EPA’s Proposed Clean Power Plan May Dampen Growth in Future Natural Gas Consumption

On June 2, 2014, the U.S. Environmental Protection Agency (EPA) proposed the Clean Power Plan to cut carbon pollution from the electric power sector. In the proposal, EPA defines the “best system of emission reduction” based on four building blocks and calculates state-specific goals from CO₂ reduction measures under the four building blocks (see BPC’s additional explanation of the rule):

1. Coal plant heat rate improvement
2. Increased use of existing natural gas
3. Clean generation (renewable & nuclear)
4. End-use energy efficiency

EPA conducted a modeling analysis of the proposed Clean Power Plan, which included: 1) the EPA Base Case to represent conditions without the proposed Clean Power Plan, 2) an EPA Regional Approach to represent a scenario illustrating regional-level compliance with the proposed rule, and 3) an EPA State Approach to represent a scenario illustrating state-level compliance with the proposed rule.

The Bipartisan Policy Center (BPC) examined the effects of the proposed Clean Power Plan on natural gas consumption in the electric power sector by comparing results from the EPA modeling analysis across regions of the United States. In addition to the three EPA scenarios described above, the U.S. Energy Information Administration’s (EIA) Reference Case and High Oil & Gas Resource Case were also included in the comparison.

Overall, natural gas consumption in the electric power sector increases in all cases from 2013 to 2030. However, the increase in the electric power sector’s natural gas consumption in the proposed rule cases in 2030 is 5 and 3 percent less respectively for the EPA Regional Approach and EPA State Approach, compared to EPA’s business-as-usual projection. Even though the proposed rule’s second building block encourages increased dispatch of existing under-utilized natural gas combined cycle combustion turbines, the proposal’s incentives to boost the deployment of end-use energy efficiency throughout the economy results in lower total electricity demand and, thus, lower natural gas consumption in the electric power sector when compared to the EPA Base Case. Power sector natural gas consumption in EPA cases is 2-7 percent lower than EIA’s Reference Case and 18-23 percent lower than EIA’s High Resource Case, though that varies by region.

However, because demand for natural gas from the electric power sector is increasing in all of the cases compared to current consumption levels, new infrastructure may be necessary to transport and store the natural gas. This is particularly true in regions that have had limited demand for natural gas in the past or expect large increases in natural gas demand in the future.

The graphs below compare natural gas consumption in the electric power sector for U.S. regions across the three EPA cases and two EIA cases.

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