Introduction

Ask a question about America's energy future, and the likely answer is natural gas -- for generating electricity, heating homes and businesses, fueling clean vehicles, and even making the much-vaunted hydrogen future possible. Even fossil fuel skeptics acknowledge natural gas as "an important bridge" to a renewable energy future.

But tight supplies and higher prices are raising new questions about natural gas. The nation has immense untapped natural gas reserves, but they are just that, untapped. And so a recent front-page Wall Street Journal article warned: "Once thought plentiful, the United States is now facing a shortage of natural gas that could last for years, and the impact is just beginning to ripple through an already ailing economy."

Demand for natural gas is growing because it is relatively cheap, it is efficient, it is the cleanest burning fossil fuel, and the United States largely meets its needs with domestic sources. These traits make it vital not only to the nation's energy future, but also to the challenge of reducing harmful emissions from power plants, including carbon dioxide (CO2), the chief culprit in global warming.

A series of price spikes over the last two years have focused attention on the growing economic importance of natural gas, its significant environmental benefits, and the need to better police the markets that trade it. This has produced a predictable political clash as Congress considers energy legislation. One side, led by the Bush administration, favors supply-side solutions above all others, virtually ignoring commonsense efficiency measures to get more energy bang for the buck from the appliances and heating and cooling systems we use at home and work, and downplaying legitimate environmental concerns as unwelcome barriers to economic growth. The other side, led by environmental groups, emphasizes efficiency, places environmental values ahead of economic concerns, only begrudgingly accepts new extraction or pipeline projects, and acknowledges as an afterthought the important environmental values that are driving natural gas demand and thus the need for abundant supplies.

PPI believes a Third Way approach should recognize the important nexus between sound environmental and energy policy, give due consideration both to supply- and demand-side solutions, and press for a more transparent and competitive marketplace. This report focuses on natural gas as an important case in point for how public policy can realize a "clean growth" strategy that is consistent with progressive goals of abundant and affordable energy, economic prosperity, and across-the-board improvements in environmental quality. Based on this balanced approach, the following policy brief recommends policies to:

• Improve efficiency and reduce demand;
• Make markets more transparent and more competitive;
• Construct a natural gas pipeline from Alaska to the lower 48 states, built and operated according to strict environmental standards;
• Promote drilling in the central and western Gulf of Mexico;
• Support efforts to tap "unconventional" gas reserves in the Rocky Mountains in an environmentally sound manner;
• Increase funding for environmental reviews, land management planning, and inspection and enforcement of production facilities on federal lands;
• Support research and development for improved extraction techniques and for technologies to get stranded gas to market;
• Set a national renewable portfolio standard (RPS) for electric utilities to lessen dependence on all fossil fuels, including natural gas; and
• Support the development of liquefied natural gas (LNG) in the Western Hemisphere.