This blog is part of a Friends of the Earth series analyzing the Obama administration’s Clean Power Plan. To see the other posts, visit our website. To write comments on how to improve the plan, click here.
Natural gas is set to be the biggest winner of the new Environmental Protection Agency rule regulating power plants. If the current version of the rule goes into effect, then by 2030 it is expected to raise the profile of gas in our energy mix by almost 20 percent. In a sense, both the rule itself and President Obama’s broader energy plan are gambling on gas—gambling on its affordability, its abundance, and its ability to mitigate climate change.
But are these bets sound? Setting aside very legitimate concerns about how clean gas actually is, another key question remains: is this the smartest way to deliver reliable and affordable electricity to our economy? If the rule is more supportive of gas than renewables, does it mean that consumers are going to get a worse deal?
Start with the fact that gas is an incredibly volatile commodity. Between a high in 2008 and a low in 2012, the average price fell almost 85 percent. By the winter of 2014, the price had risen again to more than triple its rock-bottom low. A weak economy bears some of the blame for the initial drop, but the biggest culprit is hydraulic fracturing. New techniques for opening shale reserves glutted the market, sent prices tumbling, and helped build pressure for more gas-powered electricity.
But just because gas is still relatively cheap doesn’t make it a brilliant choice for our grid. Sure, the U.S. has a lot, and domestic production is expected to rise, but at the end of the day gas supplies are like a really big pie. Even though electricity generation makes up the biggest slice right now, it still only comprises about a third of total end use consumption. Other uses, like home heating and chemical manufacturing, make up the rest, and each of these competing markets represents a potential source of volatility for electricity markets.
Consumers got a taste of how this dynamic can play out during the frigid winter of 2014. As the northeast and mid-Atlantic froze, gas for heating had to compete against gas for electricity, and utility bills as far away as Texas rose. Places that are exceptionally dependent on gas for electricity, such as New York and New England, saw some of the worst fluctuations, as gas prices in some areas jumped to more than 20 times the national average and electricity bills increased by as much as 75 percent.
Going towards 2040, the Energy Information Administration projects a steady increase in gas prices as demand grows and the U.S. becomes more dependent on expensive “unconventional” resources like shale gas. Although new technologies like horizontal drilling were supposed to open these reserves easily and cheaply, the truth is that the economics of these operations—let alone the geology—are often very difficult. In some cases, the price would need to more than double in order to justify extracting these hard-to-reach reserves, all but guaranteeing higher prices down the road.
Even if you forget domestic considerations, the U.S. is exporting gas in record amounts, and by 2018 the nation is expected to become a net exporter. Unfortunately, as domestic supplies become integrated into global markets, our vulnerability to price shocks increases, as does the likelihood that higher electricity costs will be passed along to consumers.
These trends suggest that the new EPA rule, and its tacit endorsement of gas, is shackling our economy to an unreliable fuel. That’s a shame because unlike gas, renewable energy is not part of a hyper-competitive commodity market. We do not use the sun as a feedstock to make plastics or fertilizers, and we do not use the wind to heat our homes. In a basic sense, every renewable technology runs on a free source of fuel.
Even profit-driven institutions like Citibank are bullish on renewables for purely economic reasons; the price of gas will rise, its analysts argue, while the cost of renewables can only drop. In many regions, solar and wind are already better bargains and more utilities are choosing the price stability of renewable electricity over the whip-sawing price of fossil fuels. Especially when it comes to building new capacity, renewables are frequently the cheapest option. In a landmark ruling this January in Minnesota, a judge even ordered a utility to build solar capacity instead of gas because over time it would provide a fairer and more reliable deal for consumers.
The dangerous thing about the new EPA rule is that it doesn’t just encourage more gas—it encourages more gas infrastructure. The rule serves as a signal from the federal government to commit billions to more pipelines, more processing facilities, and more gas-fired power plants. Once money has been sunk into these projects, it is exceedingly unlikely that investors will abandon them without recovering their costs, a process that could easily take decades.
At a time when the economic argument for renewable energy—let alone the environmental one—has never been stronger, the EPA can do better than throw a life-line to our fossil fuel addiction.