Emerging policies to reduce carbon emissions could create opportunities for farmers in the form of carbon credits but may also pose hidden costs, says an energy analyst.
Policies that regulate or place a price on carbon threaten existing coal-fired electrical generation technology. The goal is to replace it with renewable sources of power generation, such as wind, solar and geothermal.
However, power companies won’t be able to replace all the coal-fired generation they will lose under ambitious carbon emissions reduction policies, so they will be forced to look for an alternative source of electrical generation, said Ed Kelly, vice-president of North American gas and power with Wood MacKenzie, an energy research and consulting firm.
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“That is most logically natural gas,” he said.
The result would be increased demand for natural gas, which in recent months has been at its lowest price in years. But new demand could again drive up the price of the primary ingredient in the production of nitrogen fertilizer.
A number of governments in North America have implemented or are contemplating low carbon emission legislation.
British Columbia’s Greenhouse Gas Reductions Targets Act was brought into force Jan. 1, 2008. The act legislates the province’s commitment to reduce greenhouse gas emissions by at least 33 percent below 2007 levels by 2020 and to have a carbon-neutral public sector by 2010.
Ontario passed its Green Energy Act on May 14. It supports premier Dalton McGuinty’s pledge to eliminate dirty coal as a power source by the end of 2014.
In the United States, the House of Representatives approved the
American Clean Energy and Security Act of 2009 on June 26. The bill, which is now before the Senate, requires electric utilities to meet 20 percent of their electricity demand through renewable energy sources by 2020.
Kelly said the move away from coal-fired generation could increase natural gas demand by seven or eight percent in the U.S. and put additional stress on North American natural gas supplies.
Natural gas prices soared well above $11 US per million BTU in 2005 and again in the summer of 2008 before collapsing with other energy commodities as the world economy fell into recession. At the same time, new supplies from prolific shale-rock formations started to flood the market. Shale-rock and coal bed gas is abundant in North America, but requires specialized drilling techniques to bring it out.
Kelly said big new demand for electrical generation could push gas prices to the $6.50 to $8 US per million BTU range, up from today’s levels of $5.25 to $6.50. That would be a 23 percent increase over today’s cost of the main input in the production of nitrogen fertilizer.
“I honestly don’t know how that translates into fertilizer prices, but natural gas is such a large feedstock (in the production of fertilizer) that it would translate fairly directly,” Kelly said.
His analysis doesn’t take into account how much more it may cost to produce and transport natural gas under the new environment policy, which would further drive up the cost of the commodity.
Kelly said the impact of the policies won’t be felt until 2015-20 because most of the proposed legislation won’t take effect until 2012 at the earliest and will be phased in gradually.
Farmers should keep a close eye on such climate change policies because it could have “powerful impacts” on their profit, he added.
Kelly said there is less than a 50 percent chance that the U.S. government will pass the American Clean Energy and Security Act.
