The two major forces that are currently shaping the U.S. power sector are the rapid growth of modern renewables – solar, wind – and shale gas. The share of renewables in electricity generation has increased from 9% to 13% between 2003 and 2013, while natural gas has grown from 17% to 28%. Overall, that’s great because the share of coal has decreased from 53% to 40%. (EIA)
Of the two, it is obvious that the expansion of renewables is good news for the climate. Since solar and wind power do not produce carbon dioxide emissions, replacing coal burning with them is a great idea.
The case of shale gas is a little tricky, though. In terms of carbon dioxide, shale gas is much better than coal, as one unit of electricity generates only one-half of the carbon generated from coal. However, the extraction of shale gas generates methane emissions that, without appropriate regulations and safeguards, will contribute to global warming. Some environmentalists, such as Fred Krupp from the Environmental Defense Fund, call for such regulations; others, such as Environment America, demand a ban on “fracking” – the process of shale gas extraction.
In the long run, the most important question is whether or not shale gas is a “bridge” fuel that buys us time and facilitates a transition to a zero-carbon society based on renewables. The answer to this question is not obvious. On the one hand, shale gas competes with wind and solar power. Since the cost difference between shale gas and wind is relatively small, shale gas extraction may slow down the expansion of wind power. Given that carbon dioxide emissions from wind power are negligible, any substitution of shale gas for wind energy is a net negative for the planet.
On the other hand, shale gas is a low-carbon alternative to coal. An integrated power system could be based on wind and solar when these resources are available, and then switch to natural gas when the wind is not blowing and the sun not shining. Moreover, if shale gas displaces coal plants, a future increase in natural gas prices could contribute to a renewable energy boom. My personal view is that the second scenario is plausible. Natural gas prices may well increase in the future, and this is great news to renewables as long as coal power plants continue to retire.
Political economy is also important here. Shale gas producers have less incentive to oppose constraints on carbon than their counterparts in the coal industry. Since shale gas has a lower carbon intensity than coal, policies that constrain the use of carbon would not be such a big problem for the natural gas business. In fact, carbon taxes could even benefit natural gas producers as long as there is coal generation capacity to be displaced.
The other reason is that natural gas power plants have a lower capital intensity than coal power plants. Every time a coal power plant is built, some capitalist out there is endowed with incredibly strong incentives to fight against limits to carbon pollution. After all, the poor capitalist would lose a lot of money if the profits from the expensive power plant would decrease. The owner of a natural gas plant would be less vocal in his or her opposition. The natural gas plant pays itself back in a few years, and this capitalist can then start investing in wind and solar as the real price of carbon increases.
So, shale gas could be good for the planet, provided the Environmental Protection Agency imposes and enforces rigorous regulations to minimize negative environmental effects.