…together with President Obama’s Climate Action Plan
The Center for Climate and Energy Solutions (“C2ES”) released on June 4, 2013 a comprehensive report entitled “Leveraging Natural Gas To Reduce Greenhouse Gas Emissions” (the Report or C2ES Report). The synergy and symmetry between the C2ES Report and President Obama’s Climate Action Plan (CAP) released on June 25, 2013 is deep.
The C2ES Report
The title of the C2ES Report itself is significant as it signals C2ES’ belief that natural gas is a key to lower and lowering greenhouse gas emissions. This belief sets C2ES’ position apart from groups that are viscerally and ideologically opposed to natural gas because, as it is variously said, it is a “dirty fossil fuel” which we must “get beyond.” Those epithets do not add to the intelligent public discussion and, thankfully, C2ES does not suffer from this “cross to the vampire” syndrome. C2ES is the successor to the Pew Center on Global Climate Change and it is an independent, nonpartisan, nonprofit organization working to advance strong policy and action to address the twin challenges of energy and climate change. Its motto is “working together for the environment and the economy.” The organization has been long recognized in the United States and abroad as an influential and pragmatic voice on climate issues.
The Report recognizes that natural gas is a cleaner burning fuel. Indeed, natural gas is a new dominant player as an energy source because of new technologies that have unlocked vastly expanded current and projected inexpensive domestic supplies. C2ES understands that the availability of domestic natural gas is a positive occurrence and that natural gas supplies are a critical part of the current accomplishments towards GHG reductions we are currently witnessing. Further, C2ES recognizes that the ongoing and continued use of natural gas as a fuel offers significant and continued opportunities to achieve the goal of global climate change.
C2ES acknowledges that natural gas has already been a major player in GHG emissions reductions and that current energy sector GHG emissions are at their lowest level since 1994. In fact, the Unites States leads the world in carbon emissions reductions and is ahead of the would-be Kyoto Protocal standards. Also, we are now, in 2013, without a government mandate, almost at the would-be 2020 target for emissions reductions that the Waxman-Markey carbon-tax bill would have established.
The initial focus of the report is the use of natural gas as a fuel for electricity production. Indeed, this is where the lion’s share of GHG emissions reductions have been and will continue to be realized. An important aspect of the Report is its underscoring of the importance of a diverse energy generation portfolio and the synergy between natural gas and other zero-emitting energy generation sources like nuclear, wind and solar. This is important because the potential partnership between natural gas and renewable energy is often overlooked. A natural gas plant can be cycled on and off more efficiently and more economically than other large traditional generation sources. Since, as they say, “the wind doesn’t always blow and the sun doesn’t always shine”, that reality makes natural gas and wind and solar collaborative partners, not enemies. As the Report also notes, the synergy is even deeper when one considers that “the fixed fuel price (at zero) of renewables can…act as a hedge against potential natural gas price volatility.” It is debatable as to whether natural gas price volatility will be as pronounced as some other fuel feedstock commodity prices, but the point is well taken; renewable energy in tandem with gas-fired generation serves as a commodity fuel price hedge.
The importance of the use of natural gas in other sectors as well—such as buildings, manufacturing, distributed generation and transportation—is also recognized. C2ES is bullish on the use of natural gas for GHG emissions reductions which will result for fleets and heavy-duty trucks but not so much for passenger cars. It is noted that passenger cars offer a relatively smaller emissions reductions opportunity and that the public infrastructure transition for passenger cars will take too long. That view may be too narrow and too pessimistic. First, the inclusion of light-duty trucks, for both fleets and consumers, in the natural gas consumptive use market, offers significant benefits and that effort is well underway. Last year’s federal Corporate Average Fuel Economy (CAFE) regulations included robust incentives for auto manufacturers to manufacture natural gas powered light duty vehicles through a credit multiplier, a petroleum fuel equivalency factor, and new “utility factor” for such vehicles for model years 2017 and 2021. Accordingly, natural gas fueled light duty trucks will very quickly become a key part of the large automakers’ regulatory compliance strategy and provide further impetus to the already budding partnerships between the OEMs and entrepreneurs seeking to bring such infrastructure on-line.
In the Commonwealth of Pennsylvania, the Department of Environmental Protection recently launched another round of the “Alternative Fuels Incentive Grant“ program. The new program is directed towards encouraging the consumer’s use of natural gas vehicles in the light duty truck and passenger vehicle world. The private sector is well ahead of the government with respect to this strategy. The major automobile manufacturers have definitely taken note. Light duty trucks, like pick-ups for example, are an economic sweet spot for them. They are lining up to produce natural gas fueled light duty trucks and have their eye on passenger vehicles. The market is well underway to solving the “chicken and egg” conundrum as major entrepreneurs are entering the natural gas vehicle infrastructure business as we debate the issue.
C2ES does identify an important caveat in its message, and one that makes a lot of sense. Specifically, do not let the promise of GHG emissions reductions through the use of natural gas as a downstream fuel be eclipsed by methane leaks at the upstream production phase. Fortunately, the news is very good in this regard. The early pronouncements of a certain Cornell professor on the issue of methane leaks in upstream operations have been conclusively refuted by any number of later more credible studies. The EPA’s recent 18th Annual Greenhouse Gas Inventory Report documents a 66 percent decline in methane emissions from natural gas development from prior estimates. In fact, the EPA reports that oil and gas systems now emit less methane than waste facilities such as landfills and sewage treatment plants. Notably, EPA issued Clean Air Act New Source Performance Standards (the “Quad O” regulations) that call for green completions or flaring; in fact, such requirements are already regulations and/or “best management practices” in a number of states and locations. In brief, before the “Quad O” regulations came into effect, industry was trending towards the use of green completions more and more today. Even the seven Northeastern States’ December 2012 Notice of Intent to file suit under the Clean Air Act (challenging EPA’s decision not to regulate methane emissions under the Quad O regulations) acknowledges that the oil and gas industry have implemented numerous methane control technologies and practices which adequately control such emissions.
The C2ES Report and the President’s Climate Action Plan
The C2ES report is even more timely and topical in light of President Obama’s new Climate Action Plan (CAP) announced on June 25th at Georgetown University. The President’s CAP is a development that earned C2ES’s plaudits, but the CAP contains some cause for caution, controversy and, indeed, concern. First, the President acknowledged what he called the moral obligation to reduce carbon emissions and the role of America’s abundant natural gas resources in doing just that. He recognized that the United States is a leading producer of natural gas and that we need to continue with “the responsible development of natural gas resources”. . He understands that hydraulic fracturing and horizontal drilling can be done safely and it appears that he agrees that the fears and fear mongering over unconventional oil and gas development are overblown. As could be expected, those individuals and NGOs that are ideologically driven opponents to natural gas development shouted epithets on these points. The President does, though, throw a sop to those groups by calling natural gas a “bridge fuel.” The smart bet is that the President knows better. That characterization of the role of natural gas is refuted by his own Department of Energy, the Energy Information Agency, and the International Energy Agency, all of which have reported that recoverable reserves of natural gas are so vast that it is and will continue to be the fuel of at least the next century or more. Even the President’s CAP states that net oil imports are at the lowest levels in 20 years and that the United States has become the world’s leading producer of natural gas. Moreover, the President is obviously fully aware of the geopolitical and national security benefits being realized right now and will be for decades to come from America’s oil and natural gas abundance being delivered by hydraulic fracturing. The Wall Street Journal just ran an important article on that topic on July 2, 2013. The Journal article pointed to just one aspect of America’s new energy abundance which is making a big difference: stabilizing world oil prices. President Obama’s White House National Security Advisor Tom Donilon is quoted as saying that increasing American energy supplies “helps reduce our vulnerability to global supply disruptions and price shocks.” This is making the entire world more secure by allowing us to , among, other things, more easily isolating rogue nations like Iran. Also, those ideologue opponents should be mindful of the tremendous carbon emissions reductions that the President cited and the fact, as discussed earlier, that renewables and natural gas are natural allies that work together very well.
The President recognized what we all know is true: that the use of natural gas as a fuel for electricity production is the reason that our energy generation sector has dramatically reduced its carbon emissions to the lowest level in two decades. And this reduction has occurred even as the economy is expanding. Interestingly, the President also recognized that the reduction in carbon emissions occurred because of market forces, not government mandate.
The President referred to his 2009 pledge that by 2020, America will reduce its greenhouse gas emissions in the range of 17% below 2005 levels if all other major economies agreed to do so as well. As previously referenced, we are already at about a 16% reduction in 2013 which is just about at the would-be 2020 target the Waxman-Markey would have established.
The President recognizes that no one step is the “silver bullet” for carbon reductions. More importantly, the entire world of developing nations has to be on board with reducing carbon emissions as the United States cannot do this alone. This is and has been a critical reality. It has been correctly stated that the issue is called “global warming”, not “American warming.” There is legitimate cause for concern here. As economist and University of Maryland Professor Peter Morici aptly stated in his recent commentary, “no one can reasonably believe China can be persuaded to rearrange its entire automobile and electrical generation industries to suit the predilections of American environmentalists—especially when American approaches to regulation are delivering growth at less than one-third the pace accomplished in the Middle Kingdom.” Click here to see Professor Morici’s entire article. Here we get back to the President’s own formulation of the mandate of climate change as a “moral obligation.” One has to ask whether it is “moral” for a President of the United States to place the American economy into a recession or depression allegedly to curb climate change while other countries ignore their moral obligation thereby making America’s “contribution” futile. It has been said many times in many ways in American history that “the Constitution is not a suicide pact.”
The President’s CAP is hardly, according to some, an embodiment of an “all of the above” energy approach. Could it be that the true character of the CAP, although not stated by the President himself, was confessed by close White House climate advisor Daniel P. Schrag when he told the New York Times, that “a war on coal is exactly what’s needed.” Some have seen it that way or even worse, including many in the President’s own party. This will be worth watching on both the political and economic fronts as time goes on. According to the Pittsburgh Tribune Review opinion column published on June 23, the CAP — what that paper calls the President’s “war on coal” — has unleashed a civil war within his own political party. West Virginia Senator Manchin called the CAP a “war on America.” West Virginia Representative Nick Rahall called the CAP “misguided, misinformed and untenable.” North Dakota Senator Heidi Heitkamp said that the CAP would “choke off good-paying jobs.” The American Coalition for Clean Coal Electricity has said that the CAP ignores the environmental progress that the coal generation industry has made and that it will be “a legacy of higher energy costs, lost jobs and a shattered economy.”
In addition, the President’s end-run around Congress is notable and has already raised eyebrows. Critics have complained for years that President Obama was legislating by Executive fiat via the EPA a greenhouse gas policy that Congress had already rejected. . The CAP raises very deep questions about Constitutional law, the relationship between and the very essence of the roles of Executive power and Congressional authority. Even the June 2008 leaked draft version of Advanced Notice of Proposed Rulemaking (ANPR) on greenhouse gas emissions contained the caveat that control measures would involve the “redistribution of wealth on a scale that typically is decided by Congress rather than the Executive Branch.” That caveat was left on the cutting floor by the editors for final version of the ANPR that EPA published in July 2008 and that should have been a red flag to Constitutional scholars and lawyers back then. Some will say that the President’s CAP is well beyond any concerns on the Executive Branch’s part about mere technicalities like the United State Constitution’s limits of Executive power and that this is the Imperial Presidency run amok. Perhaps the counter argument will be that the ends justify the means? The discussion will be interesting and very important no matter what your views are.
Michael Krancer is partner and Energy, Petrochemical and Natural Resources Practice Group leader. Margaret Anne Hill is partner and Environmental Litigation Practice Group leader at Blank Rome LLP.