CLIMATE:

At center ring in the Senate: coal vs. natural gas

The battle over climate legislation will now pit the country's top power sources against each other.

Saying they failed to protect their interests as a landmark bill came together and passed the House last month, natural gas executives are forming a strategy to influence rewrites in the Senate.

"There are a lot of people in the industry who are scrambling their forces right now," said Fred Julander, founder and chairman of the Rocky Mountain Natural Gas Strategy Conference, an annual event that drew 1,800 industry people to Denver last week. "Whether we can learn and get up to speed -- and it's a steep learning curve -- is the question."

Battles in the Senate over climate bill language will be intense, and natural gas lags behind its competitors in the race to sway lawmakers.

"Much of what is going on is an industry feeling left out of the party and hoping to get more goodies for itself in the Senate bill," Steven Hayward, fellow at the American Enterprise Institute, a conservative think tank, said of natural gas.

Coal lobbyists have been talking to senators and aides for months, with their contacts becoming more frequent since the House bill passed. Coal lobbyists want to slow down the pace of the House measure's plan to cap greenhouse gas emissions and make businesses buy allowances for those emissions.

Natural gas also will have to compete against the utility industry, which has been lobbying heavily on energy legislation. While they represent natural gas and coal, utilities have big reasons to favor coal.

Electric utilities used coal for 59 percent of their power generation in 2007, while natural gas was used 13 percent of the time, according to the Energy Information Administration. Coal has been less expensive, making it more profitable for utilities to use as a fuel source.

Lobbying by utility interests so far has dwarfed competitors. In the first quarter of this year, utilities spent $35.1 million on lobbying. The natural gas industry spent less than a tenth of that, $3.3 million. Of the top 10 industries with a stake in climate legislation, natural gas put the least money into lobbying in the first quarter, according to a recent E&E analysis.

"As a whole, we're not very sophisticated in terms of public relations, and we need to be," Julander said. "We need to grow up and get in this game. No one is going to give us anything, even though we're the best for the environment."

'Coal Preservation Act'

Coal and natural gas are the top fuels used to make electricity in the United States. Natural gas emits about half the carbon dioxide, the principal greenhouse gas, that coal does for the same amount of energy produced. Natural gas executives and others at the Denver conference argued that while the House-passed legislation strives to reduce carbon emissions, it insulates coal in a way that will hurt lower-emitting natural gas.

Analysts agree that the bill crafted by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) helps coal.

"Coal did very well in Waxman-Markey," said AEI's Hayward, who added that the legislation could be called the "Sleight-Of-Hand Coal Preservation Act."

"It is so well-established in so many industrial states, and replacing it with another source, even natural gas, would cause a serious increase in utility rates, which no politician wants their fingerprints on," said Hayward, who in general dislikes the bill.

A spokesman for a trade group representing coal interests said the bill is structured to lower carbon emissions while still protecting consumers from higher electricity costs.

"The reality is, natural gas is a higher-priced fuel. It's a less domestically available fuel," said Joe Lucas, spokesman for American Coalition for Clean Coal Electricity. Language in the bill helping utilities that use coal "is a way of reducing the consumer's end price."

In the early years of climate regulation that charges for carbon emissions, the government would give away 85 percent of the carbon emission allowances and auction the remaining 15 percent.

Of those free allowances, 30 percent would go to local distribution companies that deliver electricity to consumers. The allowances would be given based in part on how much carbon a utility emitted from 2002 through 2005. Those with higher carbon emissions would get more, meaning that a utility that has burned more coal than natural gas would get more free permits.

The Edison Electric Institute, a trade group for utilities, said those allowances do not represent profit to utilities.

The bill requires that local distribution companies use those free allowances to help consumers. Utilities and their state and local regulators can decide whether to use those allowances to hold rates down, or let rates rise and send rebates to customers.

Local natural gas distribution companies would get 9 percent of the allowances, with a requirement that state-regulated firms use the funds to protect consumers from natural gas price increases. The free allowances will be phased out between 2026 and 2030.

But the perception, Julander said, is that the help for natural gas is not much, and that with help given to coal, "our advantage of being much lower in carbon is gone."

Natural gas blames itself

Several natural gas executives and outside observers acknowledged that the gas industry is responsible for what happened in the House bill. The industry, they said, had no effective lobbying force in Washington as the bill was being crafted.

"In my view, over the last eight, now going on nine, years, natural gas has largely been absent from the policy discussions in Washington," said Melanie Kenderdine, associate director for strategic planning for the Massachusetts Institute of Technology's Energy Initiative.

By contrast, the coal industry was able to get language inserted into Waxman-Markey to protect its interests. The bill creates a quasi-public corporation, supported by a small surcharge on electricity, that will manage $100 billion for carbon capture and sequestration projects.

Some said the gas industry lost many key allies in Congress when Democrats took control of Capitol Hill in 2007.

David Fleischaker, CEO of Oklahoma City-based Jolen Operating Co., said that 80 percent of the industry's political contributions over the past decade have gone to Republicans. While senior House Republicans were involved in negotiations on Waxman-Markey, they had little say in the bill's core tenets.

Former Sen. Tim Wirth (D-Colo.), now head of the U.N. Foundation and an ally of former Vice President Al Gore, laid blame for natural gas's weak showing on Waxman-Markey on a fragmented industry that failed to deliver a coherent message or find supporters in Congress to deliver that message.

"Every industry was deeply engaged -- except one. Yours," Wirth told the conference in Denver. "The natural gas industry -- the industry with the most to gain and the most to offer, was largely not at the bargaining table."

"The natural gas industry missed the biggest national commitment to generate a host of new energy jobs, to move toward a low-carbon economy, to sharply grow the industry, and become a major player in the future of energy policy," Wirth added.

The utility industry, represented by Edison Electric Institute, largely dictated the terms of the cap-and-trade system, Wirth said.

EEI spokesman Jim Owen argued, "EEI was definitely at the table, but there were a lot of other people at the table.

"Our goal was and remains to protect customers and help mitigate the cost of a cap-and-trade scenario."

At the Denver conference, Wirth, who sees natural gas as a "bridge fuel" toward clean energy, told the industry, "It's getting very late, but it's not too late" to make changes in the Senate bill. "This can still be recouped."

Wirth added, "I would argue with anyone at any time that this industry has more to gain, and a greater contribution to make, than any other industry in America or, for that matter, in the world."

New strategy

Many executives in Denver did not like Wirth's message, particularly on the science of climate change.

"I haven't completely chugged down the whole bucket of magic Kool-Aid that we're in man-made global warming, and I can guarantee you there's a lot of scientists out there that are coming out a little more skeptical that that may not be the case," said Jay Still, executive vice president of domestic operations for Irving, Texas-based Pioneer Natural Resources.

Others directed their fire at the House bill.

"Our top and most urgent priority for the remainder of this year must be either to defeat or radically reshape Waxman-Markey, a truly asinine piece of legislation that passed the House on June 26," said Keith Rattie, chairman, president and CEO of Salt Lake City-based Questar Corp., to applause.

To get what it needs, said Julander, chairman of the Rocky Mountain Natural Gas Strategy Conference, natural gas needs to appeal to both the Senate and the public.

"The first thing we do is regroup," Julander said, "and look for friends in places where we haven't."

He added, "It's going to take a real heroic effort as well as a public relations effort. We need to stir up the conscience so people understand there's a real choice."

Gable reported from Denver, Mulkern from Washington.