Who Needs Waxman-Markey to Cut Emissions!

US DOE’s Short Term Energy Outlook (STEO) is out.[1] Not surprisingly, total U.S. electricity consumption was down 4.4% in the first half of 2009 compared to 2008, because of the impact of the recession on industrial electricity sales—we made less stuff!

As a result, carbon dioxide (CO2) emissions from fossil fuels are down by 6.0% in 2009 (U.S. Carbon Dioxide Emissions Growth Chart).  This is the second year in a row that CO2 emissions have fallen in the US. But as the economy recovers and natural gas prices rise, the Department expects 0.9-percent increase in CO2 emissions in 2010.

US DOE said CO2 emissions from coal-fired power plants fell almost 10% because low natural gas prices encouraged fuel switching.  EIA projects monthly Henry Hub natural gas spot price will average $2.32 per thousand cubic feet (Mcf) in October 2009, the lowest monthly average spot price since September 2001. And, as you might expect, such low gas prices are causing new record highs at the end of this year’s injection season (October 31) to more than 3.8 trillion cubic feet (Tcf) in an effort to lock in the cost savings ahead of the expected rise in natural gas prices.   The STEO projects Henry Hub annual average spot price to rise from $3.65 per Mcf in 2009 to $4.78 in 2010 but how much it will go up depends upon the fuel demand for power generation and the pleasantly surprising continued growth of U.S. natural gas production from unconventional gas sources like shale formations.

Lower fuels costs should result in lower electricity retail prices year-over-year for the first time since early 2003 with the STEO projecting annual average 2010 residential electricity price of 11.4 cents /kWh or about 2% lower than the 2009 average.

Other factors helping to reduce both fuel consumption and emissions include the addition of 102 wind farms totaling 8,400 MW with another 300,000 megawatts of wind projects are proposed. [2] Solar projects also grew rapidly but the solar industry hit a financing speed bump during the recession because of limits on capital access.

While the growth in renewable energy capacity was impressive, don’t forget that those 8400 of wind capacity that came on line are the equivalent of only 8 typical sized coal plants.  And that represents the biggest challenge to renewable energy today.  Can we scale the additional of renewable energy sufficiently—and cost effectively enough—to continue the emission reduction process without more onerous government mandates?

But remember, our insurance policy is natural gas combined cycle generation along with the growing supply of domestic gas from unconventional sources.

What’s missing?

If the US is truly serious about reducing greenhouse gas emissions, it can be accomplished by the continued growth in renewable energy. But we also need to see growth in construction of baseload nuclear power and the use of natural gas fired combined cycle generation to reduce the market share of coal in the overall fuel mix.

Waxman-Markey is primarily driven by imposing a political solution to a market economics problem.  It is industrial policy of the worst kind locking the US into a rigid Washington-driven formula rather than letting the market adapt to changing conditions with a fuel mix and technology mix that works.

[1] http://www.eia.doe.gov/emeu/steo/pub/#Overview

[2] http://tonto.eia.doe.gov/cfapps/STEO_Query/steotables.cfm?periodType=Annual&startYear=2006&startMonth=1&endYear=2010&endMonth=12&tableNumber=24