Why Natural Gas Should Not Play the Cap-and-Trade Game (the real enemy is mandated renewables/conservation, not coal)

“Waxman-Markey is largely top-down regulation dressed in cap-and-trade clothing.”

David Schoenbrod and Richard Stewart, “The Cap-and-Trade Bait and Switch“, Wall Street Journal, August 24, 2009.

The Environmental Left is pushing hard to provoke a civil war between natural gas industry (its “friend”) against the coal (and oil) industry. John Podesta (Center for American Progress) and Tim Wirth (UN Foundation) have cooked up a menu of bribes (taxes, a.k.a. “incentives,” “credits,” “allowances,” and “expand”) as follows:

Electricity

• Establish incentives to retire aging, inefficient, dirty coal-fired power plants, and replace them with renewable and low-carbon electricity.

• Create a renewables integration credit to offset specific costs associated with producing high levels of renewable energy and to reward those who go beyond the renewable electricity standard.

• Establish a dedicated incentive for development and deployment of “dispatchable” renewable energy to build markets for electricity storage technology.

• Require that the carbon price and other costs are included when determining the dispatch order for moving electricity onto the grid in order to prioritize natural gas and other clean electricity.

• Expand carbon capture-and-storage provisions to include other permanent storage technologies in addition to geologic sequestration. Ensure that carbon capture and storage research and deployment efforts include retrofitting existing coal- and gas-fired power plants.

Transportation

• Expand the market for natural gas as a heavy-duty transportation fuel by increasing incentives for gas-powered buses and heavy trucks.

• Create incentives for communities to develop mass transit systems that employ buses fueled by natural gas.

Decision-makers in the gas production, transmission, and distribution businesses should reject this Trojan Horse. Obama energy policy spanks natural gas, the predominant swing fuel in electric generation, by forcing renewables and conservation (conservationism) in the market. And fair warning: the more natural gas gains in market share relative to oil and coal, the less friendly the environmentalist movement will be. (Take note of the hydraulic fracturing debate between environmentalists and the oil and gas production sector.)

Don’t Take ObamaBait

Low natural gas prices have created a desperate industry, but the answer is not quick-fix politics that create political dependence and hurt the general economy. The modus operandi of ‘Mr. Natural Gas’ Ken Lay back in Enron’s heyday, and Boone Pickens today, should be rejected–as should political (“rent seeking”) capitalism as a philosophy.

An opposite strategy is called for: free markets for competing energies and for vital business inputs (such as health care). Natural gas should not give comfort to Obama amid America’s revolt against Big Government; the gas industry should help put climate legislation out of its misery in 2009 and well beyond–even permanently.

Here are five reasons for the gas industry not to take ObamaBait. 

1. The rank-and-file of the oil and gas industry, like the American public in general, are protesting the Left on bailouts, health care, and energy. Joining Big Government for narrow, transient gains–and thus revitalizing the stalled Waxman-Markey climate bill–is  simply unappetizing to the majority of the industry’s workers and customers.
2. “Going to the table” in an attempt to ‘win’ Round One could result in a politicized framework that would leave Rounds 2 through 15 to fight.  This is a fight that should be canceled.
3. Overall economic growth is needed to improve the demand for natural gas as the predominant swing fuel in power generation. Any climate bill will work against such growth now and even more in the future.
4. Big Coal is too powerful for a Kill Coal bill on the Senate side. Yes, coal should have “just said no” to climate legislation, but downstream interests (led by Duke Energy’s James Rogers, a Ken Lay protege) cut a deal, assuming (wrongly) that climate legislation was “inevitable.” It is not!
5. A centerpiece of climate legislation is a federal renewable mandate and a new layer of forced conservation (or conservationism, as opposed to market conservation). Natural gas loses disproportionately as the swing fuel in electric generation.

Conclusion

The natural gas industry should work to defeat cap-and-trade, as such and in all its permutations. CO2 should not be regulated for all sorts of reasons, beginning with new development in climate science against alarmism and continuing with the high economic costs of even a watered down starter program.

But also, the natural gas industry should block a federal renewable mandate and uneconomic fuel efficiency mandates. More than nuclear or coal, natural gas loses from such mandates as the swing fuel in electricity generation.

The natural gas industry should be part of the solution, not part of the problem. It should vigorously oppose climate legislation as a whole and help capitalism in its desperate hour.