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Monday, August 20, 2012

U.S. CO2 emissions drop – a good start, but hold Mr. Smith's hand firmly

The United States’ emissions of carbon dioxide have fallen dramatically to its lowest level in 20 years.  Our nation has cut its carbon emissions more than any other country in the world in the last six years, thanks mainly to cheap natural gas that has led many power plant operators to switch from dirtier-burning coal. The swift change - coal’s share of electricity generation has fallen from about half in 2005 to 34 percent in March, 2012 - caused total U.S. CO2 emissions for the first four months of this year to fall to 1992 levels. (A mild winter and reduced gasoline demand also helped.)

As an added bonus, the switch from coal to gas is also substantially reducing air pollution. Compared to gas-fired power, coal-fired power plants emit 90 times as much sulfur dioxide (which causes acid rain), five times as much nitrogen oxide (precursor to smog) and twice as much carbon dioxide, according to the Government Accountability Office, and vastly less soot and mercury pollution.

Is this hopeful trend sustainable?  Can Adam Smith’s invisible hand level a tilted energy playing field, sweep away dirty air, and lead us to victory in the battle against climate change?

Uh, no. Not alone, anyway, for at least five reasons.

First, the price of natural gas, even with the shale boom, is volatile. Some analysts are warning that an overemphasis on natural gas is a threat to energy stability, placing U.S. energy security as the mercy of sudden shifts in gas prices. Clearly, gas’ price competitiveness with coal is precarious.  $2.75 per mcf (or perhaps a range between $2.50-$3.25) is seen as the tipping point where some analysts claim that gas will stop displacing coal as the preferred fuel for electricity generation. Today – or more precisely, as I type this - natural gas futures are trading at around that mark. Market swings and electric utility response matter.

Second, coal and energy use are still growing rapidly in other countries, particularly China and Europe, and CO2 levels globally are rising, not falling. A potential shale gas boom in Europe or China could change the dynamic to some degree - China gets 80 percent of its current electricity from coal.

Third, while natural gas may be our biggest available climate stabilization toolthe International Energy Agency has said that  a greater reliance on gas alone would not be sufficient to halt perilous rises in global temperatures.

Fourth, there is the urgent need to minimize methane emissions from shale gas production to ensure that carbon emissions are not offset – or more than offset – by methane releases.

And finally, there is the looming prospect of the U.S. exporting natural gas.  While natural gas exports are touted on trade grounds, they will surely raise domestic prices and could derail the emissions reduction train. And they may or may not harm the climate.  

And what about the fear that the current shale gas-enabled reductions are coming at the expense of renewables, precluding the longer term emissions decreases and transition to clean energy that are crucial in the fight against climate disruption? On that front, fears seem to be overblown.  For example, wind power can be an effective hedge against volatility in natural gas prices.  In the midst of the shale gas boom in the U.S., wind power will have more than doubled since 2008 and its growth is strong, though its continued growth is threatened by on-again, off-again Federal tax support. Annual renewable energy distributed generation installations - solar photovoltaics, small wind power, and stationary fuel cells - are projected to nearly triple by 2017. And financial innovations are driving growth in the solar market.   

Still, the bottom line is that the climate gains from shale gas are promising but insecure. We need regulations that ensure responsible production and lock in the climate (and public health) benefits of gas.  We need energy policies that leverage gas’ attributes for more aggressive carbon emission reductions, and optimize the use of gas as the bridge to a renewable and efficient energy future.

We need to keep the carbon emissions reduction train on track and full-steam ahead, by firmly grasping Mr. Smith's hand.

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