AGA’s position with respect to natural gas versus coal for electricity generation is: we need natural gas and coal for that purpose, just as we need to aggressively develop all of our other energy resources—nuclear, wind, solar and hydro, along with technologies that will maximize the utilization and efficiencies of each fuel. After all, demand for electricity will continue to grow, so our optimum energy strategy—both from a domestic-security and infrastructure-capability standpoint—is a flexible, diverse and regionally appropriate blend of electricity generation, in which natural gas plays a role, but so does every other fuel source.

Certainly, in a carbon-constrained world, natural gas, which is by far the cleanest and most efficient of the fossil fuels, can make a significant contribution to electricity generation, especially since new natural gas resource estimates indicate we have about 100 years of domestic supply. Thus, replacing the least efficient coal-fired generators with new natural gas plants would be a clear, and cleaner, step forward.

That said, we cannot lose sight of the fact that the most beneficial use of this premier fuel is directly in the home and business, or in other end-use applications such as natural gas vehicles. Natural gas from the wellhead to the burner tip in homes and businesses loses only about 10 percent of its useable energy. Converting natural gas into electricity to power comparable electric end-use product in the home or business results in the loss of about 65 percent of its useable energy, and results in increased greenhouse gas emissions. That is why diverting from its direct-use applications the significant volume of natural gas needed to replace the generating capacity of 8-10 coal plants every year is a less than ideal scenario.

We all understand that natural gas is a key piece to solving the energy and climate change puzzle. But increased fuel diversity would allow more natural gas to be used directly in the residential and commercial market, where, for more than 40 years, natural gas customers have led the way in increasing energy efficiency, conservation and greenhouse gas reductions.

The dichotomy of coal or natural gas is not that clear. There are technologies to make natural gas out of coal, aka, coal gasification. This would be energy using and will produce effluents. However, the final result, syngas, or synthetic natural gas, burns more efficiently and cleanly than the original coal. In net effluent terms syngas can be more environmentally sound, if it is done right. We also have coal bed methane. There is methane, natural gas, locked into coal beds by water. By taking the water out and filtering it properly, natural gas can be produced. This is an increasing source of natural gas in the US and in many other parts of the world with large coal deposits.

It is indeed the case that natural gas burns more cleanly than coal given the average technologies we have today. Clean coal technologies are not exactly diffusing at a rapid pace given their costs and other reasons. Some even question whether clean coal technologies fit their name.

Replacing the coal plants with natural gas plants is not the best option in the long run. It may be a small start toward a full phasing in toward a new energy future. Natural gas plants also produce C02, albeit less than coal plants. Less C02 is better than more, but there are better ways of getting to less.

If we are focusing on C02 reductions then nuclear plants might be a better choice, if it were not for the time it takes to get these up and running and the big problem of what to do with the waste. Solve these two problems and nuclear could be on a roll.

Renewable technologies could also be used to replace the coal plants and these renewable technologies have a very small carbon footprint compared to fossil fuels. What I am thinking about, amongst many thousands of other possible ideas on this, is geothermal, concentrated solar power, solar updraft towers of significant size, and, in some areas, tidal power such as can be found in Canada near the Bay of Fundy. (You might want to look at what is happening with the DESERTEC project to get a sense of the potentials here.)

Sure many of these technologies have their problems, but if you calculate in the reasonable environmental, military, diplomatic and other costs of using fossil fuels per KWh produced many of the renewable technologies become quite competitive.

Another option we need to consider that is far more important in the long run than switching from coal to natural gas is improved efficiency in electricity production in fossil fuel plants. Right now we are losing 70 plus percent of the fuel put into many of these plants to heat that dissipates into the air. This holds for coal, natural gas, and oil plants. What is a lot smarter way of reducing the total carbon footprint per usable BTU in these plants is to finally get to the "no brainer" solution: combined heat, cooling and power. Why is it that Denmark and other do this and we do not?

A power plant produces a lot of heat from burning fossil fuels. Most of it is lost at the plant. This heat can be captured for use in municipal or local heating. It could be used for industrial and agricultural processes. It could be used, for example, in greenhouses in cooler times of the year to grow crops. Iceland does this. The heat from these power plants could also be used to produce cooling. How can heat produce cooling? One can do this through the use of absorption chillers that use a liquid that evaporates at low temperatures, such as ammonia, for example.

Voila, we now have electricity, heat, cooling, industrial processes, agricultural and other processes now using more and more usable energy. Is that not better than just tossing the heat into the air and complaining about the C02, other effluents and energy and national security weaknesses that result from being inefficient when we could be otherwise?

Some of the biggest users of electricity are buildings, including industrial, commercial and residential. If we tightened up those buildings and made them more energy efficient then less C02 would result from each usable ton of coal, billion cubic feet of natural gas and so forth. Here is yet another "no brainer". If one were to follow the typical lighting system of a residential house of the 100 pounds of coal put into the generator furnace about 2 pounds is used for usable light. Our typical lighting systems produce more heat than light with the precious fuels we use to produce the electricity. The typical toaster we use to cook our bread in the mornings in millions of homes is absurdly wasteful.

A lot of energy is lost in the transmission, distribution and use of electricity. We need to change the way we do things at many levels, not just at the generation plant. Smart grids are a start, but I do not see the required money or efforts being put forth for this to happen any time soon. I suspect the waste from electricity production is just being "swept under the rug" in order to not see it for what it is: one of the biggest sources of potential economic and other insecurities in the future -- if we don't do enough to help solve the many problems that will result from it.

In the US and globally the biggest source of wasted energy in the use of fossil fuels is in the production of electricity. The production of electricity is also the biggest source of C02 in total both in the US and globally. So why not focus on tightening up the electricity production, transmission, distribution and use?

The typical economist will say that if there is a $20 bill on the ground, well, it can't be there because someone would have already picked it up. There are trillions of dollars on the ground in energy efficiency. These are not being picked up. They are being swept under the rug of political confusion, and, yes, ignorance about what the real problem is here. It is not just switching from one hydrocarbon to another. It is also making the use of those hydrocarbons far more efficient. (The second largest source of C02 is in transportation, another astonishingly wasteful use of precious fossil fuels and our environment.)

In the long run we will need to move away from those hydrocarbons. But that will take a long time. So in the meanwhile we need to be smarter and more efficient in the use of these hydrocarbons in the production of electricity as we phase in toward a better, more sustainable future. We can do that in the medium run and in some cases even in the long run. That is if we want to. We could just keep on wasting all that heat, all of those fossil fuels, and all of that environmental quality and keep complaining about energy security and global climate change. We could also get smarter and get to more effective strategies for a better energy and environmental future.

A Dangerous Policy with Serious Negative Consequences

Demand for natural gas by the power sector has increased from 5.2 trillion cubic feet in 2000 to over 6.6 trillion in 2008, a 27 percent increase while production has increased by only 6 percent. By anyone’s perspective, this is a significant increase in demand and was done without financial incentives and without cap and trade. Total US natural gas demand in that same time period increased only 7.9 percent.

Consumers take a double hit. When demand for natural gas goes up, prices go up. And, because natural gas powered generation sets the marginal price of electricity in a growing portion of the country, so does the price of electricity.

There is a direct correlation between manufacturing job losses and spikes of natural gas prices. Several manufacturing industry groups have concluded that high natural gas prices have significantly contributed to as many job losses as 3.7 million out of the total 5.4 million job losses since 2000.

The power sector has several options like natural gas, renewable, nuclear, and coal to provide power to their customers – but consumers like manufacturers, homeowners and farmers do not. Manufacturers are especially vulnerable because they are dependent upon natural gas for both fuel and feedstock.

Congress should focus on encouraging energy options to compete with one another – when they do – consumers receive the benefits.

Natural gas is an important, clean fuel that has a role in climate mitigation. At Dow, we hope the predictions about increased natural gas supply are right, but we think it’s too early to declare natural gas a silver bullet or bridge fuel solution. Natural gas should be a component of a comprehensive energy policy, but we must be sure that policy doesn’t create a “dash to gas” that destroys manufacturing jobs.

As we testified last week, we believe it would be a mistake for Congress to drive natural gas preferentially into power generation, as this could further erode our manufacturing economy and increase the volatility of natural gas. The result will be higher natural gas prices and higher electricity bills, which will be felt by every American. Congress instead should promote a diversity of energy sources while also creating robust energy efficiency initiatives. This will ensure a stable, low-cost supply of natural gas.

Over the last 12 years, there have been five significant natural gas price spikes due to increased demand. Those price spikes contributed to the loss of nearly 4 million jobs in the manufacturing sector. They also turned a $19 billion U.S. chemical trade surplus in 1997 into a deficit from 2001 to 2007. Even as demand for natural gas fell 22 percent from 1997 to 2008, average natural gas prices rose more than 160 percent. This price volatility causes demand destruction and job destruction.

Affordable natural gas adds value to our economy. For example, for every dollar Dow spends on natural gas, we produce over $8 worth of high-value products. Rather than focusing on natural gas as a preferred power generation source, we would see a greater bang for our buck in the economy by spurring increased manufacturing uses of gas. While some call natural gas a bridge fuel, if it causes a “dash to gas” it could be a bridge too far.

In assessing the policy proposal to replace inefficient coal-fired generators with modern natural gas plants, many of the responses have cautioned against interfering with market forces in the setting of climate and energy policy. One responder argued that market forces are so complex that direct action such as this would be fraught with unintended consequences. Other responders have argued that current incentives for coal generation and renewables in pending climate legislation already distort the market for generation, and in this context direct action to incentivize the use of natural gas is necessary to create a more level playing field.

A key question in this discussion is the relative cost advantage of natural gas over coal in a carbon-constrained world, and what the price of carbon would need to be for natural gas to gain an economic advantage. There are many complicating factors, but if one considers only the cost of the fuel for generation, what allowance price makes, say, $6/mmBTU gas equivalent in cost to $2/mmBTU coal? If one further takes into account the cost of building new replacement generation, at what carbon price do different forms of generation (gas, nuclear, wind, solar, coal with carbon capture and storage) become economically competitive for baseload generation?

It’s highly likely that utilities will “fuel switch” from coal to natural gas to reduce greenhouse gas emissions. In fact, this is already happening. From 1997 to 2008, natural gas consumption for electricity generation went up 62 percent, according to the U.S. Energy Information Administration. This trend would accelerate in the event of federal climate legislation: Natural gas demand would soar because natural gas is one of the few lower-emission energy sources available today. Others such as nuclear energy, carbon capture and storage, and alternatives and renewables (e.g. wind and solar) are all important pieces of a sound U.S. energy strategy, and any climate policy should encourage their development and deployment as quickly as possible. Unfortunately, these sources are not yet available in the quantities needed to meet energy demand, nor is the infrastructure ready to connect these new generation sources with users. Consequently, in the near-term, utilities would turn to natural gas to comply with climate legislation. Aggressive, short-term emissions reduction and targets and timelines, in particular, would exacerbate fuel switching. Longer-term, natural gas would still be needed as “back-up” generation for wind and solar, as it is already used today. Natural gas is used for other clean energies as well, including cleaner transportation fuels, renewable energy production, hydrogen for fuel cells and as a raw material, or “feedstock” for chemistry that goes into energy efficiency and renewable energy applications – from solar panels and wind turbines to building insulation and lithium-ion batteries. There is serious discussion of boosting the use of natural gas in these ways, which would further increase demand.

In recent years, the competition between industrial natural gas consumers and utilities for scarce domestic natural gas supplies created a “zero sum game” in which any increased demand for natural gas by utilities comes at the expense of industrials. The availability, reliability and affordability of domestic natural gas supplies has been questionable, as evidenced by five U.S. natural gas price spikes since 1997, each caused by large lags between demand increases and stepped-up production. This is important because chemistry companies make decisions on where to invest in future production largely based on their confidence in long–term U.S. energy and feedstock supplies. More than 120,000 U.S. chemistry jobs were lost – many to nations with lower natural gas prices. While natural gas prices have since dropped, the assessment of many economists is that the change is largely recession-related industrial ‘demand destruction.’

How about the supply side of the equation? We believe recent news of natural gas supply discoveries in the United States, largely from unconventional sources such as shale gas, is positive for the U.S. manufacturing sector. ACC has long supported efforts to increase U.S. natural gas supplies so that natural gas will be reliable and affordable and U.S. manufacturers can be globally competitive. However, it will take time to gauge whether these sources will be developed, produced, approved and brought to market in a reliable and timely way sufficient to meet demand long-term. Daniel Yergin and Robert Ineson had an interesting look at such questions in the Wall Street Journal this week " (America's Natural Gas Revolution," November 2.) They noted that with the new shale gas discoveries, "Energy-intensive manufacturing companies, which have been moving overseas in search of cheaper energy in order to remain globally competitive, may now stay home. But these industrial users and the utilities with their long investment horizons—both of which have been whipsawed by recurrent cycles of shortage and surplus in natural gas over several decades—are inherently skeptical and will require further confirmation of a sustained shale gale before committing."

We are urging Congress – including the new Natural Gas Caucuses in the House and Senate – to balance calls to legislate greater natural gas demand with steps that will create a reliable, affordable, accessible and adequate long-term supply of natural gas. We hope that the Caucuses and other lawmakers will discuss both supply and demand issues and take care to address the specific concerns of the U.S. manufacturing base. Doing so will not only strengthen the U.S. economy, but support environmental improvement: American chemistry holds many of today’s ‘green jobs,’ making products used for energy efficiency and renewable energy. We can help create the lower carbon economy of the future – the products of chemistry save fuel, reduce greenhouse gas emissions, and drive innovation in renewable energy like solar and wind. (See www.americanchemistry.com/climatestudy). But to do so, Congress must enact policies that will enable us to compete in the global marketplace, invest in higher efficiency plants and equipment, and retain and grow our highly trained and productive workforce. The availability of a stable, affordable, and diverse supply of natural gas will help achieve these goals.

I appreciate the question from Chairman Bingaman and the opportunity to continue the interesting dialogue begun at last week’s hearing before the Energy and Natural Resources Committee. The chairman asks several interrelated questions.

The first question concerns the suggestion that energy/climate change legislation include measures intended to affect the retirement of the least efficient coal fired powerplants. As noted by the witnesses at the hearing, we should not lose sight of the overall purpose of climate legislation, which is to reduce emissions of greenhouse gases. Consequently, we should look seriously at proposals that would accomplish significant near-term emissions reductions on a cost-effective basis while affecting only a limited number of existing facilities. Based on these criteria, the proposal makes sense.

Also, this proposal must be considered within the context of what already is part of the energy/climate change legislation. Should the legislation be enacted as it now stands, the coal industry and the operators of coal-fired power plants will receive significant benefits in the form of free allowances and generous incentives for the development and deployment of power plants with carbon capture and sequestration. As noted at the hearing, these benefits insulate them from much of the effect that would come from a pure cap-and-trade scheme in which all allowances were auctioned. Therefore, in the balancing that must occur as we move towards a final bill, it is only fair that there be some trade off between measures impacting coal-fired electric power generation and measures intended to ensure that coal remains a viable part of the U.S. energy portfolio as we move towards a substantially de-carbonized energy economy.

The chairman’s second question concerns how the demand for natural gas created by increased power generation load might affect industrial natural gas consumers. In answering this question it is important to point to one of the central themes of the testimony received by the committee: unconventional natural gas is a game changer in how we should think about the natural gas resource base and the role it can play in the U.S. energy portfolio. This message is being delivered by not only the natural gas industry, but also by widely respected energy experts such as Daniel Yergin. In this regard, the November 3, 2009, opinion piece, America’s Natural Gas Revolution, authored by Mr. Yergin and Robert Ineson and published in The Wall Street Journal, is well worth reading.

There is every indication that the natural gas resource base will support growth in electric generation demand as well as the historic residential and commercial and industrial natural gas users. Furthermore, while the chairman’s question suggests that the manufacturing sector has a growing need for natural gas, most analyses point to only slow growth in industrial natural gas consumption and similarly slow growth in the residential and commercial market where increased market penetration is offset by increased energy efficiency. While there is no doubt that the industrial sector is affected by energy prices, the forecasted low growth in natural gas demand from this sector is more indicative of larger changes in the U.S. economy as we shift to a more service oriented, high technology economy. In sum, there should be ample supplies of domestic natural gas, supplemented by imports from Canada and opportunistic imports of liquefied natural gas (i.e., LNG coming to U.S. shores when there is slack in global LNG demand) to satisfy reasonable forecasts of natural gas demand growth at reasonable prices.

Chairman Bingaman’s third question asks how likely is it that utility fuel will switch to natural gas in any case, independent of the passage of climate legislation or specific initiatives. Perhaps the best way to answer this question is to reference the August 2009 Energy Information Administration report Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009. Compared to the reference case, natural gas consumption is lower in both 2020 and 2030 under all but one of the six scenarios modeled by EIA due to the effects of the Waxman-Markey bill. As noted by the witnesses at the Energy and Natural Resources Committee hearing, the climate bill in its current form puts a squeeze on natural gas as a compliance option. On the one hand, to the extent that compliance with renewable energy standards results in less reliance on conventional electric power generators, natural gas fired generators get dropped first, because these generators typically have the highest marginal cost. On the other hand, because of the provisions of the bills intended to insulate coal-fired generators from the costs created by the cap-and-trade regime, there is little incentive for coal-fired generators to comply by lowering their emissions. Hence, there is less reason for electric power suppliers to look to natural gas fired generators as a means to lower emissions.

These forecasted impacts on natural gas would not be the likely result of a cap and trade law that placed a price on carbon and then left it to the market to find the most cost effective solution. Rather, the forecasted results are heavily influenced by add-ons to the cap and trade regime either intended to provide certain energy sources with an additional leg up or intended to shield other energy sources from the intended effects of the cap and trade regulation.

The root of the chairman’s third question would appear to be the statement at the hearing by the witness representing an industrial energy consumer that natural gas will do so well in the marketplace based on its inherent advantages that there is no need to pay special attention to the role of natural gas in crafting energy/climate change legislation. This likely would be true if, in fact, we were dealing with legislation in which the cap and trade program had not been compromised by so many provisions intended either to incent or protect certain sources of energy. That, however, is not the reality of the current structure of the energy/climate change bills that are under active consideration. Consequently, unless the Congress chooses to go back to the drawing board and start with a clean sheet of paper, it is entirely appropriate to be exploring what needs to be changed within the structure of the bills to ensure that natural gas has an opportunity to compete as a compliance option.

These answers are mine alone, and do not necessarily represent the views of INGAA or its individual member companies.

Public policies encouraging the replacement of coal based electricity generation with natural gas are the bridge for accelerating the export of our manufacturing base and, with it, millions of high-wage jobs. Look no further than actual experience over the past decade. As the use of natural gas increased for generating electricity, our manufacturing sector paid substantially higher prices for electricity (56 percent) and natural gas (200 percent). The Senate Energy and Natural Resources and Environment and Public Works Committees received testimony last week describing the consequences of this one-two punch to the U.S. manufacturing sector, which requires affordable electricity and natural gas to remain competitive. According to the Industrial Energy Consumers of America, our manufacturing sector lost more than 5.1 million jobs in the last 10 years and more than 40,000 manufacturing plants closed between 2000 and 2008. As Dow Chemical Company explained to the Energy and Natural Resources Committee, “The manufacturing sector . . . has become the shock absorber for high natural gas costs.”

The “dash to gas” began a decade ago and, in its present form, the climate legislation under consideration would further exacerbate the consequences of higher electricity and natural gas prices for every manufacturer, farmer and homeowner. The proposal advanced last week by B.P. America, Inc. to retire 30 GW of coal generation capacity through “transitional incentives” for natural gas is simply a formula for subsidizing the accelerated off-shoring of our manufacturing base. Perhaps, as B.P. America suggests, such a substantial increase in natural gas consumption in the power sector can be met from existing reserves: But at what price? Economic dispatch is the reason why natural gas combined-cycle power plants run at less than 40 percent of their capacity. If natural gas could be delivered reliably at a price closer to the $2 MMBTU coal delivered last year, rather than the $9 the power sector paid for natural gas, those plants would run at higher capacity factors. Such a prospect is, apparently, out of the question without suspending the rules of economic dispatch through a natural gas subsidy.

In a report released last year, the National Energy Technology Laboratory (NETL) warned that “policies that encourage the use of natural gas to substitute for coal in power generation could very well lead to spectacular price increases for households and industry.” Coal-based electricity, according to NETL, restrained the price of electricity and has constrained the price of natural gas from matching the rise in the price of oil. We do not believe that the public interest is well served by policies that approach our energy future as a zero-sum game. As Paul Cicio of the Industrial Energy Consumers of America reminded us last week, “Almost any product produced in the U.S. can be produced offshore and imported.” The shale gas play may be a game changer for the natural gas industry, but we should eschew policies that make it a job ender for everyone else.

In shifting to natural gas as a preferred source we need to be certain that the supply system can be created in a cost-effective manner and in time to meet the emissions reduction goals. We also need to be sure that siting such facilities meets with the expectations of the host communities. If a balanced portfolio of energy sources is to also be met with wind, solar, etc., what percentage is properly allocable to natural gas?

The promise of an abundance of shale gas and a shift from coal to gas in electric power generation is appealing. Clearly, there would be environmental benefits. But benefits that are achieved by interfering with market forces are likely to be illusory.

Not too many decades ago, regulators curtailed natural gas consumption, even limiting its use for home heating as a result of policy induced shortages. Then as a result of decontrol, the pendulum swung in the other direction and federal officials encouraged utilities to switch from coal. That was followed by utilities moving back to coal when natural gas demand outstripped domestic supplies and Canadian imports. As domestic and eastern Canadian production declined, there was increased talk of the need to build LNG facilities to meet our needs for natural gas. Now, there's talk of a natural gas boon that could meet our needs for 100 years, if incentives and policies are structured to unlock the abundance of shale gas. This energy history is reason for caution and prudence.

Recent energy policies have been dominated by political considerations and rent seeking while energy realities have been ignored. As a result they have neither been stable nor achieved important national objectives.

Utilities as well as consumers should rightfully be dubious about this latest proposal to replace older generating capacity. The economic forces that drive energy markets are too complex and unpredictable for government to take the regulatory actions to bring about such a shift without creating a large risk of producing unintended consequences than economical supplies of shale gas.

The development and use of shale gas should be determined by the cost of production and technology, not policies that distort market forces. Policy barriers that impede the market’s ability to determine the highest valued use of additional gas supplies -- such as permit and leasing restrictions or tax policies -- should be removed.

An extensive debate about the potential for shale gas has been going on for at least several years. The optimist and pessimist camps have wildly different estimates about production costs, profitability, and production potential. Given our recent experience with bubbles and busts -- and the tendency to underestimate costs to attract investments -- it would probably be prudent to go slow in pushing shale gas.

There is no doubt about the abundance of shale gas, but the cost of production is currently too high to make it commercially competitive. Many producers are saddled with large debt because they bet on ever increasing natural gas prices.

Instead of crafting a legislative policy focused on shale gas production for use in replacing coal fired generators, a better energy policy would be to increase oil and gas leases, on shore and off, that could lead to increased production of conventional gas.

Policymakers should also examine incentives for accelerating the turnover of older, inefficient power generating capacity and the existing policies that result in “older and inefficient” generating facilities remaining service. It is likely that New Source Review requirements and other Clean Air Act regulations along with depreciation rules create impediments to building new, more efficient generating facilities. Removing policy impediments would be a more productive route and one that would lead to lower emissions.

Fuel switching to cleaner primary fuels for the production of electricity, while we build a more renewable infrastructure, is a perfectly logical bridging strategy. In doing this, it is critical that we create policy that most effectively increases the availability of cleaner fuels, specifically natural gas.

One strategy that is often overlooked, or at least rarely treated analytically inside climate and/or energy policy options, is the major role buildings can play in this.

In 2008, 41% of the energy consumed in the U. S. was used to operate buildings. This was split at 22% residential and 19% commercial. Today, there are about 129 million homes and over 70 billion square feet of commercial space. These buildings are, in general, performing poorly from an energy efficiency standpoint. For example, it’s estimated that some 80 million homes are underinsulated. With some notable exceptions, we continue to add underperforming buildings to this stock every day.

In the context of fuel switching opportunities, it is instructive to look at the impact that energy efficiency gains could have on primary fuels consumed on-site as well as those used to produce the electricity that is delivered to our buildings. The natural gas consumption in buildings, from direct use and electric power generation, is about 12.6 Quads, or 31% of the total energy that buildings use.

The Business Round Table’s report: “More Diverse, More Domestic, More Efficient; A Vision for America’s Energy Future” outlined pathways to achievable building energy efficiency penetration. Savings of 6.3 Quads was found to be quite attainable. Coupling these energy savings with the Department of Energy 2008 Buildings Energy Data Book’s conversions to primary fuel, and looking at the granular savings in space heating, lighting, space cooling, and water heating, we can draw some interesting conclusions.

From implementing these energy efficiency improvements, direct on-site natural gas consumption would drop 1.9 Quads. This liberated fuel could be redeployed for lower carbon electrical production. There is an additional 3.82 Quads of electric use reduction, which would directly drop electricity demand (the remaining .58 Quads comes from other on-site fuels). We could chose, through policy and/or incentives, to remove this 3.82 Quads via low cost, high carbon coal fired electricity. However, lacking policy in this area, it is more likely that higher cost natural gas fired electricity would be idled, of which there is plenty to absorb this demand reduction.

From an energy independence point of view, it’s interesting to note that we could also use this fuel switching to reduce oil imports. The 1.9 Quads of natural gas could go direct to transportation using natural gas vehicles and the 3.82 Quads of electric savings could be deployed to power electric cars or fuel-switched to power natural gas vehicles. In this way, from building energy efficiency savings alone, we could reduce our oil imports by about 28%. This is a critical supporting element of the well known Pickens Plan.

In summary, we need energy/climate policy that:

1) Drives rapid and substantial energy efficiency retrofits of residential and commercial buildings.

2) Assures that the buildings we add to our infrastructure each year are at least 50% more efficient than what we (on average) build today.

3) Assures that the saved on-site combusted fuels and delivered electricity are fuel-switched and managed to maximize carbon reductions.

(One Quad = 10¹⁵ Btu or 172 million barrels of oil equivalent)

It’s a no-brainer that we should provide incentives to encourage the retirement of power plants that are inefficient and produce high amounts of carbon, so that they can be replaced with cleaner, more efficient power plants. And it’s equally obvious that there are tremendous opportunities to reduce carbon emissions by putting natural gas to more use in the electric sector. For example, combined cycle natural gas-fired generators are often the most efficient generation facilities in service, but they run at only about 40 percent of their potential. Here's the big advantage to using existing gas-fired plants more often: No new capital investment is needed to reduce carbon emissions. We still need an incentive to retire old, inefficient carbon-intensive plants – and that includes even old, inefficient natural gas plants as well as other fossil fuels -- so that more electric load will switch to existing combined-cycle gas plants that aren’t fully utilized, and we could make significant strides toward meeting our future emission targets.

Would generators eventually move to using natural gas anyway even without a congressional incentive? Perhaps, but it’s hard to say if they would do it as soon because both the House and Senate climate bills contain measures that disadvantage natural gas in the distribution of emission allowances to a degree that could distort and delay a shift to natural gas-fired power generation.

We are aware of the concern in Congress that using more natural gas to make electricity may result in a "dash to gas" and thereby put upward pressure on prices. But our natural gas resources have grown remarkably in the past few years. In fact, new techniques allowing us to economically produce natural gas from abundant shale formations found across the United States have resulted in a recent, astounding 39 percent growth in the estimated amount of natural gas in the U.S. Shale production is a game changer and will enable us to respond quite well to increased gas demand for both generating electricity and satisfying the manufacturing sector. In short, climate change legislation should appropriately acknowledge and encourage the increased use of natural gas for power generation through inexpensive incentives, thereby resulting in earlier carbon reduction than would be possible otherwise.