The scenario goes like this, according to MIT: Nuclear power, renewable energy and carbon capture and sequestration are relatively expensive next to gas. Conventional coal is no longer a major source of power generation in the United States. "Natural gas is the substantial winner in the electric sector: The substitution effect, mainly gas generation for coal generation, outweighs the demand reduction effect."
MIT projects that under a carbon policy regime, oil and today's biofuels are replaced by advanced biofuels.
A 30% hike in electricity prices by 2030
Both the economy and energy demand take a big hit under a carbon price regime. Electricity prices are increasing regardless of whether the U.S. government puts a price on carbon, said the MIT researchers, projecting a 30 percent increase in power prices by 2030 and 45 percent by 2050.
Low-priced gas sets a competitive price benchmark for other energy sources to compete against. But if the technology for wind and solar power advances and drives down prices, that will also cut into gas use. The largest impact on the use of gas for electricity generation could come from nuclear power. "Focusing on 2050, when the effects of alternative assumptions are the largest, a low-cost nuclear assumption reduces annual gas use in the electric sector by nearly 7 [trillion cubic feet]," the report says.
But if the energy industry can develop and deploy carbon capture technology at a reasonable cost, utilities and heavy industries will use more natural gas because they can cut their carbon emissions more cheaply.
"A major insight to be drawn from these few model experiments," says the report, "is that, under a policy based on emissions pricing to mitigate greenhouse gas emissions, natural gas is in a strong competitive position unless competing technologies are much less expensive than we now anticipate."
Economics favor vehicles run on natural gas
Automakers that take the plunge into compressed natural gas vehicles would see a significant jump in demand under a national climate policy that makes carbon dioxide emissions costly. Biofuels are expected to advance, but it's unclear how quickly and at what cost to important food crops. But even with biofuels in the picture, MIT projects natural gas vehicles will be 15 percent of the private vehicle fleet by 2050.
New shale gas fields could reconfigure the national map of gas producers and consumers. Gas production in the Marcellus Shale and other burgeoning gas fields in the Northeast, stretching from New England through the Great Lake states, is set to rise 78 percent by 2030. Under a carbon price regime, the researchers said gas production matches increasing gas consumption.
MIT researchers also consider a scenario under which Congress, the U.S. EPA or other regulators begin requiring steep industrial emissions cuts without using a market mechanism such as a price on carbon emissions. They focused on two potential scenarios; first, a requirement that utilities generate 25 percent of their electricity from renewable resources by 2030; and second, regulatory policies that force retirement of existing coal-fired power plants starting in 2020.
The MIT researchers tried to steer clear of heated political battles. They didn't weigh in on whether stripping carbon emissions from the power sector should be left to regulators instead of a policy passed by Congress. Still, the report weighs in to say the cost of using the regulatory approach would be higher, but fewer emissions reductions would result than under a carbon price-based approach.