Why unconventional natural gas makes the 2020 Waxman-Markey target so damn easy and cheap
In Part 1: Is there a lot more natural gas than previously thought? I asserted it now appears likely that, thanks to unconventional supplies, natural gas alone could meet a great deal of the Waxman-Markey CO2 target for 2020 – without requiring gobs of new power plants to be sited and built or thousands of miles of new transmission lines. In this post I will explain the two key reasons why.
First, today, dirty coal plants are being “dispatched” (or utilized) to provide electricity by grid operators first, while natural gas plants that could provide electricity with far lower emissions of carbon dioxide remain unutilized or underutilized – even though their electricity costs are only slightly higher. This is occurring in at least two regions of the country, according to a major under-reported May study by the Energy Information Administration, “The Implications of Lower Natural Gas Prices for Electric Generators in the Southest.” A cap on CO2 emissions and even a low price of CO2 will switch the dispatch order, generating large emissions savings at low cost (if the gas is available, as now seems likely).
Second, the fundamental flaw in Waxman-Markey is that the 2020 target is too weak both from the perspective of what climate science says is needed (see “The U.S. needs a tougher 2020 GHG emissions target“) and from the perspective of what straightforward energy analysis suggests can be done at $15 a ton of CO2 or less.
Let me run through a rough analysis. The W-M bill requires a 17% emissions cut by 2020. Now EIA’s amazing April report – Updated Annual Energy Outlook 2009 Reference Case Reflecting Provisions of the American Recovery and Reinvestment Act and Recent Changes in the Economic Outlook – forecasts that just on the basis of the clean energy deployment from the stimulus (together with the lingering impact of the recession), U.S. energy-related carbon dioxide emissions will be some 2% lower in 2020 than in 2005 (see “EIA projects wind at 5% of U.S. electricity in 2012, all renewables at 14%, thanks to Obama stimulus!“).
But then we have to throw in the oil reductions from Obama’s recent fuel economy deal (see Obama to raise new car fuel efficiency standard to 39 mpg by 2016 – The biggest step the U.S. government has ever taken to cut CO2) – and, of course, from higher oil prices than EIA forecasts since it mostly ignores peak oil (discussed here). Let’s call that another 2% emissions drop.
Then we have Waxman-Markey itself. It achieves huge energy efficiency savings. The American Council for an Energy-Efficient Economy (ACEEE) projects “such savings will avoid about 293 million metric tons of carbon dioxide emissions in 2020” (see “Waxman-Markey could save $3,900 per household“). That’s another 5% drop.
So far we are maybe 9% below 2005 levels in 2020. I’m going to skip the large low-cost savings potential from conservation – although I think by 2020 that the painful reality of global warming will be so obvious to all that a large fraction of the public and businesses will want to pitch in to avert Hell and High Water (but then, I’m an optimist or is that a pessimist?).
Now we have to meet the remaining 8% cut with some combination of low-cost renewables, natural gas, and offsets. How will that break out by cost?
The EPA projected maybe 100 million domestic offsets in 2020 using the original Waxman-Markey draft (see here). That version had tougher targets and more renewables and a higher 2020 permit price than the current bill does. So let’s say 1% of the target will be met with domestic offsets.
International offsets are going to cost more than $25 a ton in 2020, as I explained here. In 2020, the low-cost renewables and especially natural gas will cost a lot less than $25, as I will discuss shortly. Let’s say 1% of the target will be met with international offsets.
So we are left with needing to meet another 6% reduction – some 360 million metric tons of reductions. [Yes, I am slightly conflating carbon dioxide emissions with total greenhouse gas emissions, but that’s because only 85% of total U.S. GHGs are capped by the bill and this is only meant to be a simple, rough analysis.]
What kind of low-cost renewables are available in quantity at a price of, say, $15 a ton of CO2? Remember, we are competing to reduce coal use at existing largely-paid-for plants for which the primary operating cost is the purchase of coal. At the margin, the price might be 2.5 cents a kilowatt hour – and $14 a ton CO2 price adds another 1.5 cents a kilowatt hour to coal power (and 0.5 cents a kWh to combined cycle gas plants) . So we need renewables that can deliver substantial baseload-type electricity at around four cents a kilowatt hour.
There really is only one obvious choice – cofiring biomass in those same coal plants (see “If Obama stops dirty coal, as he must, what will replace it? Part 2: An intro to biomass cofiring.” After all, those plans have already been sited, built, and largely paid for. They are already connected to transmission and the country’s freight train delivery system!
You just need to pay for collecting the biomass and shipping it to the power plant. That’s why a 1997 study by five U.S. national laboratories that I oversaw concluded biomass cofiring was the single biggest potential contributor to near-term greenhouse gas reductions of any renewable energy strategy.
We found that within 13 years (2010), you get get maybe a 60 million ton reduction in CO2 emissions and 3 times that by 2020 (again, starting in 1997). Let’s say we try hard and get 2% of the 2020 target with cofiring.
So we still need some 240 million metric tons of reductions more to hit the target. This requires switching, say, 350,000 gigawatt-hours of coal – maybe 50 GW (with 70% capacity factor) – to high-efficiency gas.
Two questions remain: Are the gas plants there and will the natural gas be available at a reasonable price?
The answer to the first is definitely yes. Indeed, EIA’s analysis “The Implications of Lower Natural Gas Prices for Electric Generators in the Southest” gives this stunning statistic for just two regions – the East South Central (ESC) and the South Atlantic (SA):
The average utilization rate of natural‐gas‐fired capacity by electric generators was about 13 percent in the ESC in 2008 compared with nearly 68 percent for coal‐fired capacity. In the SA, the average utilization of natural‐gas‐fired capacity by electric generators was about 11 percent in 2008, compared with more than 62 percent for coal.
That is, we built a lot of gas plants we are barely using. And a large fraction of these natural gas plants are quite efficient.
The EIA has a detailed analysis of the dispatch curve in those two regions:
The Dispatch Curve
A simple measure of the generation cost for each facility can be determined by combining the facility’s heat rate with the delivered fuel price. This analysis ignores other costs such as emissions allowances and other variable operating and maintenance costs. Facilities with the lowest generation cost will generally be deployed first (Figures 7 and 8). As electricity demand increases, the next higher cost capacity will be utilized. Due to the distribution of heat rates for various coal‐ and natural‐gas‐fired electric power facilities discussed above, a significant amount of coal‐to‐gas switching is possible as delivered prices converge.
Note how flat the line is. Virtually all of the capacity being used below about $27/MWh ($0.027 kWh) is coal. But there is a huge amount of natural gas, some 10 GW or more, at just $5 to $10 a MWh more.
Again, note how flat the line is. Most of the capacity being used below about $20/MWh ($0.02 kWh) is coal. But there looks to be more than 15GW of natural gas for just $5 MWh more.
Now $14 a ton of CO2 adds $15/MWh to coal and $5 to combined cycle gas. So somewhere between, say $7 a ton of CO2 and $14 a ton you bring in a huge amount of gas in those two regions – assuming the gas is available at a reasonable price in 2020 (compared to coal).
So in just two regions, you could get 25 GW of fuel switching at a low CO2 price. You just need to find another 25 GW of fuel switching in the entire rest of the country. Not hard.
This post is long enough, so I’ll address the availability of gas – and the future price relative to coal – in Part 3.
But the key point for now is that the U.S. has so many domestic low-cost clean energy solutions that we can easily meet the Waxman-Markey 2020 target at a low cost, without relying on much more expensive offsets.