Analysis
License: All rights reserved. Credit: Greenpeace

King Coal (and big oil) returns to the US - and what this means for how we talk about the climate

Damian Kahya
Damian Kahya is the Energydesk editor and former foreign, business and energy reporter for the BBC. You can following him on Twitter @damiankahya
License: All rights reserved. Credit: http://www.eradicatingecocide.com/theproblem/

In the US everything is about to change - again. And it could have a big impact on efforts to tackle climate change.

Over the past four years the story of the US has changed dramatically from gas guzzling road block to change – to leader in emissions reductions.

Support for renewable energy and its falling cost, the stagnant state of the economy and fracking - a new technology for extracting gas from rocks  - have led to an unexpected fall in US emissions.

New data from the US Energy Information Agency (EIA) suggests that in just one year, between 2011 and 2012 US carbon dioxide emissions fell by a startling 3.4%.

Compared to 2009 emissions are down just over 2%.

But the latest forecasts from the EIA suggest the same dynamics which pushed emissions down may now drive them up.

Since 2009 the falling cost of renewable energy - along with government support - saw generation from renewable sources (excluding hydro power) increase by over 60% since 2009. Wind power generation almost doubled.

Between 2009 and 2012 a glut of new gas production from fracking pushed down the price by over 30% (on average, there were far more extreme swings).

The US, which unlike the UK had no capacity to export gas, found itself with some of the cheapest gas supplies on the planet.

This helped fuel a switch from coal to gas in the power sector - and because when burnt gas is about 50% less polluting than coal, it helped cut emissions. 

But that process could now go into reverse.

Low prices don't encourage new production and the EIA anticipates that US gas production will barely change in 2013 and will fall the following year.

That means gas prices will go back up - remaining low by historical standards - but reaching 2009 levels again by 2014.

If gas prices rise - then the switch from coal to gas power goes into reverse and the EIA forecasts coal use to rise by 6% in the power sector by 2014.

There are some permenant gains – new wind and solar power keeps coming on stream and doesn’t get turned off with movements in the gas and coal price.

The gas price is also expected to stay low enough for generation to stay well above 2009 levels.

But coal's partial comeback is enough to send US emissions back on an upward trajectory – just in time for the next important round of climate talks.

And there is another story which could have a bigger global impact.

Whilst the gas glut has made producing gas from fracking relatively unprofitable, oil remains historically expensive driving the application of fracking technology to oil.

Oil production in the US is forecast to rise by almost 25%, pushing down the US price to below $90 in 2013 for the first time since the economic crisis.

The prediction comes after the International Energy Agency claimed the US would become the world's largest oil producer within a decade. 

The impact of all of this on the climate is harder to gauge. 

Unlike gas the US can export oil although only in its refined form. Furthermore there is a big difference between the price of the refined product, and the price of crude.

Indeed the EIA only predicts a small, 8% fall in the price at the US pump by 2014 - meaning Obama's new fuel efficiency standards are likely to have a greater impact than a falling oil price.

But because new supplies don't drive down prices in the US – and drive up fuel consumption - doesn't mean they won’t have an impact globally.

It’s impossible to predict the oil price (though the EIA does try) but more production will either reduce prices or mitigate price rises from higher Asian demand – in short it will probably mean more oil is burnt.

And it that isn’t the only global impact of the revolution in US fossil fuel production.

Increased gas production in the US may have displaced coal domestically but it also resulted in increased exports of relatively low-priced coal to Europe, according to the IEA's latest mid-term report.

Because both are burnt in power plants the two markets are linked - to a limited extent - so new gas supplies may have limited positive impact without global policies to put a price on carbon.

If the EIA is right in its forecasts it could again change how we see the relationship between fossil fuels and efforts to tackle climate change.

The shale gas boom had already undermined arguments that fossil fuel depletion, and ever rising prices (so called 'peak oil'), would drive action which limits emisions.

In it's place had come an apparently well founded hope that cheap gas could be useful - by replacing coal.

But concerns over emissions from shale gas extraction, the impact on global coal prices and most importantly the speed with which the whole process can go into reverse suggest its role is also limited - at least on its own.

And, it turns out it's not just gas which may be cheaper and more plentiful than thought - it could also be oil which seems further away than ever from 'running out'.

Cheap oil and gas could drive rising demand - quickly outstripping even this new supply.

That 'peak demand' theory may well result in high fossil fuel prices and eventual action on emissions (if, amazingly, new sources are not found). That appears to be Shell's bet as it drills for expensive oil in the frozen Arctic.

But by then far more fossil fuels will have been burnt than most climate scientists would view as safe.

Ultimately fossil fuel markets seem an increasingly forlorn place to look for a solution to climate change.

The data used for this story comes from the EIA energy outlook. A selected data sheet compiled for the story is available here.

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