How western Pa.’s energy industry could be impacted by Biden’s climate goals

April 22, 2021 Pittsburgh Business Times
PEC in the News

President Biden’s commitment to slice carbon emissions by more than 50% by the end of the decade will likely have a substantial impact on Pennsylvania and its reliance on fossil fuels like coal and natural gas, but analysts and others say it’s too early to tell how that will shake out.

It’s an ambitious goal for the United States, which under the previous administration had pulled out of the Paris climate accords and had rolled back environmental regulations. Biden wants to see emissions levels up to 52% lower than the 2005 baseline by 2030 and a net-zero carbon economy by 2050.

“We think it’s a great step and probably wise because the administration signaled its intent to look at this holistically and make it as much about growth as it about reduction goals,” said John Walliser, SVP of legal government affairs at the Pennsylvania Environmental Council and chair of the DEP Citizens Advisory Council.

Walliser believes that the goals are reachable if coupled with the massive investment in infrastructure, a portion of it in clean and green energy projects, that Biden announced a few weeks ago in Pittsburgh. In fact, he said, massive spending in infrastructure to build out the system is essential.

“You’re going to need that investment,” Walliser said.

Pennsylvania and West Virginia are behind other states when it comes to renewable energy sources, partly because coal and natural gas have such an outsized role in the power generation sector. Renewables haven’t made the kind of traction here as they have in other states, either in actual production or in the standards that have been put into place even in neighboring states.

“That’s going to be critical for Pennsylvania,” he said. “As you know, we have such a diverse energy supply, it’s going to take a lot of different mechanisms to obtain those types of goals.”

How the administration will achieve that goals — and the impact on the coal and natural gas industry — will depend on the policies themselves and their flexibility, said Jeremy Weber, an associate professor at the University of Pittsburgh Graduate School of Public and International Affairs.

The natural gas industry has been working on ways to reduce its environmental footprint, partly due to innovations and the desire to keep more natural gas to sell instead of having it leak and partly because of intense attention on ESG issues from Wall Street and investors. Companies like Range Resources Corp. (NYSE: RRC) and EQT Corp. (NYSE: EQT) have paid particular emphasis on their emissions, with Range in 2020 setting a net-zero goal and EQT about to make its public later this year. Weber said the industry has and can continue to reduce emissions and probably not at a high cost thanks to increases in technology and leak detection.

“That’s different from a policy that would restrict the ability to get the gas out of the ground and to market,” Weber said. “The effects of the Biden administration’s policies toward these goals depend on exactly what it’s proposing.”

Weber said the best course would be to target the emissions themselves and let the market, and innovation, do the rest of the work. That would leave a lot of room for innovation that would otherwise be shut off if one type of fuel or energy source was favored over others. Making it more expensive and difficult to produce natural gas could make it unlikely that innovations in that sector — including, for instance, hydrogen — would ever come to fruition.

“That’s the key from the policy perspective: you want to create the incentives for firms to reduce emissions while giving them the most flexibility in determining just how they do that,” Weber said. “Because you don’t know (necessarily) what the best way might be … and the best way might be something you’ve never dreamed of.”

Take the Clean Power Program, which was sought by the Obama administration to limit emissions from the power generation sector but was stopped by a court and then dropped by the Trump administration. Fast forward a few years and the country reached the 2030 power plant reduction targets in 2019 without the plan ever taking effect, through innovation and market forces.

That’s not to say, however, that the regulations don’t have a place, Weber said.

“The mere commitment, it it’s credible, can have its own effect apart from actually implementing policies,” he said. “It sends the signal to the industry about the future that they then take into account to try to anticipate and stave off more burdensome regulation. There’s a lot of incentive to investing in companies that have a better ESG record. They’re more resilient.”

While the details have yet to be worked out, it’s possible that some states like Pennsylvania with a higher level of coal and natural gas footprint would be able to reach the president’s goals in different ways than it would be for an alternative-energy rich state like California. Offsets, carbon sequestration/storage and emerging technologies like hydrogen could have a major focus in Appalachia, said Brian Lego, research assistant professor at West Virginia University and economic forecaster at its Bureau of Business and Economic Research.

“Fossil fuels can factor into the equation,” Lego said. “There are technologies being pursued for both natural gas and coal to offset emissions, and that’s sequestration and storage. Those are avenues that it can at least offset some of the declines (in the fossil fuel industries) that you’d expect to see given the situation.” Coal and natural gas also have a role in the power supply and are likely to moving forward nationwide, especially in western Pennsylvania and West Virginia where a high percentage of electricity comes from those sources and there’s baseline demand that can’t be met by renewables.

He added: “You could still see these types of fuel, natural gas and coal, still factoring into the portfolio of energy use,” Lego said. “I think that would accelerate those kinds of technological innovations.”

Lego, too, believes that there have to be innovation factored in and that it’s impossible to determine just what kind of innovation and market conditions there will be a decade or two from now. The rise of shale gas and the decline of coal wasn’t a certainty two decades ago. 

The impact on the coal industry, which has seen setbacks in recent years due to cheap natural gas displacing it in electricity production, is a little more clear.

“It will amount to the further diminishing of coal’s share of the electricity generation portfolio in the United States,” said Lego.

Matt Mehalik, executive director of the Pittsburgh-based Breathe Project, hailed Biden’s move and said that it will send a clear signal to the market.

“Regional leaders in southwestern Pennsylvania should recognize the importance of choosing health and innovation in meeting these goals as the bedrock of our nation’s economy,” Mehalik said. “We must find less impactful ways to meet the needs of our society without creating the damage that comes from harmful emissions and pollution control Band-Aids.”

Gov. Tom Wolf, who is working to get the state into the Regional Greenhouse Gas Initiative that will mandate limits on greenhouse gas emissions, also talked about the opportunities in Biden’s commitment.

“The president recognizes that protecting our environment and investing in clean energy solutions not only ensures that our future is cleaner and better protected for future generations, but it’s also a job creator,” Wolf said. “The clean energy economy is growing and we should be at the forefront.”

Pennsylvania Environmental Council’s Waliser believes that Pennsylvania should move faster in adopting clean energy standards. He doesn’t think natural gas is going to go out of the mix but that it’s imperative that Pennsylvania start working toward the future of energy. It’s even more critical, he said, if Pennsylvania wants to remain an energy hub and exporter. The chances for leadership and opportunities in energy technology make this a prime area.

“It would be much better in our view that Pennsylvania jump out in front of it, especially since decarbonization is going to be a challenge for Pennsylvania, but also, frankly, an opportunity,” Walliser said.

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