Natural gas producers, nuclear, win in U.S. climate deal with China

Natural gas drillers and nuclear power producers can celebrate aggressive new emissions cuts promised by the U.S. and China, even as other parts of the fossil fuels world push back.

Goals to reduce greenhouse-gas emissions are inevitably bad for companies relying on dirtier fuels like coal and crude oil, which already have been under pressure to clean up operations. The measures announced today provide more support for cleaner- burning gas, which the industry has promoted as the "bridge" to renewable energy such as solar and wind.

The tougher measures may also extend a lifeline to nuclear operators struggling to survive amid rising costs, aging reactors and declining profits. The biggest immediate beneficiary will be gas as utilities that burn coal are forced to speed their shift to fuels that spew less greenhouse gas into the skies, said Skip Aylesworth, who manages about $2.3 billion at Hennessy Advisors in Boston.

"The bulk of it is going to be replaced by natural gas plants," Aylesworth said. "It's good for wind and solar too, but percentage-wise, the new power generation that's come online this year is running about 60 percent natural gas."

The climate deal between nations that are home to one of every four people on the planet renewed a push by environmental activists to reject pipeline projects that would carry Canadian oil-sands crude to U.S. refineries.

Groups such as 350.org are asking President Barack Obama to reject the $8 billion Keystone XL pipeline proposed by TransCanada Corp. The government also is reviewing a plan by Enbridge Inc. to expand its Alberta Clipper line that carries crude from the oil sands across the U.S. border.

Under the deal hammered out after months of negotiations, Obama promised to cut the nation's greenhouse-gas emissions by 26 percent to 28 percent below 2005 levels by 2025. China, for the first time ever, agreed to begin capping emissions in 2030. The accord is expected to nudge other big emitters such as India to sign on to a global pact at next year's climate conference in France.

"This is insulting, particularly given the fact that U.S. carbon emissions have already been reduced to mid-90s levels," Charles Drevna, president of the American Fuel and Petrochemical Manufacturers, said in an e-mailed statement. "The United States has no moral obligation to shut down its economy in an effort to help the President appease the environmental law and lobbying firms that make up his base."

Even before today's announcement, the Obama administration had been targeting power plant operators with proposals to toughen emissions limits. Draft rules issued by the U.S. Environmental Protection Agency in June may force some coal- fired plants to shut and raise electricity costs for homeowners as supplies shrink, critics said.

The U.S.-China accord suggests Obama will "fight for a strict final rule" on plant emissions and limit leaks of methane, a more potent heat-trapping emission than carbon dioxide, wrote Benjamin Salisbury, an analyst for FBR Capital Markets.

"Achieving these goals will almost certainly require changes to the implementation of the EPA power plant regulations," Council on Foreign Relations analyst Michael Levi wrote today, referring to June draft rules. "The EPA power plant rules as they're currently proposed are already spurring plenty of pushback."

American Electric Power Co., the biggest U.S. coal burner, has forecast cascading blackouts from the current EPA plan.

At the least, the agreement may spur the Obama administration to accelerate its proposed carbon regulations, Glen Grabelsky, managing director of utilities, power and gas at Fitch Ratings, said in an interview at the industry's EEI Financial Conference in Dallas today.

For solar and wind operators, the new targets were welcome news.

"It ought to give investors confidence with respect to accelerating investments in low-carbon technology -- energy efficiency and renewable energy sources including wind, solar and more," said Sue Reid, vice president for climate and energy programs at Ceres, an adviser on sustainable investment.

The agreement between the U.S. and China will further drive down the cost of solar and accelerate acquisitions of smaller companies by larger ones, James Nelson, CEO of Santa Barbara, California based Solar3D Inc., said today in an interview at Bloomberg headquarters in New York.

"Cost drives everything, and a partnership between the U.S. and China will decrease the cost of solar to the consumer and to commercial businesses," he said. Home to about 1.4 billion people and a massive manufacturing industry, "we're going to be able to aid in installations and provide our technologies to that huge market."

Plants nearing the end of their 40-year-old licenses to operate are putting nuclear operators under pressure to either pay for expensive upgrades or close. Most reactors were built in the 1970s and are reaching the end of their original life cycle. Licenses can be renewed for up to another 20 years.

Four of the remaining 104 nuclear plants have been retired over the past two years after owners determined they were either too costly or uneconomic to compete in current markets.

As more coal plants retire because of carbon emission regulations, grid reliability will be strained. Until more gas- fired power plants can be built, there won't be enough generation to pick up the slack. That gives nuclear plant owners like Exelon Corp. and Entergy Corp. more leverage to ask for subsidies to keep their existing plants running longer.

"It could help provide a much needed lifeline to some of the country's more economically troubled nuclear plants," said Paul Patterson, a New York-based analyst for Glenrock Associates LLC.

Exelon, the nation's largest nuclear operator, may be forced to shut one or more of its nuclear plants on falling profits, CEO Chris Crane said during the company's Oct. 29 earnings call. The company has called for clean energy standards to support its plants in Illinois, where several units are threatened.