The Source - Fall 2008 - (Page 16)

feature Climate change How hard will it hit the natural By Mike Corley and Andy Colosimo L egislation to reduce greenhouse gas emissions–also known as climate change legislation–has been a focus in the current Congress. Although the passage of new legislation is unlikely this year, we fully expect this issue to be a high priority in the new White House, given that the presidential candidates also have supported the passage of legislation, which will likely see action when the 111th Congress convenes in January. Climate change legislation will have a significant impact on the natural gas industry, whether you agree with the science of global warming or not. Demand drives prices higher What does climate change legislation mean to you? We’ll start with the bad news: It’s anticipated that natural gas demand and prices will both increase. We have experienced price increases since 2000 primarily due to electricity generators switching from coal to natural gas to meet required reductions in greenhouse gas emissions. This trend will be exacerbated under climatechange legislation and will have further significant impacts on price. Given that natural gas has significantly lower levels of greenhouse gases than other carbon-based fuels, it would be the easiest and most efficient way to meet required emission reductions. Until other technologies (such as viable carbon capture, storage technology, and additional nuclear generating capacity) become available, which the Energy Information Administration projects will happen around 2030, natural gas will be the fuel of choice for electricity generation, and the price increases will have a significant impact on consumers, our communities, and the economy as a whole. Cap and trade We anticipate that there also will be increases in price associated with the regulatory burden of this legislation. Congress has indicated its preference to use a “cap-and-trade” system to reduce greenhouse gas emissions. A cap-and-trade system is intended to use the power of the marketplace to drive emissions down. It would accomplish this by establishing a financial incentive for emission reductions by assigning a cost to emitting. Entities covered under this program receive allowances to create emissions, with the total amount of allowances limited by the cap and phased out over time. Each entity can design its own compliance strategy to meet the overall reduction requirement, including the sale or purchase of allowances. Individual control requirements are not specified under a cap-and-trade program, but each emissions source must surrender allowances equal to its actual emissions to comply. Should an entity not meet required emission reductions, it would have to purchase allowances from an auction-based market. Under this system, emissions would have to be monitored and accurately reported in a timely manner to guarantee that the overall cap is achieved. Clearly, the system we have described will be complex and most likely costly. An auction-based market would drive up the price of allowances, and those costs would ultimately be passed on to consumers. From a public gas system perspective, there are two critical issues in this area: Are emissions from natural gas systems included in the cap-and-trade program? And if so, where will the point of regulation occur? Assigning the point of regulation Emissions from natural gas account for approximately 6 percent of the greenhouse gas emissions nationwide. While this is a relatively low number, the primary climate change legislation in the Senate–S. 2191 America’s Climate Security Act of 2007 introduced by Senators Joseph Lieberman (I-CT) and John Warner (R-VA)–deems that this percentage is significant enough to warrant being included in the cap on 16 THE SOURCE | THE VOICE AND CHOICE OF PUBLIC GAS

Table of Contents Feed for the Digital Edition of The Source - Fall 2008

The Source - Fall 2008 Contents First Person APGA Awards APGA Events Overview Up Next in THE SOURCE Grassroots Connections Climate Change Legislation Market Transparency: An Insider's View Legislative Outlook The Pipeline Marketing Matters Advertisers' Index At Last

The Source - Fall 2008

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