Reducing US Greenhouse Gas Emissions through a Replacement of Coal with Natural Gas in Power Generation

Abstract

Currently, coal provides about 50% of U.S. electricity supply and releases 80% of electricity sector carbon dioxide (Annual Energy Outlook Early Release Overview, 2009). A conceptual instantaneous switch to modern natural gas plants of the same capacity would reduce these carbon dioxide emissions by 74% or 1.5 annual gigatons at the cost of $300 billion in construction capital and an increase in electricity rates of approximately 15%.

This analysis is accomplished primarily through a comparison of derived marginal cost functions for gas and coal generation under the assumption that fuel choice for baseload power is driven primarily by the lowest available cost of operation. The use of comparative supply curves demonstrates the extent of the cost disadvantage of gas to coal and allows analysis of possible future scenarios through manipulation of model inputs of fuel and emissions costs.

In order for gas power to become less expensive than that from coal, either the price of gas must fall or the price of coal must rise. Two likely future developments might cause both of these changes to occur. Newly expected natural gas supply from unconventional sources and international trade of liquefied methane will put downward pressure on gas prices. Perhaps at the same time, a U.S. federal climate law could introduce a price on carbon emissions which would disproportionately raise the price of coal power. This analysis shows that either situation will promote gas power if of great enough magnitude. The likelihood of a transition away from coal remains questionable but coal is no longer the obvious fuel choice in new baseload power plant construction.