Barack Obama Unveils Renewable Energy Plan, Keystone XL Pipeline Hangs in the Balance

Barack Obama Unveils Renewable Energy Plan, Keystone XL Pipeline Hangs in the Balance
White House (Pete Souza) [Public domain]

President Obama’s new Climate Action Plan is highly supportive of renewable energy and natural gas, but negative for coal says Anthony Yuen of Citigroup. Overall, the President’s plan raises natural gas production demand, limits coal use and raises coal production costs, lowers oil demand and turns the US into an energy exporter in this climate change proposal.

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Barack Obama Unveils Renewable Energy Plan, Keystone XL Pipeline Hangs in the Balance

Obama’s Renewable Energy Plan Highlight

Natural gas use should increase further in electricity generation, transport, exports and industry. (1) Imposing limits on power plant emissions and phasing out fossil fuel subsidies should hit coal use the most. Natural gas-fired generation would partially substitute the decrease in coal generation and act as a backup to renewable energy. (2) The Plan also encourages the use of heavy duty natural gas vehicles and the use of alternative fuels in general. (3) The Plan encourages the development of a global gas market, US LNG exports are critical in adding supply worldwide and using lower cost US gas to bring down LNG prices globally. This is consistent with the President’s recent remarks on the US as a net natural gas exporter by 2020. (4) Low cost gas as a feedstock and fuel source should boost US industrial competitiveness.

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For the electricity sector, the President’s plan would pursue regulation of carbon emissions for new and existing power plants in particular. CO2 regulation of existing generation will likely drive retirement of additional coal-fired generation and favor a combination of renewable energy and gas. An analysis of the “US coal supply curve” in terms of emissions intensity offers insight into which power plants are most exposed.

The US government is expected to end its support for public financing of new coal plants globally, except for clean coal, carbon capture and sequestration, and the most efficient coal-fired generation in the poorest countries that have no other options.

Renewable Energy: Speech Supportive For Keystone XL

The President’s speech was cautious in its wording, but seemed net supportive for Keystone XL. The Plan does not mention the pipeline. Obama suggested approval of KXL would be based on the “nation’s interest”, which would be served if the project would “not significantly exacerbate” GHG emissions. Based on the State Department’s March 2013 Draft Supplemental Environmental Impact Statement, Canadian oil sands production would be basically the same whether or not KXL is approved, given that other transportation methods are credible; this could be reasonably interpreted as “not significantly [exacerbating]” GHG emissions. An independent study by the National Research Council released Tuesday found that bitumen pipelines were not at a greater risk of a spill than other types of crude oil due to corrosion or erosion.

The support to the renewable energy sector for domestic use and exports should appease local industries and level the playing field with China and other low cost producers of renewable energy technologies. The overall benefit should be a net reduction of emissions. Reduction of fugitive emissions should also have more negative impact on coal but favors infrastructure upgrade for gas pipes; further encourages gas use.

The President’s Plan is ambitious but short on details at the moment. Delays are expected, especially at the rule-drafting stage and the high likelihood of major litigations. Past emission rules from the EPA suffered multiple setbacks in the Courts.

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