Issue No. 32

  • FERC Commissioner Mark Christie notes that grid operators performed well during the recent deep freeze, but with more power plants being retired, the prospects are frightening for the years ahead.
  • The Biden Administration foolishly slaps a moratorium on American LNG exports, which have been a bright spot for the U.S. economy and national security.
  • Natural gas will play a critical role for a generation or more despite a boom in sustainable power generation, says a new national lab study.
  • The EPA calls for a tax on methane, but the unintended consequences are likely to be serious.
  • Cold weather is only one of the obstacles now facing electric vehicles.
  • A group of retired military officers point to the dangers of the EPA’s proposed tailpipe emissions proposal that could aid China.

After Another Winter Storm, FERC Commissioner Warns of Deteriorating Electric Grid Reliability

At an open meeting of the Federal Energy Regulatory Commission (FERC) on Jan. 18, Mark Christie, one of the three current commissioners, raised – in stark terms – the danger America faces as the grid becomes less reliable in the coming years.

The meeting occurred on the heels of winter storms Gerri and Helen that sent temperatures plummeting, leaving much of the country in snow and ice. Demand for industrial, commercial and residential heating was greater than any time since Winter Storm Elliott in December 2022, which caused millions of power outages. This time, disruptions were more limited, but that is no reason to feel confident, said Commissioner Christie, who previously served as chairman of the Virginia State Corporation Commission.

Commissioner Christie said at the meeting (here, starting at about the 12-minute mark) that he watched the websites of PJM, the regional transmission organization that regulates the flow of electricity in much of the Mid-Atlantic and parts of the industrial Midwest, and MISO, which manages the grid in 15 states the center of the country. “The system operators did a great job,” he said.

But he has serious concerns about the future. In the depths of the deep freeze, he said, PJM generated 135 gigawatts of electricity, 90% of it from “dispatchable” sources: natural gas (41%), coal (24%) and nuclear (25%). MISO produces a bit less, with 75% coming from dispatchable sources (with wind, which is not dispatchable, accounting for 20%). Power that is dispatchable can be sent at the request of power grid operators to meet their market needs.

Because of plant retirements in the next few years, said Commissioner Christie, PJM will lose about 40 gigawatts of dispatchable generation. MISO will lose somewhat less. Overall, retirements in the next decade – mainly because of the transition to renewable sources mandated by government – will remove plants generating 83 gigawatts of dispatchable electricity, according to the 2023 Long-Term Reliability Assessment (LTRA), issued on Dec. 13 by the North American Electric Reliability Corp. (NERC) and discussed in our last newsletter.

At the time, we quoted John Moura, NERC’s director of Reliability Assessment and Performance Analysis, who stated, “We are facing an absolute step change in the risk environment surrounding reliability and energy assurance…and the future projection does not offer a clear path to securing the reliable electricity supply that is essential for the health, safety and prosperity of our communities.”

Commissioner Christie said at the Jan. 18 FERC meeting:

What NERC is warning us about is that the pace of retirements of dispatchable resources is unsustainable. We are heading for a very bad place. If the pace of retirements continues as it is, the numbers just don’t add up. If you don’t maintain the dispatchable resources until you have an absolutely adequate replacement, we’re not going to have the success we’ve had in the past three or four days.

Some public officials are pushing hard to retire plants that generate power from natural gas and coal. We have reported for many months now on the power plants rule, dubbed “Clean Power Plan 2.0” (or CPP 2.0).The controversial regulation will require most fossil-fuel electric plants to cut their emissions by 90% between 2035 and 2040, or else shut down. The rule imperils many natural gas plants – even though natural gas is widely seen as the essential transitional fuel, including by FERC’s own chairman, Willie Phillips.

In a November letter to EPA Administrator Michael Regan, Rep. Cathy McMorris Rodgers (R-WA), who chairs the House Energy and Commerce Committee, along with two subcommittee chairs, Reps. Bill Johnson (R-OH) and H. Morgan Griffith (R-VA), noted that the key pathways the EPA cites to comply with its proposed requirements would be through technologies that are not yet feasible:

One of the main forms of compliance suggested by the EPA in the CPP2.0 Proposal involves the use of Carbon Capture Utilization and Storage (CCUS). We have raised concerns in hearings and previous letters about the ability of the power sector to meet the requirements of the CPP2.0 Proposal with CCUS for several reasons, including the lack of CCUS infrastructure. Those concerns have been heightened with recent decisions to cancel or delay certain carbon dioxide (CO2) pipeline projects, which raises more questions about the integrity of the EPA’s rulemaking process for the Clean Power Plan 2.0.

The only recourse for electricity providers would be the premature retirement of power plants, severely jeopardizing grid reliability, as Christie emphasized. The House members concluded that “the EPA should consider withdrawing the CPP2.0 Proposal.”

Biden Administration Foolishly Slaps a Moratorium on New LNG Infrastructure Permits

One of the great national security and economic successes of the U.S. in recent years has been the vast increase in the export of LNG, or liquefied natural gas. (Gas is cooled into a liquid for transport by ships, then turned into a gas again when it reaches port.)

Domestic natural gas and crude oil production has soared because of new technologies (see the EIA chart above), allowing the U.S. to export substantial quantities of gas. The nation has become the largest LNG exporter in the world with the re-start last year of the Freeport facility in Texas.

Last month, we cited a new report from the Progressive Policy Institute that highlighted the importance of the LNG boom in triggering Europe’s decoupling from Russian energy – the result of the war in Ukraine and the shutdown of the Nord Stream pipelines.

“Those new conditions make U.S. LNG essential for another winter and Europe’s overall energy security,” we wrote in Newsletter No. 31. Prior to the pandemic and the war, Russian gas accounted for 38% of European Union imports, but through the first nine months of 2023, that figure fell to 6%, said the PPI study. The U.S. has filled the gap.

“It is impossible to imagine unified support for Ukraine between the U.S. and EU could have continued as it did without the long-term project of expanding U.S. export capacity and the rapid short-term expansion of import terminals in Europe,” wrote Elan Sykes, the PPI energy policy analyst who wrote the Dec. 12 report. 

But on Jan. 26, the Biden administration placed a halt on the approval of new licenses for LNG export “while it scrutinized how the shipments affect climate change,” reported Bloomberg. The moratorium is “likely to disrupt plans for billions of dollars in projects.”

The decision, reported Politico, is “spooking Europe.” While the European Union plans to reach climate neutrality by 2050, it has set no deadline for the phaseout of gas, said Tom Marzec-Manser, head of gas analytics at the commodities intelligence firm ICIS, as quoted by Politico. “He said the continent is likely to need continued access to American exports well into the next decade.”

Marzec-Manser stated: “How has Europe got through the last two years, with Russia turning down pipeline flows? One, it’s cut demand. But two, it’s backfilled the demand with LNG, much of it from the U.S. That’s how the balance has been maintained.”

The U.S. currently vets new exports on a case-by-case basis to see if they are in the public interest, but, said Bloomberg, “government assumptions used in those reviews haven’t been updated since 2018.” Now, the administration wants to apply a “climate test” to determine whether LNG exports contribute to global warming. According to Politico:

The decades-old Natural Gas Act requires the Energy Department to consider whether a project is in the public interest before granting approval for an application to export natural gas to a country that does not have a free trade agreement with the United States. That export permit is considered a must-have for would-be exporters, who need to raise billions of dollars to build the pipelines and compressors to bring gas to the coast and chill it to minus-259 degrees Fahrenheit to turn it into liquid for transport on ships.

Environmental activists note, however, that since it began approving the first export permits in 2012, the Energy Department “has never rejected any applicant over the ‘public interest’ requirement,” said Politico, even as the U.S. gas export industry grew to account about 20% of U.S. gas production by late 2023.

Today, seven export plants operate in the U.S. with another eight approved but still under construction. According to Politico, “Charlie Riedl, head of the Center for Liquefied Natural Gas trade association, said anything that slowed down the approval of new projects could scare away potential customers in allied countries such as Japan and South Korea. He also noted that the DOE’s previous reviews had consistently found gas exports benefited the public.”

Activists have, nevertheless, opposed LNG projects, including the CP2 export terminal planned by Venture Global LNG for the Gulf Coast of Louisiana, which opponents consider a “litmus test of the president’s climate change commitment,” according to Bloomberg. The developer submitted its first application to FERC three years ago.

The decision by the U.S. Department of Energy on Friday drew swift condemnation from Sen. Joe Manchin (D-WV), chair of the Energy and Natural Resources Committee, who said he would investigate.

“If the Administration has the facts to prove that additional LNG export capacity would hurt Americans, they must make that information public and clear,” Sen. Manchin said. “But if this pause is just another political ploy to pander to keep-it-in-the-ground climate activists at the expense of American workers, businesses and our allies in need, I will do everything in my power to end this pause immediately.”

Current benefits of LNG to the climate appear substantial. The use of natural gas exports displaces coal in the generation of electricity and heat, especially in Europe, China, and India. A study by ICF for the American Petroleum Institute in 2020 concluded that internationally using LNG from the U.S. for power would produce “on average 50.5 percent fewer greenhouse gas (GHG) emissions in all base case scenarios studied.”

Joseph Majkut, director of the energy security and climate change program for the Center for Strategic and International Studies, stated, “It is now pretty much conventional wisdom that the U.S. LNG industry played a big role helping Europe shift away from Russian gas after the invasion of Ukraine and that helped maintain European solidarity, and in Northeast Asia it’s a big part of energy security planning.”

The shift away from coal toward natural gas is largely credited with a 35% decline in CO2 emissions by the power sector since 2005, according to a study by the Congressional Budget Office in December 2022. Carbon dioxide emissions in the sector have reached their lowest point in more than 45 years (see page 219 of this report of the U.S. Energy Information Administration).

Officials in the Biden administration have been divided over delaying LNG terminal development, says Bloomberg. “Among the administration officials leading the push for a more stringent climate test are Energy Secretary Jennifer Granholm and advisers John Podesta and Ali Zaidi….  At the same time, officials who raised concerns include National Security Advisor Jake Sullivan, presidential energy adviser Amos Hochstein, and Sarah Ladislaw, Biden’s special assistant for climate and energy.”

Solar Capacity Will Rise Tenfold by 2050, But We’ll Still Need Natural Gas

If there were any doubt about the importance of natural gas to the growing U.S. demand for electricity, it was dispelled by a new study from the National Renewable Energy Laboratory (NREL), a research center of the U.S. Department of Energy. The lab’s remit is to study and promote the use of renewables, and the study makes clear that natural gas will be a necessity for decades to come to affect a smooth transition.

As the headline on a Jan. 12 Utility Dive article stated: “US gas-fired capacity to grow, even under 95% carbon reduction scenario.” Ethan Howland wrote:

In a “mid-case” scenario tied to existing policies, U.S. gas-fired capacity increases by 200 GW [gigawatts] through 2050…. And, even when cutting carbon emissions by 95%, gas-fired capacity would grow by 130 GW by mid-century, according to the modeling. “We will continue to use fossil fuels during times of critical demand to provide grid resilience and reliability,” NREL said.

The mid-case scenario assumes existing policies and a 1.8% annual increase in demand for electricity. U.S. solar capacity is projected to increase by a factor of 10 from current levels and wind capacity by a factor of five. Still, under the scenario, “fossil-fueled power plants without carbon capture equipment would produce 14% of U.S. electricity by 2050, but account for 47% of total U.S. capacity,” wrote Howland.

The study forecasts that power sector carbon emissions will decrease sharply through the 2030s, falling 81% below 2005 levels in 2035. The main point for policy makers, however, is that to meet demand for electricity, natural will be playing a major role for a generation and more.

As the EIA reported in 2022 (see above), while renewable use will rise sharply, petroleum and natural gas will remain the most-used fuels in the United States through 2050 and beyond.

The question is whether policy makers understand this reality, or will some of them continue to push unrealistic regulations that jeopardize reliability?

EPA Calls for a Tax on Methane. But Have Unintended Consequences Been Considered?

Methane is a gas that is 86 times more potent at warming the planet than carbon dioxide. “More than half of global methane emissions are human caused, predominantly from the energy (oil, gas and coal), agriculture (livestock) and waste sectors (landfill and wastewater),” according to the EIA. “In the energy sector, methane is released into the atmosphere through routine venting and flaring and leakage across the oil and gas supply chain.”

The EPA says that methane is a “super-pollutant,” responsible for “approximately one third of the warming from greenhouse gases occurring today.”

The Inflation Reduction Act (IRA) gave the EPA more authority to address methane emissions, and on Jan. 12 the agency proposed a new rule “to tackle wasteful methane emissions from the oil and gas sector” with what’s being called a “Waste Emissions Charge.” The rule aims to encourage “the early deployment of available technologies and best practices to reduce methane emissions.”

That rule amounts to a tax. According to an EPA press release: “As directed by Congress, the Waste Emissions Charge starts at $900 per metric ton of wasteful emissions in 2024, increasing to $1,200 for 2025, and $1,500 for 2026 and beyond, and only applies to emissions that exceed the statutorily specified levels.”

An unusual inclusion in the press release of a government agency is a statement by the head of an interest group. Fred Krupp, president of the Environmental Defense Fundis quoted as saying, “It’s common sense to hold oil and gas companies accountable for this pollution.”

Of course, any tax of this nature is borne not only by energy producers but by consumers as well. Some critics are noting the irony of a policy emerging from something called the Inflation Reduction Act that could effectively raise prices.

The methane tax is part of a slew of rules aimed at accelerating a transition to renewable technologies – which are not subject to penalties like the Waste Emissions Charge. Other examples are the Clean Power Plan 2.0 (the power plants rule cited above) and the proposed tailpipe emissions rule to encourage the use of electric vehicles (see below).

Addressing methane is necessary to achieve climate goals. Some 50 global energy companies pledged to slash methane pollution at the December COP 28 meeting. But any rules need to ensure that the nation’s electric grid remains efficient and reliable. Critics worry that the grid’s stability is threatened by policies that demand a swift phase-out of natural gas when the other sources of power generation – which are not dispatchable – cannot absorb the slack.

Other concerns have been raised. “They’re saying the benefits far outweigh the costs,” said Shannon Broome, a partner at Hunton Andrews Kurth LLP, as quoted by Bloomberg.  But the “benefits number is very controversial, about how it was calculated, what went into it.” Broome added, “People are generally in favor of methane regulation, but the details matter and that’s where I think you see some questioning.” Critics also raised objections to the way monitoring will be handled.

The Waste Emissions Charge is part of a three-pronged framework that comes from the IRA’s Methane Emissions Reduction Program. The other elements are an effort with industry stakeholders to improve the Greenhouse Gas Reporting Program and an EPA partnership with the Energy Department to provide over $1 billion in financial and technical assistance to accelerate “the transition to no- and low- emitting oil and gas technologies, including funds for activities associated with low-producing conventional wells,” a significant source of methane emissions.

EPA Administrator Michael S. Regan said, “Today’s proposal, when finalized, will support a complementary set of technology standards and historic resources from the Inflation Reduction Act, to incentivize industry innovation and prompt action. We are laser-focused on working collectively with companies, states, and communities to ensure that America leads in deploying technologies and innovations that aid in the development of a clean energy economy.”

Trouble Emerges on the Electric Vehicle Front

The extreme winter weather we cited at the start of this newsletter has tested the ability of electric vehicles (EVs) to operate under extreme conditions.

The results have not been encouraging. CBS News reported on Jan. 19 that “some Tesla drivers” in the Chicago area “learned the hard way about how cold weather affects battery life.” The report continued:

Teslas lined up early Monday morning at a charging station at The Evergreen Marketplace, at 9200 S. Western Ave. in Evergreen Park. Some Tesla batteries died in Chicago’s sub-zero temperatures, leaving the cars askew and immobile in the parking lot. Drivers said some charging stations weren’t working, and those working took much longer than usual to charge. “I’ve been here for over five hours at this point, and I still have not gotten to charge my car,” said Tesla driver Brandon Welbourne. “A charge that should take 45 minutes is taking two hours.”

Consumer Reports found that “cold weather saps about 25 percent of range when cruising at 70 mph compared with driving in the same conditions during mild weather in the mid-60s, and 31 percent during warm weather in the mid-80s.” In a report on Jan. 17, the consumer research organization stated:

There are several reasons driving range goes down in cold weather, starting with the impact on battery chemistry when the vehicle is parked. Cold temperatures can slow down the chemical reaction inside the battery that allows it to create power. Supplying cabin heat is a major draw, and there’s the impact of maintaining battery temperature. 

Consumer Reports added: “Running the cabin heater, seat heaters, defroster and other accessories that combat the cold weather inside the car all sap range. This has a significant impact even before the temperature drops to freezing. In our tests, we found that the range starts to drop at 40° F.”

Tax credits helped spur a record 1.2 million EV sales in the U.S. last year, but demand for some EV models is softening. Ford Motor recently announced that the company is cutting production of the F-150 Lightning truck due to lack of demand and recalls. According to a Wall Street Journal editorial titled “The EV Backlash Builds” on Jan. 19, Ford “sold a mere 24,165 Lightnings last year and lost roughly $36,000 on each EV in the third quarter.”

Other vendors are also having troubles. General Motors told its Chevrolet dealers to stop selling the electric Blazer SUV because of software glitches. Hertz announced earlier this month “that it would be selling roughly a third of its fleet of electric vehicles, or roughly 20,000 cars that are predominately Teslas,” according to CNBC.

The rental-car giant is switching back to gasoline-powered cars. The Hertz CEO said the company is “responding to the reality, which is we’re trying to bring supply in line with demand.” Tesla itself forecast that its 2024 sales would be “notably lower” than previously expected. Shares dropped 30% in a month.

These setbacks come at the same time the Biden administration is pushing hard for a transition to EVs, including through what critics call a de facto mandate with its tailpipe rules (see below), which establish strict controls on vehicle emissions between 2027 and 2032.

But consumers are realizing that EVs are not ready for prime time yet and are balking despite tax credits.

The backdrop to new concerns about EVs is the U.S. electricity grid, which powers the cars and trucks. That grid, as we discussed earlier, is under enormous strain even now. Without a strong grid, EVs will not work as well as gas-powered cars, regardless of the weather.

Retired Military Leaders Are Questioning the EPA Tailpipe Emissions Rule

This newsletter has reported on concerns about the EPA tailpipe emissions rule since it was proposed in April of last year.

The new standards, found in Reg. 2060-AV49, would, if adopted, force automakers to produce and sell far more electric vehicles (EVs). Compliance with the rules will require 78% of new sedans, 68% of pick-ups, and 62% of crossovers and SUVs to be all-electric by 2032.

“The new rules would require nothing short of a revolution in the U.S. auto industry, a moment in some ways as significant as the June morning in 1896 when Henry Ford took his ‘horseless carriage’ for a test run and changed American life and industry,” wrote Coral Davenport in the New York Times.

The proposed rule has now gone to the White House for review. President Biden will have to consider such concerns as strains on the electric grid, lack of charging infrastructure, affordability challenges, and the simple question of whether the government should dictate consumer behavior against resistance.

On Jan. 17, additional concerns were raised by a group of 17 retired miliary officers, who sent a letter to Biden and Regan raising the implications of the rule on national security.

The letter was spearheaded by James “Spider” Marks, a retired U.S. Army Major General, and includes signatures from five other general and admirals as well as other high-ranking officers from four services.

Fox News interviewed letter signer Bob “Shoebob” Carey, a retired U.S. Navy Captain, here. And Fox Business interviewed U.S. Air Force Colonel (retired) Rob Maness here.

The letter points to increased dependence on Chinese supply chains for the critical minerals needed to manufacture electric vehicles at the rate the EPA rule will require. It also explains the strategic positioning by China in the EV industry and how our increased dependence on a foreign adversary for supplies will make our economy—and our national security—vulnerable.

The letter states: “Your EV plans go far beyond the provisions of the 2021 infrastructure law and the 2022 Inflation Reduction Act, with regulatory initiatives in the queue that will only intensify America’s vulnerability to political interference by the Chinese Communist Party.” It continues:

Currently, China is possessing around 36 percent of the world’s known rare earth reserves, controls more than 70 percent of the world’s extraction capability and nearly 90 percent of the world’s processing capacity. This is significant as EVs use about six times more rare minerals than conventional cars because of the batteries. China has worked for decades to develop a strategic dominance over these crucial and rare minerals. Yet because the EPA’s proposed rule will mandate more EVs in American garages, it will also effectively mandate greater American household dependence on the cooperation of the Chinese.

The retired officers write that, “in support of U.S. national security and economic stability, we strongly encourage you to consider the current state of play in the global marketplace and pursue domestic investment and infrastructure opportunities before we pursue a rushed EV policy.”

They addressed President Biden directly: “We would be exposing our economy and national security interests if we consciously link America’s economic and transportation stability to the enterprise of a country you yourself described as an economic ‘ticking time bomb.”

Categorized as Newsletter