Illustration by John Tomac
Americans want natural gas. On average, every minute a new customer—a household, a business or a public building—is connected to the U.S. natural gas system. That’s roughly a half-million new customers choosing natural gas every year.
On Jan. 1, 2018, as the “bomb cyclone” threatened the Northeast and extremely cold temperatures descended across much of the United States, the country’s natural gas system delivered more natural gas than ever before—nearly 150 billion cubic feet on that day alone. That’s a tremendous amount of energy.
How much energy does natural gas provide consumers? Consider this: The volume of natural gas delivered only to homes and commercial businesses on Jan. 1, about 80 billion cubic feet, is roughly the same amount of useful energy that the entire U.S. electric grid could generate over 24 hours.
In other words, natural gas delivers essential energy when customers need it most, and at an unrivaled scale. Moreover, consumers continue to select natural gas. But policies are changing, and some policymakers and advocates are questioning the future role of natural gas for space and water heating.
In recent years, there has been a shift in the types of policies proposed to reduce greenhouse gases. States and municipalities have announced efforts to pursue “deep decarbonization” of their economies, and many advocates and policymakers have turned to “residential electrification” as one emissions-reduction strategy.
The underlying idea of residential electrification is the expectation that the electric grid will continue to become cleaner over time and that the conversion of natural gas-based residential heating and other appliances will reduce carbon dioxide emissions.
There may be other benefits, too. Many proponents of residential electrification suggest that electrifying end uses such as home heating could be beneficial to the electric grid during winter months by taking advantage of under-utilized generation capacity. In addition, new electric load profiles could be matched with the output of renewable generation.
However, there has been little to no analysis on the costs, benefits and impacts of residential electrification policies. To address these gaps, the American Gas Association engaged with consulting firm ICF to develop a study to understand the implications of policy-driven residential electrification.
Policy-driven residential electrification refers to the direct or indirect regulatory or legislative actions that would require the elimination of natural gas, propane and fuel oil as options to meet residential space heating, water heating and other uses in favor of electric appliances.
In the recent AGA study, several key questions were asked concerning the potential costs, benefits and impacts of policy-driven residential electrification:
The residential electrification policy evaluated in the study assumed that furnaces or water heaters fueled by natural gas, propane or fuel oil would not be allowed in residential households starting in 2023. Instead, only high-efficiency conventional air source heat pumps would be used as the electric alternative to fossil fuel furnaces. Heat pump water heaters would be used for electric water heating.
The study used weather data at 220 geographic locations to estimate the average and peak period effective efficiency of electric heating equipment. The peak analysis for those different locations was critical in evaluating energy demand and electric infrastructure costs.
The study evaluated new and existing households. Energy prices, equipment conversion costs and energy consumption were projected based on regional data from the U.S. Energy Information Administration’s “Annual Energy Outlook 2017” and other public sources.
AGA selected two generation scenarios to meet the increased demand associated with moving tens of millions of customers to electric space and water heating. The first case, “Renewables-Only,” required that all new electricity demand be met with a combination of renewable generation and battery storage. The second case, a “Market-Based” generation case, allowed all fuels, including natural gas-fired generation, to compete.
The final report, released in July 2018 and titled “Implications of Policy-Driven Residential Electrification,” is the first of its kind to conduct this type of detailed regional and national analysis to evaluate the consumer and upstream impacts associated with electrification of residential space and water heating.
So, what did the study find?
Total natural gas direct use results in only 4 percent of GHG emissions today, so overall potential reductions are very limited. Based on the modeled scenarios in the study, aggressive policy-driven residential electrification would reduce U.S. GHG emissions by only 1 to 1.5 percent by 2035.
The potential reduction in emissions from the decreased use of gas and other direct-use fuels in the residential sector is partially offset by an increase in emissions from the power-generation sector, even in the case where all incremental generating capacity is renewable.
Local results vary. In some areas of the United States, where natural gas and coal are likely to continue to play a significant role in electricity generation by 2035, the study found that residential electrification would lead to an increase in carbon dioxide emissions. In other words, the direct use of natural gas leads to carbon dioxide reductions relative to electric space and water heating.
Policy-driven residential electrification could create significant increases in peak electric demand and could shift the U.S. electric grid from summer peaking to winter peaking in every region of the country, resulting in the need for major new investments in the electric grid, including generation, transmission and distribution capacity.
In one eye-opening finding from the study, electrifying all residential natural gas space heating could nearly double the U.S. electric grid’s peak hourly demand.
Policy-driven electrification would increase the average residential household’s energy-related costs and would require significant investments in electricity infrastructure. Consumers would have to bear the costs associated with equipment replacements or upgrades as well as the difference in energy costs for switching to electricity.
The study found that total energy costs would increase between $590 billion and $1.2 trillion depending on the power-generation scenario, or $15,830 to $21,140 per converted household on average over the lifetime of the heating equipment. These costs include equipment upgrades, changes in energy costs, and upstream electric generation and transmission requirements associated with new peak electricity demand from the electrification policy.
Other costs were not evaluated. The study did not conduct a detailed examination of electric system distribution infrastructure requirements associated with new peak electric system demand, nor did the study evaluate natural gas distribution system costs. As the number of residential customers connected to the distribution system declines, costs will shift to the customers remaining on the system.
The average cost of U.S. GHG emissions reductions achieved by policy-driven residential electrification is between $572 and $806 per metric ton of carbon dioxide reduced, which is very high relative to other GHG reduction options, depending on the power-generation scenario. Figure 1 illustrates that there are some carbon dioxide mitigation measures that cost significantly less than residential electrification as an emissions-reduction strategy.
It’s important to note that this study focused on broad regional and national markets, using a bottom-up approach. Different assumptions on the electrification policy could change the results. Furthermore, a state- or utility-specific analysis may differ significantly from the results of this AGA effort. A more localized study would need to account for additional costs such as electric distribution, natural gas and electric rate impacts, and other local considerations.
Natural gas utilities continue to demonstrate a commitment to energy efficiency and reducing the environmental footprint of their customers’ energy use.
More than $1.5 billion was budgeted for gas efficiency programs in 2017, which helped reduce emissions and lower consumers’ energy bills. Residential natural gas customers have consistently reduced their carbon dioxide emissions for more than 40 years. In addition, methane emissions from gas utility systems have dropped by 72 percent since 1990.
And natural gas utilities are committed to continuing this progress.
Acknowledging the significant potential impacts and costs associated with policy-driven residential electrification, it might be time to consider other methods of meeting our shared goals of GHG emissions reductions.
To explore these alternative pathways, AGA partnered with Enovation Partners to conduct an extensive global search for emerging natural gas direct-use technologies that could contribute to GHG reductions.
The search identified more than 100 innovative natural gas technologies in the residential and small commercial sectors.
Enovation Partners found that policy goals for sustainable energy can be achieved at significantly lower costs to consumers if innovative natural gas solutions are integrated into long-term resource planning. Keeping natural gas as an option for homes and businesses helps maintain consumer choice, affordability, reliability and comfort.
Also, meaningful GHG emissions reductions are, in fact, achievable with natural gas. Enovation Partners found a potential 25 to 40 percent reduction in GHG emissions on a customer basis by integrating the innovative natural gas technologies it evaluated.
More advanced but provable and scalable gas technologies, such as combined heat and power and renewable natural gas, can achieve emissions reductions of 60 to 80 percent, consistent with the goals of the Paris climate agreement.
This integrative gas future won’t happen on its own. The gas industry must expand its engagement with regulators and policymakers to help build a sound factual basis for the role that innovative natural gas technologies can play in reducing GHG emissions.
Furthermore, it is incumbent on the gas industry to continue to increase consumer access to high-efficiency natural gas applications to reduce costs and emissions. The industry must advance research, development and deployment of next-generation natural gas technologies, making them widely available for consumers. And the industry must realize the potential of renewable natural gas—methane produced from landfills, farms or wastewater treatment, as well as the conversion of renewable electricity to gas via electrolysis and methanation processes—which provides natural gas customers with a carbon-neutral and versatile fuel that is compatible with the existing natural gas system.
Natural gas is a preferred energy source for consumers today. As we look ahead to future GHG emissions reductions, research shows that residential electrification policies could prove to be disruptive and costly to consumers. However, the integration of advanced natural gas end-use technologies may help us achieve our shared goal of GHG emissions reductions at a lower cost than if natural gas were not part of the future energy mix. Still, more work will need to be done to ensure that consumers have access to cost-effective, innovative natural gas technologies and that natural gas continues to play a role in reducing GHG emissions in the residential sector.
The full reports, Implications of Policy-Driven Residential Electrification and A Thoughtful Pathway Towards U.S. Emissions Reductions are available for download online at www.aga.org.