The Interstate Natural Gas Association of America (INGAA) is a non-profit trade association representing virtually all interstate natural gas transmission pipeline companies operating in the United States and interprovincial pipelines operating in Canada. INGAA’s U.S. members operate over 200,000 miles of pipeline and related facilities that account for over 90 percent of all natural gas transported and sold in interstate commerce. The INGAA has issued its view on the US adopting climate change legislation and caps on greenhouse gas emissions. Although this position is several months old, I thought it would be of interest to consider their position.
Highlights of INGAA’s response to the House Energy and Commerce Committee’s questions follow
INGAA supports an economy-wide program that recognizes and accommodates the unique features of different sectors in the U.S. energy economy (i.e. differences in fuels and their end-use applications). An appropriate policy approach may involve different thresholds, regulatory mechanisms and possibly schedules for each sector based on its unique attributes.
- Given the global nature of the climate issue, and interstate commerce considerations, INGAA – which represents companies with linear, interstate pipeline assets – strongly prefers a consistent national greenhouse gas (GHG) reduction program over competing, potentially conflicting and inefficient state and regional initiatives currently taking form.
- INGAA urges lawmakers to design a program that will slow, stop, and then reduce GHG emissions gradually. This would allow time for the economy to develop and deploy efficient, cost-effective climate change mitigation technologies and replace capital intensive energy infrastructure and equipment in an orderly manner.
- CO2 from fossil fuel combustion accounts for approximately 81 percent of total U.S. GHG emissions. INGAA advocates, as a starting point, the regulation of CO2 from fossil fuels at the point of combustion. The reduction of emissions from other greenhouse gases should be managed through an offset program. Other sectors and gases could be brought into the program as it matures.
- The need for a safety valve will be determined by the key program design features, most notably timing, targets, banking and borrowing of allowances and the availability of low-cost offsets.
- Congress should determine the need and basis for allowance allocation in a cap and trade program. INGAA supports 100 percent free allocation to sectors that are subject to comprehensive economic regulation. Still, if such regulated sectors must pay for allowances, they also must have a guaranteed ability to pass through costs to the end user (consumer).
- Offsets are an important tool to encourage emission reductions not otherwise covered under a conventional cap and trade system. Such reductions would provide immediate, low-cost options that would help control program compliance costs. There should be no limit to the amount of offsets one can generate so long as they are real, quantified, verified, surplus, and have clear ownership.
- Early reduction credits should be available to industries, like the natural gas pipeline industry, that have already made significant GHG reductions.
- The U.S. can promote international participation in GHG reductions by taking a leadership role in the development of an efficient, achievable and cost-effective GHG reduction program. U.S. innovation and the development of advanced technologies will not only contribute to global emissions reduction but will also help to create business opportunities for U.S. firms.
- A cap-and-trade program alone will not lead to new technology development. Funds raised through a regulatory GHG program should support R&D for a variety of new and advanced technologies to provide low carbon energy services, increase efficiency of end-use consumption and sequester CO2. Such a program should not pick winners based on current expectations but should fund the development of all feasible approaches to low carbon infrastructure, including: natural gas supply and production technologies, efficient natural gas-fired electric generation, mechanical drive and gas compression technologies, and efficient end-use gas technologies.
Based on this position statement and many others from industrial groups, most potentially regulated industries appear to favor carbon trading or the ability to offset emissions using greenhouse gas emission reductions accomplished other facilities. It is thus not surprising that almost all bills filed in Congress and the programs developed at the state level have largely included a cap-and-trade system.
One of the key issues in this system, as identified by the INGAA, is the allocation scheme. The INGAA favors a free allocation of the credits to regulated industries. Unfortunately, some of the states in the northeast that are part of the Regional Greenhouse Gas Initiative are planning a 100 percent auction. This may create a significant initial burden on the regulated industry, and detract from the carbon market. Companies that have already paid for their allocations, may be less likely to invest in emission reductions to sell credits or offsets that would be created if they fall below their allocation of emission rights.
These and other issues will be hashed out in Congress, assuming legislation is ultimately adopted. Care should be taken in working out the regulatory and economic impact of the various aspects of a cap and trade program.