February 26, 2014

CEG’s Natural Gas Strategy: Squaring Natural Gas With Climate Protection

By Lewis Milford

A few weeks ago, Conservation Law Foundation (CLF) announced it had reached a settlement with the owners of a new 630 MW natural gas plant in Salem, Massachusetts. The settlement paves the way for the new gas plant to replace an old coal plant, which is good; but perhaps more importantly, the settlement includes tough and progressive emissions limitations, and a sunset provision for the gas plant.  This marks the first time that a natural gas plant has been held to the claims of the industry, namely, that natural gas is a “bridge fuel” only intended to provide a temporary solution while renewables ramp up.  This landmark settlement could be a model for the country.

Clean Energy Group is involved, not in the litigation, but as a strategic partner with CLF, because of our interest in limiting greenhouse gas emissions (GHGs) and raising new capital for no- carbon technology investment. The state of Massachusetts was also a party and committed to convening a regional decarbonization roadmap process and other actions (including gas distribution leak reduction policies) as part of the deal.

What follows is a summary of the settlement and its implications for new funding for no-carbon technologies.

Most importantly, the settlement provides declining annual GHG emissions limits and a 2050 decommissioning date.  That is, the plant owners agreed to a declining GHG emission rate consistent with an end goal of reducing the plant emissions by 80% by 2050, at which point the plant must shut down. The emissions limits can be met by decreasing operations, by technological improvements or by investments in renewable resources (e.g., blended contracts with renewable output where gas provides firming).

The target of 80% emissions reduction by 2050 is consistent with the findings of climate scientists, who say we need to reach those levels to have any hope of stabilizing climate change.

Clean Energy Group is interested in this work because we believe that any new gas investment must be squared with our region’s commitment to stabilize the climate. We believe in particular that gas investment should be leveraged to finance no-carbon investments. Otherwise, more gas could well crowd out investment in no-carbon resources needed to reach that climate stabilization target.

In particular, we believe that that any new gas infrastructure, including proposed new gas pipelines in the region, should be leveraged with a new System Transformation Charge (STC) to raise significant revenues for the deployment and innovation of no-carbon technologies. This would be similar to the system benefit charges (SBCs) on electric utilities that now fund many state clean energy funds.

Clean Energy Group will be making this argument in the coming years, so that our no-carbon technology portfolio has the capital to reach scale.

New investment in no-carbon technologies is critical for many reasons. Recent reports and peer-reviewed studies support the conclusion that natural gas is only useful as part of a short-term transition strategy, but does not represent a satisfactory long-term replacement for coal and oil. In fact, new natural gas power plants would increase emissions in New England unless properly conditioned and subjected to appropriate emission limits.

Moreover, expanded investment in natural gas infrastructure threatens continued investment in renewable and low-carbon technologies. This is true for the electricity sector as well as for advanced electric heat and renewable thermal technologies.

New gas infrastructure has a useful life of 50 years or more. If the current increase in natural gas generation and infrastructure is left unchecked, natural gas will become the dominant fossil fuel for power generation, space heating, and industrial use through this century. If closing coal-fired power plants and driving oil out of basements and furnaces results only in a lock-in of natural gas and a lock-out of no-carbon technologies, climate protection will not advance.

What you will see from Clean Energy Group and CLF over the next few years is a three pronged strategy:  1) Manage and condition new gas investment to be consistent with decarbonization; 2) Leverage new gas investment to raise revenue for no carbon technology and resource deployment; and 3) Create a long term decarbonization strategy for New England.

This new Massachusetts agreement is a major step towards progress on all three prongs.  It imposes conditions on new gas infrastructure including GHG limits which can be met through investments in new renewables, and it commits the state to long term decarbonization planning (that we suggest should include various strategies such as new financial models).

In key respects, the settlement agreement creates a landmark precedent. It is a first-of-its-kind model for replacing coal plants with gas.

The settlement agreement documents can be accessed here.

Press coverage and analysis of the CLF settlement includes:

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