Remember the shale gas revolution that would bring stably low natural gas prices and fuel a manufacturing renaissance in the United States? Well, the Obama Administration’s war on coal will drive up natural gas prices, and the American manufacturing base will be a casualty.
President Obama will make remarks on climate change this afternoon at Georgetown University highlighting a number of actions the U.S. should take to reduce greenhouse gas emissions. The most economically damaging regulation President Obama calls for, which can be done unless Congress acts to stop him, is for his Environmental Protection Agency to place carbon restrictions on new and existing power plants, which would hit coal the hardest.
Both coal and natural gas are important, reliable sources of electricity generation, and artificially shrinking the supply of coal would put upward pressure on natural gas prices. Analysis from The Heritage Foundation (in a forthcoming paper) finds that significantly reducing coal’s share in America’s energy mix would, before 2030, raise natural gas prices by 42 percent.
This comes at a time when America’s manufacturing base is celebrating resurgence in economic growth and job creation as a result of lower natural gas prices. In NPR’s recent story “Cheap Natural Gas Pumping New Life Into U.S. Factories,” Craig Alexander, chief economist for the TD Bank Financial Group, called the lower natural gas prices “a game changer” and said, “There’s no question we are seeing a renaissance in manufacturing because…the cost advantage has shifted to the United States.”
Natural gas is not only a critical source of electricity generation; natural gas and other gases extracted from natural gas provide a feedstock for fertilizers, chemicals and pharmaceuticals, waste treatment, food processing, fueling industrial boilers, and much more. The chemical-manufacturing base alone is building new operations worth $95 billion.
Cheaper natural gas is also breathing new life into dying companies. NPR points to a paper mill in Maine:
In East Millinocket, Maine, for example, the new owner of one of the state’s oldest paper mills is looking for ways to drive down costs to keep open the Great Northern Paper Co. plant—and save hundreds of jobs. A big part of the plant rescue involves cheap natural gas.
Company president Ned Dwyer says the old method of using oil to operate the paper-drying equipment during Maine winters was not cost competitive in the global marketplace. Now, with a switch to natural gas, the factory can survive and even grow, he says.
The shale oil and natural gas revolution is actually saving and creating jobs via the free market. The President’s onerous and unnecessary regulations on coal-fired power plants would destroy them, with little impact on the climate.
Nicolas Loris, an economist, is a Policy Analyst at The Heritage Foundation . http://www.heritage.org/ Roe Institute for Economic Policy Studies. Loris researches and writes about energy prices and other economic effects of environmental policies and regulations, including climate change and “cap and trade” legislation. He also articulates the benefits of free market environmentalism.