Renewable energy technologies have made remarkable technical and economic progress in recent years. Despite these gains, American renewable energy firms face a serious competitive threat from natural gas. The price of gas has dropped startlingly since the mid-1980s. In most settings, no renewable energy technology can match the cost of gas-fired generating units in supplying power to the electric transmission grid. Changes in the electric industry have heightened the importance of this cost difference by exposing power generators to increased competition.

The role of natural gas should be that of a bridge to a future in which renewables satisfy most of the world's energy needs.

The competitive problems facing renewable energy concern not only the firms that sell the energy or the capital goods that produce it. Renewable energy has an essential role to play in meeting environmental goals, perhaps, above all, those related to mitigating global climate change. Its ability to play that role requires sustained and rapid growth; it therefore depends on expanding markets. Natural gas now defines one of the competitive boundaries for those markets.

Unlike coal, however, natural gas cannot be portrayed as an environmental villain. Natural gas offers some of the environmental benefits of renewable energy and today, it has one major advantage: there is a great deal more of it. The role of natural gas, therefore, should be that of a bridge between the present, in which the environmental benefits of renewable energy technologies are limited by the small amount of energy they produce, and the future, in which environmental necessities may require renewables to satisfy most of the world's energy needs.2

While natural gas and renewable energy inevitably do compete in the electric power sector, they also share important interests. They are linked by their joint use in hybrid facilities, by their roles in future distributed or hydrogen-based energy systems and, most importantly, by their environmental benefits. Institutionally, the natural gas and renewables communities can cooperate productively, as they do as members of the Business Council for Sustainable Energy. Their shared characteristics allow renewables and gas to benefit from some of the same energy policies.

The policy needs of natural gas and renewables also differ in fundamental ways. Natural gas is a mature industry which can-and should-be left to make its way in an unbiased marketplace. In contrast, renewable energy will require support for some time, partly because today's energy markets undervalue the environmental benefits that renewables offer, but principally because of the need to develop a much larger renewables industry to increase those benefits in the future.

This Issue Brief examines the two sides of the relationship between natural gas and renewable energy-natural gas as a competitor and natural gas as a bridge-and some of the policy implications of that relationship. We focus exclusively on the use of gas and renewable energy as resources for electricity generation. Rather than a comprehensive clean energy strategy, which lies beyond the scope of this paper, we outline the common and divergent interests between gas and renewables that would structure such a strategy. A secondary goal is to provide a primer on the natural gas sector for the environmental and renewable energy communities, while explaining the basic elements of global climate change and renewable energy issues to the gas community.

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