’s proposed Clean Power Plan (CPP), as well as one in which market forces determine the fuel generation mix and new capacity additions – as opposed to government-mandated choices. Key findings:

• Natural gas in the U.S. power sector will drive emission reductions even without the CPP.
• Modeled CO2 emissions under the API reference case – which assumes no CPP, business-as-usual load and natural gas levels in the U.S. Energy Information Administration’s (EIA) 2015 Annual Energy Outlook high-resource case – are 30 percent lower than 2005 CO2 emission levels.
• Total production costs are lowest when market forces drive the future resource mix to achieve compliance – instead of relying on government mandates for energy efficiency or renewables.
• Within each of the EPA-defined compliance pathways, the lowest cost solution to meeting compliance also includes the most natural gas generation.

At the core of the analysis is the fact that America’s natural gas resource base has been underestimated, and that when realistic resource levels are factored in, abundant natural gas is the key to lowest-cost emissions reduction. 

Above we see that, estimates of recoverable domestic natural gas have grown no matter who has done the estimating. Over the past three years actual U.S. natural gas production has exceeded EIA’s annual high gas resource base projections:

This is due to improved technology by industry, increased efficiency and production growth in response to demand from the marketplace. The fact is most published assessments of the CPP don’t reflect a high-resource reality. As states and regions mull CPP compliance, they should consider the realistic size of the domestic natural gas base.

Under every compliance pathway, the lowest-cost market forces path has the highest natural gas generation:

The increased renewable mandates, which force 161 GW of additional renewable capacity, result in an additional 373 TWh of renewable generation.  Yet, only 50 GW of additional natural gas combined cycle capacity could produce that same level of incremental generation.

API Chief Economist Erica Bowman said abundant domestic natural gas is driving “affordable emissions reduction.” The U.S. is leading the world in energy-related CO2 reductions, with carbon emissions at their lowest level in 22 years. Bowman said a number of people are getting the size of the natural gas resource base wrong. Bowman:

“Producers have found a way, even in this really tough price environment for them, to be efficient, to be innovative, to pull up that natural gas … We’re going to continue having low prices because we keep gaining in that efficiency.”

Amy Farrell, market development senior director, said the analysis offers states and others looking to future compliance, a significant data point to consider as they work out their individual compliance strategies. Farrell:

“It tells states … to recognize, at least from our model, when you mandate or have the government pick the pathway, it is more expensive in setting up your compliance path in a way that allows market forces to drive the lowest cost generation path.”

Marty Durbin, market development executive director:

“Instead of telling states what to do … we want to make sure they understand and have confidence in the affordability of natural gas, and correct assumptions is one of the things we do (in the modeling). One of the concerns is that they’ve got such a variety of choices … you could actually see them increase consumer costs, add risk to grid reliability and still not meet the emissions reductions goal. … To quote President Obama a couple weeks ago at South by South Lawn, there’s a world as we want it to be, and there’s a world as it is. We’re showing a pathway, a low-cost option, that can drive emissions while continuing to power the economy, with lower costs to the consumer.”