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EPA climate rule repeal could dent gas demand

10 Oct 2017, 9.08 pm GMT

EPA climate rule repeal could dent gas demand

Washington, 10 October (Argus) — The US Environmental Protection Agency's (EPA) proposal to repeal former president Barack Obama's signature effort to address climate change could rob the natural gas sector of a government-driven bump to gas demand.

That regulation, called the Clean Power Plan, would have required states to write plans to reduce power sector carbon emissions by 32pc below 2005 levels by 2030. Those emission cuts were projected to come in part from replacing carbon-intensive coal generation with natural gas and renewables.

President Donald Trump campaigned heavily on scrapping the rule, and EPA today formally proposed to repeal the measure in its entirely. That regulatory process will take until 2018, and legal battles will likely play out for at least another two years.

The natural gas sector was mostly unenthusiastic about the regulation, even though it was projected to increase gas demand. The US Energy Information Administration (EIA) in January projected the rule would boost electric sector natural gas consumption by an average of 0.7 Bcf/d between 2020 and 2030.

The industry's ambivalence was in part because of the uncertainty the rule created around demand growth. Industry group the American Petroleum Institute found it could increase gas-fired generation by 14pc or reduce it by 10pc, depending on whether states let market forces work or if they instead chose to promote renewables and energy efficiency.

Another concern was what might happen once EPA had a regulatory framework for reducing power sector carbon emissions. Industry groups worried that if emission targets were ratcheted down in the future, renewables and energy efficiency would start to take market share from natural gas.

The potential market effect of the rule has fallen significantly since it was finalized in 2015. That is because CO2 emissions from power plants have declined far faster than EPA initially projected. Power plants last year emitted about 2,000mn tons (1,820mn metric tonnes) of CO2, which is already 4pc below the 2020 emissions target. And even if the rule is repealed entirely, the EIA forecasts the power sector will achieve the rule's final emission targets of 1,812mn tons of CO2 nine years early, in 2021.

After that, however, coal use would begin to rise again absent EPA's climate regulations. That would cause power sector carbon emissions to increase 5pc by 2030, meaning the US would fail to reach the final targets set in the Clean Power Plan.

EPA plans to accept comments on the proposed regulatory repeal for 60 days after it is published in the Federal Register.

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