As you may have noticed, the natural gas industry has undergone a bit of a boom in the last few years.

In April, generation from natural gas tied that from coal for the first time ever. The boom has some energy analysts hailing a natural gas “miracle.” But others are very concerned, largely because of the local environmental impacts and the long-term climate impacts. Letting natural gas displace coal is a net-benefit on carbon emissions, but there are still unanswered questions about methane release and the impact on renewables.

What we know for sure is that the climate threat is real and must be taken seriously in charting a path forward for energy policy. The amount of natural gas we burn for electricity is critical in determining whether or not we’re on the right path.  This post compares a few climate pathways related to natural gas, and then presents a recommendation for developing natural gas capacity — including balancing additions and retirements.

The bottom line is this: in order to meet climate targets, the United States needs to build only planned additions and, starting in 2023, retire all natural gas plants over 45 years old. This will allow the United States to develop renewable alternatives and not waste excess natural gas capacity through uneconomic retirements later in an effort to meet climate goals. Of course, there are little adjustments around the margins, but this approach represents the most likely solution given the data available.

Before diving into an explanation of this point, I’ll summarize some of the more interesting conclusions from the different projections of natural gas capacity from Energy Information Administration (EIA), EPA, and National Renewable Energy Laboratory (NREL):

  • There is a gap between the business-as-usual (BAU) pathway for natural gas capacity and where we need to be to hit climate targets, and that gap widens significantly over time.In 2025, capacity of natural gas exceeds the recommended climate target by 13.9 GW. In 2030, natural gas capacity exceeds the climate target by 83.6 GW. In 2035, it exceeds the climate target by 143.8 GW. Assuming no further retirements, by 2050, natural gas capacity exceeds climate targets by 218.8 GW.
  • Coal retirements won’t make up the difference in this increased natural gas capacity. The coal retirements needed to continue business-as-usual natural gas development andmeet the NREL scenario’s 80 percent CO2 reduction would be unlikely. Specifically, it would require taking 240 GW of coal out of the system before 2035, a feat that the NREL scenario does over 40 years to ensure reliability.
  • Aggressive retirements of natural gas capacity later on to meet the climate target are pretty unlikely. Over half our current natural gas capacity is under 12 years old. 38 percentof our current natural gas capacity was built between 2000 and 2004. An additional 15 percent was built between 2005 and 2011. That means 53 percent of capacity is basically brand new. These plants aren’t going anywhere anytime soon — retirements would be incredibly uneconomical.

This post will walk through where we need to be to address climate change, where we are headed, and quantify the gap between the two. Next, it will dismiss a few of the common excuses for our business-as-usual path of natural gas development, including that coal retirements will make up the difference and that we can retire old natural gas later on. Finally, it will present a reasonable approach to natural gas development that will ensure we can meet a climate target of 80 percent emissions reductions by 2050.

Assessing the Status Quo: Where do We Need to be and Where Are We Headed?

What are the implications of the increased utility investment in natural gas for the fight against climate change? To answer this question, we must compare current trends of natural gas capacity investment to projections for the levels of natural gas capacity needed to meet climate targets.

The “climate target” here is an 80 percent emissions reduction below 2005 levels in the power sector by 2050 (or reducing power sector emissions by about 2000 MMTCO2e a year). The three data points used to model how to reasonably get to 80 percent emissions reductions are the EIAand EPA projections, respectively, of implementing the Waxman-Markey bill (which projected an 83 percent GHG reduction below 2005 levels by 2050) and the excellent “Renewable Electricity Futures” study from the National Renewable Energy Laboratory (the core scenario would achieve 80 percent emissions reductions from the power sector).

In these studies, analysts from NREL, EIA, and EPA charted a course from our present day generation mix to a low-carbon fuel mix that ensures climate safety. In each case, the analysts show the year-by-year capacity additions and retirements for each fuel sources that would be necessary to ensure reliable electricity delivery during the transition. Because these pathways each look a little different, I have also shown an average of their recommendations.

For business-as-usual projections of natural gas capacity, this post uses the EIA Energy Outlook. Using these projections, we can ascertain what the planned capacity additions are for natural gas out to 2035.

As you can see in Figure 1, the U.S. is actually projected to be close to being on track to meet the climate scenario up until 2020, when new additions of installed natural gas capacity kick in, and natural gas capacity takes a dramatic uptick right when it ought to be declining.

 

Well, we can always retire more coal or more natural gas later on, right? Right?

Wrong.

Let’s look at coal first. While some could argue that this additional natural gas capacity is okay for climate because it will eat up some of the carbon allowance these projections provided for coal, our analysis shows that the retirements of coal needed to make that true would be incredibly dramatic and steep; retiring about 240 GW of coal before 2035. To put that in context, the NREL pathway phases out that same amount of coal capacity, but does so between now and 2050 to ensure reliability. The point is that we cannot stick to the climate target and justify our business-as-usual natural gas installations on the basis very aggressive — and unlikely — coal retirements.

So what is the main conclusion of this data? We are projected to blow past our ability to hit a climate target starting in 2017 unless we are prepared to later sacrifice reliability or retire plants uneconomically. The gap between the BAU pathway for natural gas capacity and where we need to be to the hit climate target is real, and widens exponentially over time. In 2025, capacity of natural gas exceeds the recommended climate target by 13.9 GW. In 2030, natural gas capacity exceeds the climate target by 83.6 GW. In 2035, it exceeds the climate target by 143.8 GW. Assuming no further retirements, by 2050, natural gas capacity exceeds climate targets by 218.8 GW.

That ever widening gap can only be bridged by natural gas capacity retirements. But where are those going to come from? The next section takes a quick inventory of the natural gas capacity stock to gauge the likelihood of retirements.

The simple fact is, most of our natural gas fleet is very, very new — and it isn’t going anywhere.

Since retiring plants early is uneconomical (utilities want to get the most out of their existing investments), it is important to assess our existing natural gas stock. As Figure 2 below shows, over half of the existing natural gas capacity was built between 2000 and 2004 (green). An additional 19 percent was built after 2005 to the present date (red), making 70 percent of our natural gas fleet under 12 years old.

Further, as Figure 3 shows, the construction of this installed natural gas capacity was an outlier compared to other construction trends. Solar, for instance, hardly registers. Even coal, with its spike in the 1960’s and 1970’s, pales in comparison. What does this mean? Well, these plants are highly unlikely to go anywhere anytime soon — so when we are thinking about building additional natural gas capacity, we should remember that the vast majority of our existing capacity is very, very new.

Of course, building excess natural gas capacity doesn’t necessarily exclude retiring old natural gas. But it would make it uneconomical, as utilities would be left with stranded costs. Similarly, you can shut down certain fuel sources in a manner not recommended by these analysts, but there is no guarantee that electricity will be delivered reliably.

Looking Ahead: Charting a Reasonable Course for Natural Gas

There is a way forward on natural gas that would enable us to stay on the NREL pathway to 80 percent renewables, and thus, 80 percent carbon dioxide emission reductions. Building onlyplanned additions and, starting in 2023, retiring plants over 45 years old would keep us on well track, as Figure 4 shows below.

The key years to look at here are 2020 and 2025.

In 2020, we will either build out the EIA projected capacity for natural gas, and give up on meeting the climate target, or we will build only planned additions. That will mean natural gas capacity remains stable out to 2025, at which point retirements of plants built over 45 years old will need to start taking place.

This may not be a popular view, but for those of us who want to address the climate challenge, it is important to recognize that the investments we make today will have a serious impact on the decisions we will be able to make in 10, 20, and 30 years. By working backwards from where we know we need to be, and considering real constraints like reliability and utility return on investment from generation, we can get an idea of our year-by-year goals for natural gas and how that fits into the climate picture.