CLIMATE:

Natural gas looks for champions to gain incentives in Senate bill

Natural gas producers are trying to make up for lost ground in the climate change debate, appealing for allocations and incentives in the Senate bill that would boost the consumption of the fuel. But their message -- and past campaign donations -- have so far inspired few Democratic senators to make a stand on the inclusion of more natural gas incentives, as others have done for coal, agriculture and nuclear power.

The House climate bill (H.R. 2454) passed in June contains free greenhouse gas emission allocations, incentives and other provisions to help the coal industry transition to a low-carbon economy and to promote renewable energy. Even new nuclear power received a small nod in the renewable electricity standard (RES) provision by being excluded from the baseline amount of electricity used to calculate total percentages.

But the major provision for natural gas went to the distribution companies, who received 9 percent allowances to help mitigate the cost of a limit on carbon emissions.

Natural gas production company executives said their product deserves more acknowledgement in the Senate bill because of the benefits the fuel could bring to greenhouse gas reductions -- it emits 50 percent less carbon emissions than coal -- and national security, as natural gas-fueled vehicles would decrease the nation's reliance on foreign oil.

"We want to define the new politics of natural gas," said Rod Lowman, president of America's Natural Gas Alliance at an event the organization held last week in Washington, D.C. The coalition of U.S. natural gas and exploration companies that formed in March is dedicated to educating policymakers and the public about the potential contributions of natural gas.

ANGA is pushing for the Senate bill to reward companies for switching to lower-carbon emitting natural gas through "bridge fuel credits" -- carving them out from the international offsets that are made available. Bridge fuel credits would be issued if a company reduced its emissions by using natural gas instead of a more carbon-intensive fuel, according to ANGA. Each credit would equal 1 ton less of greenhouse gas emissions that would have occurred if the more carbon-intensive fuel had been burned, and the credits would be available from 2012 to 2025.

The alliance is also seeking incentives and exemptions for natural gas-powered vehicles.

"Gas needs to be the foundation of climate and energy policy," said David Trice, chairman of ANGA and Newfield Exploration Co.

But the historical price volatility of natural gas has made lawmakers wary of relying on the fossil fuel, and industry members have an uphill climb to persuade Congress to do otherwise.

The coal industry stresses the cost switching from coal to natural gas will bring to consumers if the targets in the climate bill are too strict. And as strong as coal's lobbying efforts were on the House bill, it is even stronger in the Senate as senators from states that heavily rely on coal-fired power plants have a greater share of the total vote count.

The members of ANGA say natural gas prices will no longer be wildly volatile. With the incoming gas supply from shale plays, natural gas prices should stay between $5 to $8 per million British thermal units (mmbtu) even with additional demand from climate policy, according to the group. The United States has more than a 100-year supply of natural gas, which could possibly double as the new shale plans continue to reveal more gas, John Pinkerton, CEO and chairman of Range Resources Corp., said.

"Abundance will create stability," Trice added.

Joseph Romm, a senior fellow at Center for American Progress, said the new finds of domestic gas supply make the fuel a "game changer" for climate change. But he said the natural gas producers are focusing on proposals that would weaken targets in the climate bill.

"I don't think the gas industry fully understands that the bill as written is pretty good," Romm said. "But there are certainly some things that could accelerate the transition to gas and reduce emissions."

Romm said the bridge fuel credit would essentially give utilities a double emissions credit if they used natural gas, which would increase the number of allowances originally issued and weaken the reduction targets. "The bridge fuel credit doesn't really work. It's not in my mind a viable proposal," he said.

Instead, Romm suggests natural gas advocates seek to raise the floor price of carbon and sign more long-term contracts.

There is also a danger if the natural gas industry objects too strenuously to any climate bill, Romm said.

"If there is no bill then natural gas is not a growth industry," he said. There is no room to grow because no coal-fired plants will be shut down early, renewables will continue to grow because of state and possibly federal mandates, energy efficiency will also continue to grow, and demand response -- or reducing energy use voluntarily -- will substitute more and more for peaking gas, Romm said.

"Natural gas has nowhere to go unless they create a rising price of CO2 that gives the gas cost a competitive edge over coal plants," he said.

Bringing votes to the table

Still, Romm said switching from coal to natural gas will help the United States reduce emissions faster. While late in asking for incentives in the bill compared to other industries, it is not too late yet for the industry.

"We are in a political world here. The reason why other industries are able to get what they see as good things is because they bring folks to the table," he said.

The longer senators debate the bill, the longer natural gas has to put its millions of dollars toward educating policymakers and the public, and winning more incentives in the bill.

Sens. Barbara Boxer (D-Calif.) and John Kerry (D-Mass.) plan to introduce their climate bill next Wednesday (see related story), with an Environment and Public Works Committee markup in the middle of next month. The Finance Committee also plans to mark up a section of the bill at some point, according to Chairman Max Baucus (D-Mont.).

Even with additional time, ANGA's campaign may be in vain if they cannot find a senator to wholly back their cause. "It's not an image problem; they have a leadership problem," a source close to the bill negotiations concluded.

The new natural gas shale finds in Fayetteville, Ark., and the Marcellus shale play found mainly in Pennsylvania, West Virginia and New York overlap with key votes that Democratic leaders are seeking.

Sen. Blanche Lincoln (D-Ark.) said she is interested in creating a better balance in incentives between natural gas and other fuels than what currently exists in the House bill.

"It deserves more of a role," Lincoln said. "It's important to my state; it's important to the nation." Providing more natural gas incentives to the House bill would help create "a more balanced bill," she said.

But Lincoln has repeatedly stated that she does not think a climate bill should be passed this year. She is also the new chairwoman of the Agriculture Committee and is already championing the cause of helping the agriculture industry find a softer landing under a climate bill.

Similarly, Sen. Mark Pryor (D-Ark.), who sits on the Commerce Committee, said, "Natural gas is going to be a big part of the equation." But he has not discussed the issue with fellow senators, he said.

With a growing natural gas industry in Pennsylvania, Sen. Arlen Specter (D-Pa.) also could be a strong voice for the industry. Specter said natural gas "is a very important aspect of the legislation."

But, Specter added, "it is one of many factors that needs to be balanced," along with coal, solar, hydro and other supplies.

Pennsylvania is the fourth leading coal producing state in the United States and provided $2.2 billion in wages through direct and indirect jobs and $700 billion in tax revenues for the state, according to the Pennsylvania Coal Association.

Other senators who could also take up the banner for natural gas include Sens. Mary Landrieu (D-La.) and Lisa Murkowski (R-Alaska) -- both potential swing votes on the climate bill for various reasons. Sens. Mark Udall (D-Colo.), Michael Bennet (D-Colo.) and Kent Conrad (D-N.D.) are also on record as supporting more benefits for natural gas in the bill.

Even Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) could be a candidate. New Mexico has some natural gas production, but when asked if the natural gas industry had approached him on the subject, Bingaman -- who sits on the Finance Committee -- said no one had talked to him about the natural gas incentives or proposals.

Money talks

Members of ANGA have also not opened too many Democratic doors with campaign contributions in the previous two election cycles.

Individual, employees or political action committees associated with Andarko Petroleum Corp. gave almost $1 million combined in 2006 and 2008 with 90 percent or more of those funds going to Republicans, according to OpenSecrets.org, a lobbying tracking Web site run by the Center for Responsive Politics.

In the 2010 cycle, Andarko-related contributions have totaled $68,500 with 80 percent going to Republicans.

Similarly, Chesapeake Energy Corp.-related contributions totaled $255,520 in 2006 with 93 percent going to Republicans. In 2008 Chesapeake-related contributions gave 79 percent of their $475,771 in contributions to Republicans, according to the Web site.

Contributors connected to Devon Energy Corp., one of North America's largest producers, provided $460,396 in 2008 with 90 percent going to Republicans, according to the group.