The Influence of Technology and a Carbon Cap on Natural Gas Markets

Author(s): Dave Hoppock, Patrick Bean, Eric Williams

Published: March 2009

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Natural gas is used as a fuel to generate electricity, to heat and cool buildings, to run appliances, and to power vehicles. Natural gas is also a feedstock for many products and industries. Some observers speculate that natural gas demand and prices will increase under policies that restrict U.S. greenhouse gas (GHG) emissions as consumers switch from higher‐carbon fuels like coal to lower‐carbon natural gas. To estimate the impact of a national climate policy and changing market conditions, the Climate Change Policy Partnership (CCPP) at Duke University modeled ten natural gas market scenarios using the Energy Information Administration’s (EIA) National Energy Modeling System (NEMS). The reference scenario and eight other primary scenarios* assume climate policy based on the Lieberman‐Warner (S. 2191) Climate Security Act.† One business‐as‐usual scenario‡ without a climate policy was run for comparison. The goal of this modeling project is to provide policy makers and natural gas market participants a comparison of natural gas market conditions under different technology scenarios with a carbon cap. The CCPP’s modeling does not account for future environmental regulations other than a carbon cap, nor does it account for other barriers, such as transmission siting, that may affect future energy markets. Estimates of accessible unconventional natural gas reserves have increased substantially over the past year. The CCPP increased unconventional natural gas reserves relative to the EIA’s Annual Energy Outlook 2008 to reflect this increase in supply but likely underestimated unconventional reserves based on new information available after the modeling was completed.