Brief Note on Natural Gas Policy

by Reihan Salam

Recently, I appeared on HBO’s Real Time with Bill Maher and I made a mistake: I referred to the 1978 Public Utilities Regulatory Policy Act (PURPA) when I meant to refer to Powerplant and Industrial Fuel Use Act and the Natural Gas Policy Act, both of which were passed in 1978. I apologize for my carelessness. In Power Hungry, Robert Bryce describes the impact of these two laws:

In 1978, [Robert] Byrd and his allies convinced Congress to pass two bills that would haunt the gas industry for years: the Powerplant and Industrial Fuel Use Act and the Natural Gas Policy Act. The most important provision of the Fuel Use Act was that it prohibited the use of gas for electricity generation. Meanwhile, the Natural Gas Policy Act created a briar patch of categories for gas pricing based on whether it was sold in interstate or intrastate commerce, what type of wells were involved, and even how deep the wells were. In the wake of the legislation, gas consumption plummeted. By 1986, natural gas consumption had fallen to about 44 billion cubic feet per day—a level not seen in the United States since 1965.

Though the Powerplant and Industrial Fuel Use Act was repealed in 1987, it led to a sharp decline in the use of natural gas for power generation that lasted for years.

The winner of all this federal intervention was coal. Between 1973 and 2008, coal’s share of the primary energy market jumped from 18 percent to 25 percent.23 Much of that coal was used for electricity generation. Between 1978—the year that Congress passed the Powerplant and Industrial Fuel Use Act—and 1988, coal’s share of the U.S. electricity generation market soared, going from 44.2 percent to 56.9 percent, the highest level of the modern era.

As Bryce goes on to argue, U.S. carbon emissions would most likely be much lower today had federal regulation of the natural gas sector not stymied its development.