(June 2, 2003) — The United States has one of the most reliable, affordable electricity systems in the world. Coal-based electric power plants are at the heart of it. But the current approach to air quality regulation — the Clean Air Act — pressures new power plants to use natural gas instead of coal. This added demand is one reason gas prices reached record levels this past winter. For the U.S. plastics industry, which as a whole consumes about 43 percent of its total energy in the form of natural gas, this trend toward greater competition with power generators for natural gas will mean even higher manufacturing and product prices.
There is a better way. A multi-emission approach along the lines of President Bush's Clear Skies plan — now before Congress (S. 485 & H.R. 999) — will cut emissions faster, with greater certainty, while minimizing the strain on our natural gas supplies.
Since 1970, coal use for electricity generation has risen by 171 percent. Coal now produces over 50 percent of our nation's electricity. But beginning in the 1990s, the percentage of electricity generated from natural gas rose from 12 percent to about 17 percent today. Looking ahead, the Energy Information Administration predicts that gas' share of electricity generation will increase to about 29 percent in 2025.
The reason? The Clean Air Act. It creates challenges for every fuel used to generate electricity, but none more so than coal. Coal-based generators face numerous EPA regulatory initiatives. Each addresses different pieces of the pollution problem, on different time scales, with different geographic targets, and often-different criteria. These factors have combined to favor natural gas over coal for new power plants.
The natural gas supply industry has found meeting this growing demand by power generators and others a challenge. More than twice as many new wells were drilled between mid-2000 and mid-2001 than just two years prior, with almost every available rig in North America actively deployed in the field. Even with this massive increase in development activities, natural gas production never rose by more than 1.4 billion cubic feet per day — an increase of about 2.7 percent.
There is mounting evidence that, after 20-30 years of intensive development, some of the largest gas fields in the United States and Canada are becoming depleted. Environmental restrictions and moratoria on gas drilling activity, which are increasing rather than decreasing, will further limit U.S. production levels in the near term.
Given this demand-supply imbalance, higher prices have been the inevitable result. According to the latest North American natural gas supply forecast by Energy and Environmental Analysis, gas prices will average $5.70 per million Btu (in constant 2002 dollars) for the next two years and then generally decline to a level around $4.50 per million Btu for the next 18 years. For the past 15 years, gas prices have mostly stayed below $2.50/MMBtu.
In contrast to the cumbersome Clean Air Act, a multiemission approach such as the president's Clear Skies proposal will cut power plant emissions — without causing power generators to switch to natural gas. The Clear Skies Act would replace the multiple, overlapping regulations of the Clean Air Act with a single set of caps on the three major emissions from coal-based power plants — sulfur dioxide, nitrogen oxides and mercury. The current levels of each of these pollutants would be cut by 70 percent by 2018.
Power plants would be able to buy and sell pollution credits to meet these reduction goals. This is a proven, market-based system. For many power companies, including small public power systems, meeting these emission reduction goals would be very difficult. But by relying on mandatory caps, Clear Skies would ensure that total power plant emissions would not increase over time. As a result, the Clear Skies Act would deliver air quality results that are cleaner, cheaper, and sooner than the Clean Air Act.
President Bush has placed Clear Skies legislation before Congress and backed it up with a strong commitment in January's State of the Union address. On behalf of the nation's shareholder-owned electric companies, I urge plastics processors to encourage Congress to support it — opportunities to improve both our air quality and our energy prices are rare indeed.