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The introduction of a new taxonomy could potentially reduce the probability of stranded investments in natural gas
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The issue of promoting natural gas as a bridge fuel, leading to the goal of net-zero emissions, like all political issues, is not a simple choice between the good and the bad. The political decision to use natural gas depends critically on its effects on the distribution of costs and benefits among various stakeholders in the energy and environment sectors. Each group will support one decision or the other that will improve their well-being, measured in terms of tangible and intangible factors. The ultimate decision will be driven, not by scientific truths, general public interest or the interest of the majority, but by the interests of well-organised minorities as public choice theory has shown. The well-organised minorities, in the context of energy and climate change, are well-funded activist groups, and the majority are the energy poor. Gordon Tullock, who pioneered work on lobbying for rent-seeking, observed that the influence of lobbyists came from their ‘ability to become an essential part of the policymaking process by flooding understaffed, under-experienced and overworked Government offices with enough information and expertise to help shape their thinking’. The use of natural gas in India, where coal makes the largest contribution to its primary energy basket, is not necessarily subject to these forces, but primary sources of gas supply in the global north are. This influences foreign investment in India in the gas segment. The share of natural gas in India’s primary energy consumption has fallen from about 9.4 percent in 2010 to about 5.8 percent in 2023. The introduction of a taxonomy for climate finance could potentially attract foreign investment in the natural gas sector in India.
In 1983, Bruce Yandle developed the public choice theory of collusion between Baptists and the Bootleggers. In the early 20th century, the Baptists and the Bootleggers fought over laws banning the sale of alcohol on Sundays in the United States (US). For the Baptists, the sale of alcohol on any day was unacceptable, let alone Sundays, and for the bootleggers, a ban on the legal sale of alcohol was an opportunity for the growth of their business. The two groups were both pushing political decision-making in the same direction, though their interests were contradictory. Such a coalition is convenient for the politician as he or she can promote a decision as being motivated purely by public interest while promoting business interests, as it was in the case of natural gas. Natural gas was framed as a bridge fuel in the early 2000s when production of shale gas took off in the US.
In 2011, the US Environmental Protection Agency released revised methods for estimating fugitive methane emissions from natural gas emissions, resulting in an estimate of methane emissions in 2008 that was 120 percent higher than its previous estimate.
In 2008, when the shale gas boom was unfolding in the US, Aubrey McClendon, Chairman & CEO of Chesapeake Energy, a front runner in exploiting shale gas announced that the natural gas industry, the bootleggers, had made friends with the environmentalists, the Baptists, who wanted to promote natural gas as an alternative to ‘dirty’ coal. T Boone Pickens, another shale gas tycoon, is said to have contributed millions of dollars to think tanks and other agencies to promote natural gas as a clean fuel and as the perfect substitute for imported oil and the key to ‘energy independence’. At that time, Pickens was pushing lawmakers to adopt a bill that would subsidise the construction of natural gas filling stations. When natural gas production in the US exceeded domestic demand, the Baptist-bootlegger coalition promoted the case for natural gas use in natural gas-importing countries in the Global South. Many countries bought the idea and set targets to increase natural gas consumption.
In 2011, the US Environmental Protection Agency released revised methods for estimating fugitive methane emissions from natural gas emissions, resulting in an estimate of methane emissions in 2008 that was 120 percent higher than its previous estimate. The increase was attributed to two methods, which were not common previously – gas well completions and workovers with hydraulic fracking. Natural gas systems were estimated to be the largest source of non-combustion, energy-related GHG (greenhouse gas) emissions in the US at 296 million tonnes of carbon dioxide (CO2) equivalent (MT CO2eq) in 2009, while coal came in third with an estimated 85 MT CO2eq of emissions. In general, shale gas was estimated to have a GHG footprint which is 8-11 percent higher than that of conventional gas on a life cycle basis per mmbtu (metric million British thermal units). These revisions raised questions over whether replacing coal with natural gas would reduce GHGs when the emissions over the entire lifecycles of both fuels are taken into account. However, this finding does not change the fact that when combusted natural gas emits about 50 percent less CO2 than coal but it complicates the debate as methane is known to be 25 times more potent than CO2 even though its potency lasts only for over 20 years compared to that CO2 whose potency lasts for over 100 years.
The realisation that natural gas is a potent GHG led some of the Baptists in the story, the environmental and climate activist groups supporting the case of natural gas as a bridge fuel, to exit the field, affirming that they would no longer be interested in funding from the gas industry. New groups emerged dedicated to the cause of eliminating natural gas as a source of energy. These groups were supposedly funded by information technology and finance billionaires with no stake in the natural gas business, but some had huge investments in the renewable energy business. The funding for lobbying against natural gas and other fossil fuels is estimated to be three times the funding received by fossil fuel lobbies.
The draft framework of India’s climate finance taxonomy states that coal-based power will continue to play a role in ensuring energy security, particularly in meeting base-load demand. The draft emphasises efforts made to improve the efficiency of thermal power generation through the deployment of supercritical (SC), ultra supercritical (USC), and advanced ultra supercritical (AUSC) technologies. The key point emphasised in the draft is that these upgrades would significantly increase the efficiency of coal consumption and reduce emissions per unit of electricity generated. The conclusion is that cleaner coal technologies will remain part of a pragmatic strategy to ensure a stable, lower-emission baseload supply, complementing the intermittency of renewable sources and enabling a smoother transition to a low-carbon energy system while ensuring a stable power supply.
The notable absence in India’s draft climate finance taxonomy is natural gas. Among possible reasons is the fact that natural gas is a relatively expensive fuel that compromises energy security because most of the increase in demand has to be met with imports.
The notable absence in India’s draft climate finance taxonomy is natural gas. Among possible reasons is the fact that natural gas is a relatively expensive fuel that compromises energy security because most of the increase in demand has to be met with imports. These issues foreclose the use of natural gas for carbon reduction in India. However, activities, projects or measures that improve energy efficiency and/or reduce emission intensity in sectors where absolute emission avoidance is currently not viable due to the lack of or non-viable alternative technology in Tier I and Tier II climate are included in the category of “climate supportive activities” in the proposed taxonomy. Activities, projects and measures that improve energy efficiency and/or reduce emission intensity are also included in the category of transition supportive activities. Natural gas that could, in theory, reduce carbon emissions from power generation by half compared to coal-based generation, qualifies in the category of climate-supportive and transition-supportive activities under the proposed taxonomy. The introduction of a new taxonomy could potentially reduce the probability of stranded investments in natural gas. With this change, natural gas could emerge as a bridge fuel in India and reverse the declining share of natural gas in India’s primary energy consumption.
Source: Statistical Review of World Energy
Lydia Powell is a Distinguished Fellow at the Observer Research Foundation.
Akhilesh Sati is a Program Manager at the Observer Research Foundation.
Vinod Kumar Tomar is a Assistant Manager at the Observer Research Foundation.
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Ms Powell has been with the ORF Centre for Resources Management for over eight years working on policy issues in Energy and Climate Change. Her ...
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Akhilesh Sati is a Programme Manager working under ORFs Energy Initiative for more than fifteen years. With Statistics as academic background his core area of ...
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Vinod Kumar, Assistant Manager, Energy and Climate Change Content Development of the Energy News Monitor Energy and Climate Change. Member of the Energy News Monitor production ...
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