Last month, Democrats on the House Energy and Commerce Committee released a 600-page draft of the CLEAN Future Act, a bill that would expand the federal government’s authority to regulate greenhouse gases, with an aim to decarbonize the U.S. economy by 2050. As we’ve previously written, the bill takes a sector-by-sector approach, establishing new regulations and subsidy programs for the power, transport, buildings, and industrial sectors. All of that would be backstopped by a national emissions standard to be implemented at the state level.
Here, I’ll take a look at the bill’s provisions for decarbonizing the power sector, which establish a clean electricity standard. Some environmental groups have criticized the bill for not going far enough to limit fossil fuel use, which is representative of a wider debate occuring within the energy policy community: What role, if any, should natural gas play in the energy transition?
A federal clean electricity standard
One of the major initiatives included in the CLEAN Future Act authorizes the Department of Energy to establish a federal clean electricity standard (CES). As written, the standard would apply in 2022. It requires that retailers selling electricity to consumers sell a certain percentage of electricity from qualified clean sources and introduces a credit system to ease the transition. The aim of the bill is to require that, by 2050, all electricity be generated from non-emitting sources. Substantively, that means that by 2050 all natural gas generators will have to be phased out or be retrofitted with carbon capture technology. Alternatively retail electricity suppliers can buy credits from other retailers, have banked credits from earlier years, or pay a noncompliance fee.
In the draft legislation, a qualified energy-generating source is one with a carbon intensity lower than 0.82 metric tons of CO2-equivalent (CO2e) per megawatt hour. So what might count as clean? A recent study analyzed the “levelized life cycle carbon intensity” of different electricity generation technologies and found the average carbon intensity of natural gas combustion turbines to be 0.67 metric tons of CO2e/MWh; the figure was 0.46 metric tons of CO2e/MWh for combined-cycle generators. Both natural gas technologies would thus be eligible for partial clean energy credits. Coal, at 0.87 metric tons of CO2e/MWh, would not.
The levelized life cycle carbon intensity of a generator is estimated by dividing its expected lifetime emissions by the total expected electricity output. The CLEAN Future Act states that the carbon intensity of a generator will be calculated by accounting for the emissions from power generation, as well as the average greenhouse gas (GHG) emissions that occur during extraction, flaring, processing, and transportation of the fuel to the generating unit. Accounting for CO2 emissions at all these different stages will pose both measurement and methodological uncertainties, and will differ from generator to generator. The administrative side of this will pose challenges and it is worth noting it would require significant work from the Environmental Protection Agency. The carbon intensities presented in the above study are likely higher than the carbon intensity values that would be calculated using the methodology outlined in the bill, because the study is accounting for upstream GHG emissions associated with manufacturing the generator itself, as well as downstream emissions associated with the decommissioning, disassembly, etc. of the generator.
Generators that meet the 0.82 threshold receive clean energy credits for each MWh of electricity they produce. Renewable and nuclear generation are awarded a full credit, while generators that emit at carbon intensities lower than 0.82 metric tons/MWh would receive a partial credit. Using the life cycle emissions estimates cited above and using the formula established by the bill, that means that a combined-cycle generator would receive 0.44 credits per MWh and a combustion turbine would receive 0.18 credits per MWh.
The starting point for the CES is established by taking the average percentage of electricity generated from qualified sources in 2017, 2018, and 2019. That sets the initial standard and the required percentage increases each year thereafter until it is 100 percent in 2050. Using Energy Information Administration (EIA) data for electricity generation, I estimate that clean electricity will have to account for roughly 50 percent of total electricity in 2022, assuming that is the first year of the policy. By 2035, 73 percent of electricity generation will have to come from qualified clean electricity sources. And in 2050, 100 percent of generation must be clean.
According to the EPA’s eGRID database, roughly 85 percent of natural gas generation came from combined-cycle generators in 2018, while 9 percent came from combustion turbines. Accounting for the partial credits awarded to these technologies, natural gas generation accounted for 28 percent of all the qualified clean electricity — as defined by the CLEAN Future Act — in the U.S. in 2018, while renewable and nuclear generators accounted for 33 percent and 39 percent, respectively. The upshot is that natural gas would likely provide a little less than a third of the clean energy used to comply with the bill’s standard initially. But as the standard becomes more severe annually, what might be the fate of gas generation by 2035, the midpoint of the policy?
In EIA’s 2020 Annual Electricity reference-case forecast, which assumes no policy change, in 2035 coal still provides 16 percent of generation and natural gas 36 percent. But with that mix, only 61 percent of electricity generation would qualify as clean under the CLEAN Future Act, falling short of the 73 percent that would be required.
Over the last 15 years, the U.S. power sector has reduced emissions by closing coal plants and replacing them with a mixture of renewables and natural gas. How much would this design of a clean energy standard allow that trend to continue?
Assuming unchanged electricity demand, the total elimination of coal, and the same proportion of combined-cycle and combustion turbine generators, in 2035 the CLEAN Future Act would allow natural gas to supply a maximum of 2 billion MWh of electricity, or 43 percent of total generation. Below is a snapshot of an electricity generation mix in 2035 that complies with this clean electricity standard, with the maximum allowable natural gas generation. (These results are not an attempt to model what the grid will look like in 2035. Rather, they demonstrate one of the possible generation mixes that would comply with the clean electricity standard under the most friendly assumptions for natural gas.)
Under these assumptions, natural gas would be the second largest source of clean electricity generation in the U.S. Approximately 40 percent of the lost coal generation would be made up by natural gas generators, with renewables making up the rest. Natural gas and renewable electricity generation would have to increase from EIA-projected levels, but not by much. Zero-carbon generation would produce roughly 2.6 billion MWh of clean electricity. Although natural gas would provide the largest share of electricity in 2035, the carbon intensity of the power grid would be lower than it is today and in EIA’s reference case. It is important to note that if electricity demand is much higher, due to the electrification of transportation, for example, then the CES target could still be met by just expanding clean electricity without reducing the absolute amount of coal generation.
One can conclude that the House E&C bill is extremely friendly to natural gas, and the drafters view it as an important source of clean electricity in the short- and long-term.
They are right. The most cost-effective way to reduce emissions from the power sector is to use the most inclusive mix of low-carbon electricity. Ensuring the U.S. has a range of reliable low-carbon technologies and pathways available to meet its mid-century emissions target will reduce the societal costs of achieving deep decarbonization. The broad definition of what is considered clean electricity in the CLEAN Future Act does just that, and this optionality in power generation is important for states, cities, and utilities to reduce the costs and risks of producing carbon-free electricity.