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Clean Power Plan repeal seen as unlikely to diminish demand for low-cost gas

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Essential Energy Insights - September 17, 2020

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Clean Power Plan repeal seen as unlikely to diminish demand for low-cost gas

The gas industry appears unfazed by the Trump administration's efforts to repeal the previous White House's Clean Power Plan, emphasizing that the fuel's increased role in the power sector stems from market forces and not the Obama-era emissions rule.

"While it's unclear what the future holds for environmental regulations, the [Clean Power Plan] has been in limbo for some time, during which we've watched the grid move ahead by choosing natural gas because of its cost competitiveness and its reliable, flexible nature," Natural Gas Supply Association spokeswoman Daphne Magnuson said Oct. 10.

The Clean Power Plan, finalized in summer 2015, set out three building blocks states could use to cut greenhouse gas emissions from the power sector, including using more power generation from lower-emitting natural gas plants while reducing generation at higher-emitting coal-fired power plants.

The rule was stayed by the U.S. Supreme Court in early 2016. The U.S. Environmental Protection Agency under Administrator Scott Pruitt on Oct. 10 formally announced plans to repeal the regulation, and a draft of the repeal notice indicated that the agency would take comments on the repeal only, saving any discussion of a replacement for a later date.

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For the gas industry, the long-standing uncertainty about the fate of the rule has not quashed interest in gas-fired power. Before the Clean Power Plan went into effect, gas was taking on a growing share of power generation for years as the low-cost fuel flooded the marketplace and power generators increasingly valued the flexibility to ramp up and ramp down that gas-fired plants afford.

Jeffrey Holmstead, a climate-focused partner with the law firm Bracewell LLP, said he does not see the Clean Power Plan's repeal changing much about the power sector's preferences for generation, even if a replacement eventually mandates increased efficiency at coal-fired generators. At most, it might slow coal shutdowns, he said.

"If what they [at the EPA] do is limit themselves to cost-effective measures that can be [used] to improve efficiency of coal-fired power plants, I don't think it's likely to lead to any more power plant shutdowns. The question that some people are asking is: Would efficiency improvements be enough to change the dispatch order and perhaps move some coal-fired power plants higher in the dispatch order relative to gas plants?" Holmstead, a former assistant administrator in the EPA's Office of Air and Radiation, said in an Oct. 11 interview. "The people I talk to don't seem to think that's a real issue."

With the dispatch order staying about the same, Holmstead also does not see the repeal having a material impact on gas pipeline building.

The sector has long been expecting a Clean Power Plan repeal or revision, he said, and pulling the rule would address some of the concerns the gas industry had about the EPA using its authority to regulate sector-wide emissions. The uncertainty at this point lies in what the states do to address emissions, he said.

The gas sector remains wary of government showing favor to some fuels over others, the Natural Gas Supply Association's Magnuson noted. "NGSA's members seek regulatory certainty in the form of policies that are free of market distortion because, given a level playing field, the market will continue to turn to natural gas," she said.

The American Petroleum Institute underscored both the market forces that have driven increased gas use and the greenhouse gas emissions reductions that have stemmed from it.

"Even without the Clean Power Plan's implementation, our nation has reduced greenhouse gas emissions from power generation by 25 percent since 2005 thanks to the increased use of clean, reliable, and affordable natural gas," President and CEO Jack Gerard said in an Oct. 10 statement. "Even as we have become the world's top producer and refiner of oil and natural gas, carbon emissions are near 25-year lows throughout our nation's economy."