First 100-Days Climate Policy: Who Might Dispatch A Plane To The Coming Dogfight?

F-22 Raptors over Utah in their first official deployment, October 2005, simulating a dogfight.
Image credit:Wikipedia, Dogfight

With US climate policy deliberations about to become serious, energy intensive businesses and their lobbyists seem to be positioning around a strategy that includes playing the "middle class cost burden" card.

Wall Street Journal, via Dow Jones Newswire, hints at how energy-intensive businesses might aim to protect the status quo (see especially our bolded text), in the story EMISSION CRITICAL: Obama Energy Plans Flex With Costs

Have a look below for some excerpts and analysis.

Even the president of the American Gas Association, David Parker, is concerned about an over-reliance on natural gas, fearing the price shock that could hurt consumers, which would then drive consumption down drastically.

"We don't want all the natural gas that's produced to generate electricity," Parker said. With 40% of gas used for homes, 20% in the industrial sector, and 40% on generation, a major shift of the fuel to power more electricity plants would put a major burden on consumers, he said.

Parker fears that the president-elect may use currently low energy prices to "push to do some things that won't be obtainable down the road," that restrict growth in some energy sectors.

But ultimately, he adds, "reality will settle in" and the Obama administration will have to temper its climate-change plans with what's politically feasible.


Strategy codex
If the price of coal-fired electricity rises significantly due to a carbon tax or "cap and trade" mechanism, utilities are expected to change from coal to natural gas fired boilers when they add capacity. Some may even switch from coal to gas boilers on existing facilities. That will have secondary impacts.

The increased gas demand associated with electricity generation is portrayed as driving natural gas prices upward, causing price dislocations as indicated by these examples:


* consumer demand for natural gas goes down (exactly what we should be wanting to happen)

* the poor and out-of-work will spend a greater - perhaps unbearable portion - of their income on heating (unless heating is done more efficiently - , which is what we want to have happen)

* same for building owners and small businesses, (unless heating is done more efficiently - again, which is what we want to have happen)

So...what's the problem, then?

* Petrochemical producers in the US, for which natural gas is a basic input, both as a fuel and as a building block for ethylene production, will see reduced operating margins as a result of the increased cost of natural gas. This problem is global in context.
Here's the explanation, excerpted from a story on Plastemart.com, Ethylene supply and markets are shifting
For the last two decades, location of polymers and their feedstock suppliers are moving towards abundant and cheaper supplies of oil [or natural gas]- mainly the Middle Eastern region. Due to the proximity of the producers to cheaper feedstock materials, higher profit margins are being realized, giving them a cost advantage over producers anywhere else in the World. This is resulting in the construction of several new capacities in these feedstock endowed regions. North America and Europe are particularly at a great disadvantage on cost aspects, and will face a share reduction in global ethylene supply.
Note: ethylene, a basic building block of commodity petro-polymers, can be made either from natural gas, as is predominant in the USA, or from naphthalene, (itself a by-product of oil refining); alternatively, naphthalene can be derived from liquefied natural gas, as is common outside the USA.

Hydrogen flies in this squadron.
More expensive hydrogen means reduced profits in US refineries.

* Hydrogen, made almost exclusively from natural gas, is an essential input to refineries, and is especially important for those refining Alberta Tar Sand crude.

Balance of trade is in the control tower.
Ethylene-based petrochemicals are a big source of export revenue for the USA, helping the balance of trade. (The big US producers of ethylene are listed here.)

The above, including the links, pretty much outlines who might chose to launch a fighter in the coming dogfight.

What will the winning strategy be? Let us know what you think.

More from our archives on US climate policy.
Designing a Climate Policy that's Easy on the Federal Budget (And ...
Beyond Generalities: Buildings, Climate Change, And Policy Making ...
Climate Resolve At The Business Roundtable
Yale Professor Democratizes Climate-Action Cost Models
Economists Stirring Climate Action Pot: Bubble Bubble Socialist ...

Tags: Alternative Energy | Clean Coal

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