4. GHG Policies for the Natural Gas Sector
4.1. Overview of Approaches Considered
In its July 2007 report, staff identifies two regulatory approaches that could be used to reduce GHG emissions in the natural gas sector, which could be adopted individually or in combination: reliance on direct emission reduction measures to achieve AB 32 goals and/or reliance on a market-based system.
With sole reliance on direct emission reduction measures, individual entities would not be capped. GHG emission reductions would be achieved through a combination of currently mandated programs, expansions of those programs, and any additional mandatory programs that may be imposed. For the natural gas sector, currently mandated programs that affect GHG emissions include energy efficiency programs and the Energy Commission's building and appliance efficiency standards. The Legislature recently approved incentives to encourage residential and commercial customers to install solar hot water heaters which will reduce the demand for natural gas. These programs could be expanded if such expansion is found to be desirable relative to other emission reduction strategies in the natural gas sector or in other sectors.
In considering market-based approaches, staff and parties focus on options that would utilize a cap-and-trade mechanism. One approach would be to cap emission at an "upstream" point, which could be the wellhead, where natural gas enters either an interstate pipeline or a gas utility's transmission system, and/or where the gas enters the State on interstate pipelines. Another approach would be to cap GHG emissions of large industrial end users at the source, with smaller end users capped at the California utility that provides the final portion of transportation and/or sales service.
4.2. Scope of the Natural Gas Sector
Before we analyze the various approaches for regulating GHG emissions in the natural gas sector, it is necessary to determine the types of natural gas uses that should be included in the sector for the purpose of GHG regulations.
In addition to aiding us in making a recommendation to ARB, determining the scope of emissions in the natural gas sector will aid parties in considering expansion of current programmatic measures and proposing new programs to reduce GHG emissions. In its July 2007 report, staff identifies seven primary uses of natural gas: combustion by large industrial end users, combustion by small end users, infrastructure operations, fugitive releases, natural gas vehicles, CHP operations, and distributed generation. Parties also identified natural gas for industrial processes that is not combusted as another use of natural gas. GHG emissions from natural gas used for electricity production are addressed through our recommendations on the regulation of GHG emissions in the electricity sector.
In their comments, parties address the regulatory approach best suited for GHG emissions from each of the eight uses of natural gas. Summaries of parties' position are organized by use of natural gas.
