Climate Change Legislation

BACKGROUND: Legislation aimed at reducing greenhouse gas emissions remains a priority for the Administration. Given the inherent cleanliness, accessibility and domestic abundance of natural gas compared to most other fuels, it is logical to assume that natural gas will play a critical role in the U.S. response to global climate change. APGA is extremely concerned that aggressive caps in U.S. carbon reduction policy could dramatically increase natural gas demand which in turn leads to overly burdensome cost increases for consumers. APGA is also concerned about the potential regulatory burden a cap and trade program will place on public gas systems, many of which lack sufficient resources to meet a yearly carbon reduction compliance obligation. The House Representatives passed the American Clean Energy Security Act (ACES) of 2009 in July to become the first-ever congressional chamber to pass carbon reduction/cap-and-trade legislation. The Senate failed to pass similar legislation in 2010.

THE ISSUE: Both the House and Senate versions of climate change legislation would have established a cap-and-trade greenhouse gas reduction program that seeks to achieve emissions reductions of 83% below 2005 levels by 2050. Beginning in 2016, the bills regulate emissions from natural gas LDCs that emit more than 25,000 tons per year of CO2 (approximately 460,000 MCF per year). This means about 160 municipal gas systems would be required to comply with yearly emissions reduction targets. Under a cap and trade program, the EPA issues allowances to track emissions, with the total amount of allowances limited by the cap. Each ‘covered entity’ can design its own compliance strategy to meet the yearly reduction requirement, including sale or purchase of allowances and offsets. Individual control requirements are not specified under a cap and trade program, but each emissions source must surrender allowances equal to its actual emissions in order to comply. Sources must also completely and accurately measure and report all emissions in a timely manner to guarantee that the overall cap is achieved.

APGA Positions:

  1. Supply - APGA strongly believes that in order to protect consumers from the impacts of high prices, to the extent that additional natural gas demand is created by greenhouse gas reduction policy goals, there needs to be a policy goal that achieves an identical increase in the amount of domestic supply. This includes opening certain areas of the United States currently under moratoria for additional exploration and production.
  2. Direct Use of Natural Gas - In addition, increased use of natural gas in homes and businesses should be part of the solution to addressing climate change and not penalized. For example, using gas-fired water heaters for homes instead of electric resistance water heaters ultimately reduces greenhouse gas emissions by one-half to two thirds. Legislation should not penalize gas utilities for taking on more natural gas load when cust omers switch from an electric to gas heater.Instead, the legislation should provide appropriate incentives such as consumer tax credits for the use of such natural gas appliances.
  3. Delay the Cap on Natural Gas Emissions - APGA supports delaying implementation of an emissions cap on natural gas residential and commercial consumers until 2020. These consumers will already be hit once by higher prices they will have to pay for natural gas from increased demand. Delaying the cap will give consumers time to adjust to a second cost hit that they could face from the regulatory burdens associated with a potential cap. By 2020, APGA is hopeful that new technology will be available to minimize further fuel switching of natural gas for electricity generation. In 2020, legislation should stipulate that the Environmental Protection Agency can make a recommendation to Congress as to whether the cap should be placed on natural gas utilities.
  4. Point of Regulation - Given that almost half of the approximately 1,000 public gas systems have five employees or less, APGA is extremely concerned about the burden that will be placed on these small systems if they become the point of regulation (the entity required to obtain and turn in greenhouse gas permits). APGA has maintained that the point of regulation should be upstream since this would reduce the number of sources that must be regulated as well as simplify administration of the program at the EPA.
  5. Methane Hydrates - APGA also supports increased research into methane hydrates (natural gas in a frozen state) as a potential means of meeting future supply needs. Methane hydrates have tremendous potential to meet future supply needs but additional research, geological and infrastructure investments will need to be made in order to bring this resource to market. To the maximum extent practicable, a portion of revenues from government allowance auctions should be used to further methane hydrate research.