Fossil fuel groups are bashing each other

WASHINGTON, D.C. - Big energy companies that once stood shoulder to shoulder in a fight against climate legislation are shifting battle positions to focus on new opponents. Each other.

Natural gas is bashing coal. And now, coal punched back.

Big oil and gas companies are condemning the House climate bill that buoys coal-fired utilities. Coal's response is to ask senators for even more help than the fuel received in the House legislation.

The struggle promises to increase in the weeks ahead. With the Senate expected to move ahead on climate legislation in September, each of the fossil fuels wants to make itself appear most worthy of help. Increasingly, that means making a rival look less entitled.

"Instead of simply standing opposed, everyone is looking for the advantage," said Sam Thernstrom, resident fellow at the American Enterprise Institute, a conservative think tank. "It's inevitable that there will be conflict between cleaner sources of energy, such as natural gas, and dirty sources of energy. The whole process of crafting climate policy is picking winners and losers."

The Senate plans to craft its own approach to climate legislation while starting in principle with concepts in the House bill from Democrats Henry Waxman of California and Ed Markey of Massachusetts. That legislation creates a system that would cap carbon levels and require businesses to buy allowances covering emissions. In its early years, the program would give away 85 percent of those allowances, with coal-fired utilities capturing the largest share and petroleum refiners the least.

While the allowance pie seems to be have been sliced, lobbyists for some fossil fuels want the Senate to bake a new one.

Natural gas, in particular, hopes the Senate will revamp the House's plan for limiting climate change. The strategy employed by a group of gas companies throws out any alliances that still existed between energy companies.

After the House passed its climate bill, various energy interests sniped behind the scenes. But in advertisements and on-the-record statements, they followed what most called a long-standing rule: Don't criticize each other.

That changed after a group of 27 independent gas companies came together to form America's Natural Gas Alliance. The companies united in February but were not ready to lobby for some time after that. By the time the alliance kicked fully into gear, the House bill largely was written. Industries had gotten what they could to ease compliance with a new cap on carbon emissions.

Natural gas felt like it had not received much of anything.

The alliance began lobbying the Senate full force. It also started running full-page ads in Washington newspapers. The ads promote the benefits and availability of natural gas. But they also throw dirt on coal, the source of half the power in the United States.

"We can cut carbon emissions by 50 percent today," one ad says, followed by pie charts showing how generating half of U.S. electricity from natural gas, instead of coal, would dramatically lower carbon dioxide emissions.

"We felt we needed to get some of the basic facts out there as soon as possible," said Rod Lowman, president and CEO of the gas alliance. "We're trying to reach opinion leaders and influencers of policy."

The gas messages, part of an $80 million advertising and lobbying campaign, ran several weeks without much response. Then, the National Mining Association struck back in the Politico newspaper.

"We can raise electricity prices by 450 percent today," the NMA ad screamed in red and fuchsia type, "by replacing coal with natural gas to generate electricity."

The ads based that 450 percent increase on the price difference between coal and natural gas last winter.

Carol Raulston, spokeswoman for the National Mining Association, criticized the gas alliance's approach.

"When you take on the other guy and say, 'We could take half your business' or 'We could take all of your business,' that to me does not seem to be productive in a policy debate," Raulston said. "It's better to try to inform policymakers about what you can try to do to meet the policy objectives that are shared by all."

Coal, Raulston said, has "never tried to do that at the expense of the other fuel sources, but [America's Natural Gas Alliance] sort of come at this from one viewpoint."

Asked whether the National Mining Association's ad signals gloves coming off, Raulston said the trade group for coal was "showing a little wrist."

The natural gas alliance, Lowman said, is informing policymakers.

"The abundance of natural gas is 'new news,' and the lower carbon emissions benefits of natural gas are clear," Lowman said.

"We want to make sure policymakers and utilities have all the facts about natural gas in front of them when they make their decisions," he added.

The ad battle is just part of the persuasion effort for fossil fuels. The newspaper messages provide a backdrop as lobbyists make face-to-face arguments, often reminding lawmakers of the points made in those ads.

"The first thing we always talk about is making sure they understand the abundance of natural gas," a supply "that has not always been there in the past," Lowman said.

Alliance lobbyists carry with them an interim report from the Potential Gas Committee out of the University of Colorado, which projects "well over 100 years of supply," of natural gas, Lowman added. Lobbyists also tell lawmakers about an Energy Information Administration report from May that saw "much brighter prospects" for natural gas supplies.

Gas producers say new technology means they can extract plentiful supplies from shale formations like the Barnett in Texas, the Marcellus in Appalachia and the Haynesville in Louisiana.

"There's been a sea change in the ability to produce natural gas," Lowman said.

Gas lobbyists also talk about the smaller carbon footprint of the fuel, Lowman said, and say that it should be "front and center in the early years in helping us solve some of the climate change issues."

For now, Lowman won't say how the gas alliance wants the Senate to handle the free allowances given in the Waxman-Markey bill. In addition to discussions about the allowances, however, Lowman said, natural gas lobbyists are talking to senators about offsets. The offset program in the House bill lets businesses buy into projects that reduce carbon dioxide instead of paying for emission allowances.

"We have some ideas. We're saving those ideas for those individual discussions" with senators, Lowman said. "We want to get some reaction to some of the ideas that we've got out there right now."

Coal lobbyists, meanwhile, are vying to protect what the industry achieved in the House bill, win additional concessions and counter the arguments natural gas now is making.

The argument that supplies of natural gas are plentiful is predicated on the industry's ability to drill "for a lot more," said Frank Maisano, senior principal at Bracewell & Giuliani, which lobbies for utility and coal interests. "They say, 'We've got plenty of gas,'" Maisano said, but in some areas there is resistance to increased shale exploration.

If natural gas prices climb, Maisano said, that hurts manufacturers that use gas for production. Added demand also would push up natural gas prices, coal lobbyists are telling lawmakers. If utilities switch to natural gas generation, they say, that could mean higher electric bills for consumers.

That EIA forecast on gas supplies references a price of about $8 per million British thermal units by 2030. That is half the $16-per-million-Btu forecast by the International Energy Agency. But that $8 is also the number that the National Mining Association used in its ad predicting natural gas would lead to electricity prices that are 450 percent higher than those resulting from coal generation.

There does seem to be concern among some senators that natural gas could become more expensive in the future, said a coal lobbyist who asked not to be identified, citing his company's policy. An aide to Sen. Sherrod Brown (D-Ohio) recently asked the lobbyist whether a transition to more gas would push up its price. Brown represents manufacturers that use natural gas. The lobbyist told Brown's aide that he did not know the answer but was looking into it.

But that same coal lobbyist added that natural gas "has nothing to lose by picking a fight with coal."

It is difficult to calculate how switching to natural gas generation might affect costs, said Thernstrom with AEI. The formula requires factoring in existing versus future plants and domestic and international supplies of coal and natural gas.

"I haven't done the math to try to figure it out. I'm not sure I could do the math," Thernstrom said.

But if demand ramps up for natural gas, he said, its price probably would be higher than the $8 per million Btu cited by coal in its ads warning of a 450 percent increase in power prices.

Questions about costs are among the issues senators will be asked to sort out as they decide how to structure climate legislation and whether to keep provisions in the House bill that give away 85 percent of the allowances.

They will also have to decide how to handle arguments from large, integrated oil and natural gas companies.

The American Petroleum Institute, the trade group for oil and gas production companies, for about a month has been running ads in several Washington newspapers warning, "The House voted to bring you $4 gas. Will the Senate make the same mistake?"

"It's aimed at anyone and everyone to talk about the downside of that bill," said Karen Matusic, API spokeswoman.

Part of API's strategy, Matusic said, is to educate the public about what the group believes would be the result of policy changes in the Waxman-Markey bill. It would lead to higher prices for fuel, she said, as well as costs for items that are shipped, airline tickets and other transportation.

"When people hear all the ins and outs of what this will cost," Matusic said, that will have an effect on lawmakers. Already, she said, there is pressure on House members who voted for the bill.

The fact that other segments of the fossil fuel industry are running ads at the same time does not factor in, Matusic said.

"We put our ads out with our point of view," Matusic said. "Our point of view is that Waxman-Markey is bad. The Senate should do something else besides Waxman-Markey."

Like the natural gas alliance, oil does not want to specify what it is asking senators to give the industry in climate legislation.

"We want an equitable system that isn't going to penalize all the consumers and businesses that rely on transportation fuels," Matusic said. "That wasn't considered at all."

Analysts are skeptical that lawmakers will be able to weigh competing claims from the fossil fuel businesses.

The best policy would be for Congress to charge for carbon emissions, which "lets the market sort out the winners," said Adele Morris, deputy director for climate and energy economics at the Brookings Institution think tank.

The free allowances given to electric utilities in the House bill protect consumers from higher electricity bills, which is not an effective policy, Morris said, adding, "If you leave prices where they are, people are not going to have the same incentive to conserve."

Lawmakers, she said, "need to think about what's everybody's self-interest in the claims they are making."

"Every industry has an incentive to come up with the number to make it look most compelling for them," Morris said. "Congress is going to have to roll up their sleeves... to critique all this stuff."

AEI's Thernstrom, who worked in the Bush administration at the Council on Environmental Quality from 2001 to 2003, described climate issues as "very, very difficult problems to solve. The competing interests of good policy and good politics are wrestling here. I'm just not optimistic that good policy is going to come out on top."

Jerry Taylor, senior fellow at the Cato Institute, a libertarian think tank, said it is unlikely that lawmakers will try to judge the competing charges from natural gas, coal, and large oil and gas companies.

"The members of the Senate are not going to sort out the merits of different positions," Taylor said. "What they're going to do is sort out the political merits of different positions, and members of the Senate will, for the most part, adopt those positions based on what will give them the most political capital."