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IEA suggests US revamp policies, infrastructure to ease energy transition

U.S. energy policy and infrastructure should be examined and revamped in light of the shale boom that has transformed the country into the world's top oil and gas producer and a leading exporter for the fuels, the International Energy Agency said.

Domestic natural gas production has grown 40% to 760.4 billion cubic meters per day since the onset of the shale revolution in 2008, the IEA said in a 2019 review of energy policies released Sept. 13.

The low cost and abundance of domestic natural gas drove a shift in the fuel mix for U.S. power generation. Coal, which in 2008 accounted for nearly half of total electric generation, declined to less than one-third of the power mix by 2018 as natural gas-fired generation climbed to 60%.

While the move toward natural gas and renewables for electricity generation helped address mounting environmental concerns around greenhouse gas emissions, the IEA said, policy and infrastructure changes are required to smoothly and cost-effectively connect the new generation of energy sources to the grid.

The report, which IEA executive director Fatih Birol presented alongside U.S. Energy Secretary Rick Perry, recommended that policymakers pursue "market regulations that leverage geographic diversity of resources, availability of transmission capacity, and flexible resources such as energy storage (including batteries, hydropower, pumped hydro and hydrogen) and demand response."

Developing the regulations to integrate the system, however, is challenging as the system is a complex mix of competitive markets, vertically integrated markets, and private and publicly owned assets. The regulatory response to integrate the system varies by region, the IEA said.

Individual states have considerable scope to establish their own energy and climate change policies as long as those regulations do not conflict with federal policies. As such, 27 states plus the District of Columbia have adopted greenhouse gas reduction targets with policy tools ranging from carbon pricing to efficiency mandates and support for clean energy. Nine Northeastern states participate in the Regional Greenhouse Gas Initiative cap-and-trade program, while California runs a separate cap-and-trade program for CO2 emissions.

The disparities among state targets can lead to diverging regional outcomes for emissions reduction, and they can have implications for electricity markets that span several states, the IEA said.

States have often diverged from the federal government's policies as well, which have shifted significantly under the Trump administration. The Trump EPA repealed and replaced the Clean Power Plan, taking a significantly less aggressive tack than the Obama administration did for reducing greenhouse gas emissions from the power sector. Amid the ongoing shale boom, the Trump administration has made other policy changes that are more friendly to the oil and gas industry, including revising or rescinding regulations on hydraulic fracturing on federal lands, and plans to lower regulatory requirements to cut methane emissions from oil and gas production, the IEA said.

But how this and future administrations handle infrastructure permitting — an increasingly contentious process for pipeline builders — may significantly impact both the nation's prospective emissions and the role of U.S. LNG in global markets, IEA noted.

Building out oil and gas pipelines is necessary to support increased production and export capabilities, the IEA said, but energy infrastructure development requires local, state and federal approvals and cooperation.

"[T]here remain cases of midstream infrastructure struggling to keep pace with shale production growth due to permitting setbacks, local opposition and court challenges," the IEA wrote, noting that gas pipeline limitations are often cited by producers as a reason for flaring and venting at oil-focused production sites. "Timely siting of gas pipelines will also benefit efforts to reduce associated gas flaring rates from oil production."