Navigating the Climate and Energy Implications of a Northeast Pipeline

Navigating the Climate and Energy Implications of a Northeast Pipeline

Photo: Robert Nickelsberg/Getty Images

The region's second major systematic challenge is reliability risk. The tenuous state of reliability in the region was made evident when Ontario's premier threatened to cut electricity exports to the United States in response to U.S. tariffs on Canadian energy. This is an alarming scenario given that New England relies on Canadian imports for up to 15 percent of its electricity supply on winter peak demand days.

The same pipeline constraints that drive high prices also create gas-specific reliability risks. During Winter Storm Elliot, the New York City region only narrowly avoided a gas-system failure that would have left a million homes and businesses without heat for months during the depths of the winter. While lack of preparedness for extreme cold weather was attributed as the primary cause of this disaster, regulators highlighted expanded midstream capacity as a possible mechanism to mitigate future reliability risk. In New England, national regulators highlighted the reliability risks should the Everett LNG import terminal close which resulted in expensive out-of-market contracts borne by Massachusetts ratepayers to keep the facility open.

A third challenge to the region's electricity system is the uncertain viability of ambitious state climate goals. The Northeast has long envisioned offshore wind as the backbone of a decarbonized grid given land constraints, low-capacity factors for onshore wind and solar, and historic opposition to nuclear power. New England needs 30-45 gigawatts (GW) of offshore wind capacity by 2050 to reach its climate goals, and New York has a legislative requirement of 9 GW from offshore wind by 2035. The latest data shows that the Northeast has just 0.15 GW of operational offshore wind capacity with another 3.2 GW under construction.

Higher interest rates and rising supply chain costs have forced delays, contract disputes, and outright cancellation for many offshore wind projects in the region. The Trump administration's ban on new permitting for projects represents a massive barrier to growth in the near term. The other pillar of the region's decarbonization strategy-low carbon-intensity electricity imports from Canada-has suddenly been called into question by recent trade disputes. While two key cross-border transmission projects under construction are unlikely to be halted, any future investment in a similar project looks far more financially and politically risky.

The emerging fourth challenge-an inability to serve large-scale energy demand growth-is a function of the previous three. High prices, reliability risks, and poor prospects for new electricity generation make the region unattractive, or borderline impossible, to site fast-growing power-intensive industries. Data from SemiAnalysis shows that the Northeast will largely miss out on the nationwide boom in datacenter investment: Of the 80 GW or more of datacenter capacity growth possible nationwide by 2030, less than 5 percent is slated for the Northeast. This is because datacenter investment is primarily determined by the availability of power supply, and the region cannot currently support electricity demand growth of any significant scale. A durable bipartisan consensus has emerged in Washington, D.C., on the need to boost additional energy and electricity-intensive industries, but the Northeast is not well positioned to steward or benefit from these economic opportunities.

Revisiting the Pipeline Option

High gas prices in the Northeast and cheap, plentiful gas nearby in Pennsylvania's Marcellus shale deposit have long attracted pipeline developer interest. The most notable proposal is the 124-mile Constitution Pipeline, first raised in 2012, which could bring 650 million cubic feet of gas per day from Pennsylvania to New York state. That project was halted by state water quality regulations and historically low gas prices.

The revival of the Constitution Pipeline or a similar project is clearly under consideration by the Trump administration. At CERAWeek, Interior Secretary Doug Burgum claimed high regional electricity prices were a result of the Constitution's cancelation. President Trump threatened to mobilize "the extraordinary powers of the federal government" to approve the pipeline regardless of states' regulations. His most recent executive order solidifies this intent, delegitimizing state energy policies that consider factors like climate change or emissions. Secretary for the U.S. Department of Energy Chris Wright predicted the Constitution will likely begin construction before the end of the year.

Even amid staunch federal support, any such project faces obstacles. The project developer likely requires explicit approval from Northeast governors before restarting development, due to the capital risks that would be incurred from another cancellation. The project also needs a viable commercial model to proceed, such as purchase commitments from buyers in the Northeast. Arranging such commercial commitments is likely to require state policy changes, given that existing decarbonization plans require declining gas consumption.

Thinking Through the Pipeline Question

It's likely no new pipeline will be built into the Northeast without the clear go-ahead from state governments. What factors might policymakers be weighing?

Top of mind is the downward impact on both natural gas and electricity prices that a pipeline would likely induce. A recent study by S&P found a pipeline could reduce Northeast gas prices by 20-30 percent, with $2.25 per million British thermal units (MMBtu) and $1.23 per MMBtu reductions during peak months for Boston and New York markets, respectively. Because this fuel is the marginal resource in the region's electricity markets, lower natural gas prices directly translate into lower electricity prices. Furthermore, increased access to pipeline gas would obviate the need for LNG imports through the Everett terminal. In addition to imported foreign LNG being more expensive than domestic gas, Massachusetts customers pay millions of dollars each winter to keep the terminal online; both of these factors would be alleviated by new pipeline gas.

Emissions considerations in the context of state climate goals are the primary obstacle to a new pipeline. Paradoxically, a new pipeline could slightly reduce emissions in the short term. Firstly, low-cost pipeline gas would displace high-cost, more emissions-intensive LNG imports. Furthermore, additional pipeline capacity would allow gas generation to displace the oil and diesel generation currently dispatched during winter demand peaks. Though these fuels deliver a small portion of the region's power-just half a percent of annual generation in New England, for example-they are 38-81 percent more emissions-intensive than natural gas. Importantly, because natural gas generation is always more expensive than zero-marginal cost renewables, lower-priced gas would not displace existing zero-carbon electricity generation in the region's competitive power markets.

Nonetheless, over the long term, a pipeline would realistically enable a net growth in emissions. The physical infrastructure of a pipeline itself causes significant fugitive methane emissions: At a mid-level leakage scenario, the Constitution Pipeline is projected to release over 42 thousand metric tons of methane per year. Furthermore, a pipeline represents a structural shift towards lower prices for the region's gas supply curve and lower prices will drive increased consumption. For example, lower prices mean more gas will be burned by existing heating consumers and business owners, as the choice to switch to electrified alternatives will be less attractive. In the power sector, the existing natural gas fleet will be more cost competitive. As a result, all else equal, the investment case for renewables will also become less attractive and renewable energy deployment will likely slow. On the other hand, most renewables deployment is driven by state renewable portfolio standards requirements that would continue with or without a pipeline, so it is unclear how large this effect may be.

Potential for a Policy Transition

An under-discussed but crucially important consideration is a new pipeline's impact on the policymaking terrain. Structurally lower prices for gas and electricity consumers could unlock more political space to advance climate policy. Whether it's offtake contracts for offshore wind, subsidies for heat pumps or home batteries, or investments in the power grid to support renewables and electrification, the fundamental reality of climate policy is upfront costs. Lower underlying rates for energy could create more "headroom" on the customer's bill for policymakers to work with in advancing climate-conscious policy. Given the Trump administration's clear preferences to expand natural gas infrastructure, a federal-state grand bargain might deliver a pipeline in exchange for offshore wind permitting certainty and a wider, more attractive option set for regional climate policy.

These considerations do not decisively make the case for or against a pipeline. Most importantly a wide set of political and commercial factors would need to come together to make any pipeline expansion viable. Regardless, this debate is crucial, as the status quo for the Northeast energy system is increasingly untenable. The revived interest in nuclear power in New York and Massachusetts is another signal that policymakers are increasingly recognizing this reality. Given the Trump administration's strong support for nuclear, here too could be an area of federal-state cooperation.

Amidst a noisy global conversation over the trajectory and viability of the energy transition, policymakers have no other option but to assess tradeoffs, seize opportunities, and plot a way forward that delivers an energy system compatible with both growth and declining emissions intensity. The Northeast has an opportunity to lay down the markers for a productive new era of energy and climate policy.

Cy McGeady is a fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Bridgette Schafer is an intern with the Energy Security and Climate Change Program at CSIS.