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Fossil Fuel Politics: How the New Congress Might Change the Mix

How the New Congress Might Change the Mix
Fortnightly Magazine - February 15 2003

its analysis of the price effects of a four-pollutant scenario with CO 2 emissions capped at 1990 levels, EIA did not forecast any significant change in electricity prices over the next 20 years attributable to the new emissions limits. 17 While NO X, SO 2, and mercury were reduced by 75 percent, there was a 0.1 cent per kilowatt hour increase in electricity prices. 18 By 2020, the increase was 0.4 cents per kilowatt-hour at the same reduction percentage. 19

With CO 2 emissions capped at 2008 levels, coal-fired generation declined by 408 billion kilowatt-hours, where three-pollutant missions were reduced by 50 percent (327 billion kilowatt hours greater than under the three pollutant scenario), 460 billion kilowatt-hours where three-pollutant emissions were reduced by 65 percent (293 billion kilowatt hours greater than under the three-pollutant scenario), and 508 billion kilowatt-hours where three-pollutant emissions were reduced by 75 percent (289 billion kilowatt hours greater than under the three-pollutant scenario). 20 When combined with three-pollutant emissions reductions under the three scenarios, EIA forecasted that CO 2 emissions capped at 2008 levels would cause electricity prices to increase by between 0.9 cents and 1.0 cent per kilowatt-hour by 2020. 21

EIA's responses to the congressional inquiries confirm what one would suspect: three-pollutant regulation will have less of an impact on fuel choice for electric generation and electricity prices due to the absence of requirements directly regulating carbon emissions. The carbon emission limits that would be added by four-pollutant legislation would significantly affect the fuel mix and electricity pricing, because coal-fired electricity generation accounts for such a significant part of the U.S. generation portfolio 22 and also contributes greatly to overall carbon emissions compared with other generating technologies.

Policies affecting access to federal lands for the exploration and production of natural gas could significantly affect the supply and price of future natural gas supplies. According to EIA, increased access to federal lands could increase the exploitable resource base in the Rocky Mountains by 29 trillion cubic feet (tcf) and reduce the cost and development time for exploiting an additional 59 tcf of natural gas resources. Similarly, increased access would increase exploitable resources on the Outer Continental Shelf by 58 tcf. This would translate into increased production and decreased price. EIA projects that under a high-demand scenario, such as one including CO 2 emissions reduction mandates, increased access to public lands could result in an additional 1.1 tcf of domestic production in 2020, while also contributing to a 15-cent per thousand cubic feet reduction in price compared to the base case. 23

While it is quite possible that multi-pollutant legislation will not be ripe for passage in the 108th Congress, a federal initiative affecting fuel choice that could be implemented in the near future is FERC's SMD rulemaking. 24 SMD proposes a common set of rules for all jurisdictional public utilities (i.e., investor-owned utilities) that own, operate, or control transmission facilities. Among its specific proposals, the SMD rulemaking proposes a resource adequacy requirement that requires load-serving entities to arrange for sufficient resources to meet their peak