President Biden’s original ‘Build Back Better’ bill and a separate infrastructure package offered dueling visions of the role natural gas should play in America’s energy future. For the U.S. natural gas industry, the kinder, gentler version seems to have prevailed — at least for now.
When U.S. President Joe Biden headed to Scotland for the COP26 Climate Conference a few weeks ago, he still had a definite destination in mind for America’s journey to a clean energy future: a carbon pollution-free power sector by 2035 and a net-zero emissions economy by 2050.
But the roadmap he was able to share at the Glasgow summit — the specifics on how the U.S. will get there — showed a less direct route to those goals after weeks of wrangling over his massive “Build Back Better” bill stuffed with provisions inimical to U.S. natural gas interests.
Worse yet for Biden, the prolonged standoff between progressive and moderate Democrats in Congress also had held up a bipartisan $1.2 trillion infrastructure package approved by the Senate last summer that included many climate proposals viewed favourably by the industry.
Despite the drama, U.S. industry advocates watching the soap opera unfold say the climate-change proposals in both bills that appeared likely to survive represent at least a partial victory for the industry’s vision of natural gas as a critical player in the journey to a cleaner energy mix.
In its final form, Build Back Better is about half the initial $3.5 trillion price tag, and the climate provisions of greatest concern — those serving progressives’ vision of a rapid transition to an all-electric energy future and swift, dramatic cuts in natural gas use — have been axed.
As of late October, an estimated $555 billion remained in the Democrats’ spending package for incentives to spur the use of electric cars, wean utilities off fossil fuels, expand use of residential renewable energy, upgrade the power grid and support clean energy manufacturing.
Even with key provisions eliminated, the measures that survived represent by far the largest investment yet by the U.S. in combating climate change. Biden’s climate chief, Gina McCarthy, insists the U.S. can still hit its emissions targets leveraging those measures and executive action.
‘Policy-driven electrification’
Though diminished, Build Back Better contains several climate initiatives that favour renewables over natural gas and advance the goal of “policy-driven electrification,” said Kristen Granier, the American Gas Association’s senior director of government affairs and public policy.
Still, natural gas industry advocates could breathe a sigh of relief at the demise of the $150 billion Clean Electricity Performance Program (CEPP), which would have paid utilities that increased generation from clean energy by more than four per cent per year and penalized those that fell short.
The CEPP was the centerpiece of Biden’s original climate plan, and its defeat was due primarily to the Democrats’ razor-thin margins in Congress, which vaulted U.S. Sen. Joe Manchin of coal- and gas-rich West Virginia into a position of extraordinary influence over the spending plan.
Manchin, chairman of the Senate Energy and Natural Resources Committee, made it clear early on that he was interested in an orderly transition to clean energy that doesn’t sacrifice energy reliability and affordability, and in policies that “spur innovation, not elimination” of energy options.
Noting utilities and other large energy users are already making strides in reducing emissions, he roundly criticized the CEPP, remarking that it didn’t make sense to “pay utilities to do what they are going to do anyway.”
Those words no doubt endeared Manchin to the folks back home in West Virginia, America’s No. 2 coal-producing state where 91% of electricity came from coal-fired power plants in 2020, compared to less than 20% nationally. CEPP would have cost the state dearly.
And while only three per cent of West Virginia’s power is generated from natural gas, the state ranks fourth among the 50 states in natural gas reserves and was sixth in shale gas production in 2019.
Well attuned to these realities, Manchin took the opportunity to praise the cleanest-burning fossil fuel in a recent committee hearing. Said Manchin: “We have natural gas to thank for the lion’s share of the decarbonization we’ve seen in the power sector over the last 20 years.”
Moving forward on hydrogen
While the drama over Build Back Better played out, natural gas industry supporters found plenty to like in the $1-trillion infrastructure bill that passed the Senate in August and had been held hostage by progressives until agreement on the spending plan could be reached.
Provisions providing for research, development and deployment of hydrogen as a future energy source are far and away the most promising features of the bill for the AGA and other industry trade groups, including the Interstate Natural Gas Association of America (INGAA).
A centerpiece of the hydrogen section of the bill is a multibillion-dollar program to stimulate the development of hydrogen hubs, which could help address the chicken-and-egg problem of not being able to create demand for a product until the infrastructure to deliver it exists, said C.J. Osman, INGAA’s vice president of government affairs.
“This is a pretty significant investment in building out a hydrogen market, a hydrogen economy in the U.S., something that was championed by Senator Manchin and other members of Congress on both sides of the aisle,” Osman said. “There’s a lot of interest in hydrogen, but you have to get infrastructure development going before you can really create the market, the real demand for hydrogen. If you don’t have efficient transportation infrastructure, there won’t be enough demand for the product to justify additional investment, and you kind of get stuck in that cycle.”
Thanks in no small part to the advocacy of the AGA, INGAA and other partners, the hydrogen section of the bill includes the full color spectrum of hydrogen from gray to green and acknowledges the key potential role existing natural gas infrastructure could play in transporting hydrogen. Advocates also worked to ensure some of the hydrogen R&D money is earmarked for cooking, heating and other commercial and residential end uses.
“We’ve got 2.6 million miles of pipe, and there is no reason not to use that pipe, whether it be natural gas, RNG or hydrogen. That’s there and it’s delivering to 180 million Americans now and 5.5 million businesses,” said George Lowe, the AGA’s vice president for government affairs and public policy. “There is no reason we can’t innovate our way into continuing to use that as long as people have an open mind to the positives of it, and that’s one of the big battles we have, working with folks who believe that wind and solar are the only solutions to our energy needs.”
INGAA’s members also are keenly interested in positioning their interstate pipelines as the solution for getting hydrogen to end users from the hubs, which likely would be located in shale basins where abundant supplies of natural gas could be used to produce blue hydrogen. The hydrogen hubs may also be located near large-scale wind and/or solar farms where renewable energy could be converted into green hydrogen.
“That’s of great interest to us in the medium and long term here, as we think about how we can continue to put our infrastructure to use moving all of the energy products our customers are looking for in the future,” Osman said.
Other wins for natural gas in the infrastructure package include fuel-neutral language sought by the AGA to ensure natural gas equipment is eligible for energy efficiency grants and, making sure natural gas, propane and hydrogen were included in a section providing grants for charging and fueling infrastructure. Industry advocates also worked to make sure energy efficiency loan programs recognized the “full fuel cycle” efficiency of natural gas from extraction to end use rather than using a measure of efficiency at the end-use site alone. Finally, a significant bump in funding of $500 million over five years for the Low Income Home Energy Assistance Program (LIHEAP) is also baked into the bill.
“Those sections related to hydrogen and energy efficiency certainly highlight the need to continue to utilize natural gas in our energy mix, along with innovative ways that we can continue working to decarbonize,” Granier said. “Many of our member companies are very keen on hydrogen and RNG right now and are looking at their net-zero goals and their decarbonization actions through the lens of using and integrating as much RNG and hydrogen as they can.”
Plan to tax methane emissions questioned
Another provision in the original Build Back Better proposal that concerned the industry was a proposed $1,500-per-ton levy on methane emissions. While that provision was removed, there were hints that some mix of carrots and sticks to cut emissions would emerge in the final bill.
Critics of the original provision, including the AGA and INGAA, said such a fee would put more consumers at the “energy poverty level” by raising natural gas bills an average of 12% or about $85 a year. And it’s unnecessary, they say.
The proposal was vague on how the fee would be levied, but with 70% of energy consumed in the U.S. coming from oil or gas, the fee would have been onerous, said Edward Hild, a principal in the government relations practice group at Buchanan Ingersoll & Rooney PC in Washington.
“Natural gas companies already are voluntarily taking steps to reduce methane emissions, so why slap this punitive fee on them in an ill-defined manner that could have very punitive impacts on the customer,” Hild said.
The added burden on customers would come on top of costs associated with current emissions-reduction mandates from the Environmental Protection Agency and the Pipeline and Hazardous Materials Safety Administration — mandates that INGAA has supported, Osman points out.
“Our concern is that you’re talking about two duplicative programs that are going to take resources and are going to require spending,” Osman said. “At the end of the day that’s going to get passed along to the families and the businesses that rely on us for natural gas service.”
Ignoring role in overall resiliency
Industry watchers worry that the climate provisions in the Build Back Better bill — those that survived the final cut and even those that didn’t — represent a continuation of the all-out assault on natural gas in favour of a move to electrification utilizing renewables.
Transitioning to renewables too quickly will come at a steep price, they say, making the overall U.S. energy system less reliable, less affordable and less resilient to extreme weather and other shocks to the overall energy system.
And it ignores the critical role natural gas can play as a source of reliable energy to backstop intermittent sources like wind and solar, until the day comes — if and when it does — that the energy storage and supply-chain issues currently hampering renewables are solved.
Hild, for one, is skeptical of the speed at which the transition to renewables can be achieved. He points to the DOE’s recent study asserting that solar could meet 40 per cent of U.S. energy needs by 2035.
“We’re at three per cent right now,” Hild said. “To go from three per cent to 40 per cent, that is a lift of epic proportions where just everything has to go right. And everything never goes right.”
Osman fears policy-driven electrification will leave America facing the energy shortages and surging prices that have plagued Europe in the wake of its push into renewables. He worries the U.S. shale boom has left consumers believing energy will always be cheap and plentiful.
“When energy is affordable and reliable, it’s not surprising for people to assume transitioning to other alternative energy sources will be easy, and that because energy is affordable and reliable today, it will stay that way,” Osman said. “We’re concerned that if we’re not doing our job articulating the foundational role of natural gas and natural gas infrastructure, then we’re going to face real challenges in our country in the future not being able to deliver the standard that people are used to.”
“When energy is affordable and reliable, it’s not surprising for people to assume transitioning to other alternative energy sources will be easy, and that because energy is affordable and reliable today, it will stay that way.”
– C.J. Osman, INGAA’s vice president of government affairs
David Coburn is a strategic thinker, writer, media relations expert and communications consultant leveraging 30-plus years of print journalism and agency public relations experience.