Study: CA Needs a Safe, Managed Transition Away from Gas

6/11/2019: Updated to reflect the market share targets in the Building Decarbonization Coalition’s Roadmap

California needs a “natural” (fossil) gas transition strategy to shield Californians from sharply higher heating bills, protect workers, and meet the state’s climate targets. These are the starkly clear implications of the preliminary findings of a study presented at today’s California Energy Commission (CEC) workshop on the future of gas in the state.

The study by Energy+Environmental Economics (E3) and University of California Irvine (UCI) projects a sharp decrease in statewide gas demand, between roughly 60 percent in a “high building electrification” scenario where heating and hot water switches from gas to electricity, and a smaller but still significant 30 percent decrease in a  “no building electrification” scenario, due to the state’s decarbonization goals across all sectors, as shown in the figure below. Meanwhile, gas utilities are investing massively to upgrade the system following the San Bruno explosion in 2010 and Alison Canyon gas leak in 2015.

These increased infrastructure costs—much of which are necessary if we are to keep operating these pipelines and storage facilities safely—will be recovered from shrinking gas sales, leading to a sharp increase in gas rates for consumers.

Source: E3-UCI Draft Results: Future of Natural Gas Distribution in California (slide 52)

We can already see the impact of massive gas pipeline investments begin to play out today, with SoCalGas requesting a 30-percent increase (42-percent nominal) in gas revenue requirement between 2018 and 2022, and PG&E a 15-percent (24-percent nominal) one between 2019 and 2022. The study finds that this trend is likely to continue to 2030, and could accelerate beyond 2030 without a mitigation plan. This means that customers buying a gas-heated home today, or a new gas furnace or water heater, are unwittingly committing to significantly higher bills than they would with an efficient electric alternative over the life of the building or appliance.

Efficient Electrification Is the Lowest-Cost, Lowest-Risk Option

Here’s the good news: the study finds that building electrification using efficient space and water heating technologies that are commercially available today presents the lowest-cost and lowest-risk pathway for buildings to contribute to the state’s decarbonization goals. (About two thirds of the climate pollution from California's buildings comes from burning gas, primarily for heating and hot water, as about 90 percent of California's furnaces and water heaters currently run on gas or propane.) A previous report found that electrification is already cost-effective for many Californians today.

In contrast, the “no building electrification” scenario, which relies heavily on biomethane, hydrogen, and synthetic gas from electricity and even greater emissions reductions from other sectors, would be much more expensive. Synthetic methane (called synthetic natural gas or SNG in the study) is not commercially viable today, and even with aggressive assumptions about possible cost reductions, this scenario is both costlier and riskier given that this technology is still nascent. This figure compares the strategies.

Source: E3-UCI Draft Results: Future of Natural Gas Distribution in California (slide 17)

Biomethane, hydrogen, and synthetic methane from electricity will likely play a role in decarbonizing our economy, but these resources are expensive and as E3 notes, there are higher-priority uses for these resources in industry, power generation, and heavy-duty transportation which are harder and costlier to fully electrify.

In contrast, a building electrification strategy where gas furnaces and water heaters are replaced by efficient electric alternatives as they burn out over time, would cost the least and achieve much deeper emissions reductions in the building sector, allowing more flexibility in difficult-to-decarbonize sectors while still meeting 2050 targets.

Planning for a Transition Needs to Start Today

The E3-UCI analysis shows that in all scenarios, gas use declines significantly but that California will still be using some gas in 2050. If this transition happens haphazardly with random electrification of buildings, the same full gas systems costs will fall on the remaining customers.

In contrast, a managed transition with targeted electrification will have significantly lower costs—the study provides an example where $25 billion (NPV) in cost savings could be achieved. The graphic below depicts an untargeted transition versus a targeted transition where investments in gas infrastructure can be avoided.

In addition to saving money, an intentional and managed transition should also protect gas workers. With time and the ability to plan, the transition (which will take place over 20 to 30 years) can be synched with worker retirements, retraining opportunities, and growth in jobs in the electric sector.

Source: E3-UCI Draft Results: Future of Natural Gas Distribution in California (slide 28)

Time to Get to Work

The research presented today takes a long-term view, providing the foresight needed to plan for a transition away from gas. The legislature passed Assembly Bill 3232 last year to direct the Energy Commission to assess the feasibility of reducing building emissions 40 percent below 1990 by 2030, and Governor Newsom’s budget funds new work to lay out the key actions the state must take to move toward a carbon-neutral economy, with a focus on the programs and policies needed to dramatically reduce fossil fuel demand by 2050.

We still have some time left to make this transition work for all Californians, but we must be honest about where we are headed to set the needed policy signals—electrifying buildings with the state’s abundant pollution-free and renewable electricity is the primary pathway to decarbonize the building sector. These new findings make this crystal clear.

The report outlines key components of a structured gas transition strategy. Here we highlight three that we see as top priorities:

  1. Stop connecting new buildings to gas as soon as possible (stop digging the hole): Every connection of a new building to gas is increasing the cost of the system, making a transition more expensive and difficult. It is also setting up unsuspecting home buyers and renters for skyrocketing gas bills.
  2. Targeted retirement of gas pipelines: Start shutting down portions of the gas system wherever possible to reduce system costs and customer costs. Partner with cities that are leading on building decarbonization, including Los Angeles, San Jose, San Francisco, Berkeley and many others throughout the state.
  3. Market development: A well-developed market is critical to support building new homes and commercial buildings all-electric and targeted gas pipeline retirements. We need to build the market in California quickly in support of these efforts and minimize transition costs. Bill SB 1477 is a good start but nowhere near enough to achieve our 2030 and 2050 goals. The market share of efficient electric equipment must grow to 50 percent of all new heating equipment sales by 2025 and 100 percent by 2030 to do that. This rapid market development requires clear leadership and demonstrated policy commitment like incentives and zero-emissions building codes. We need long-term goals, with long-term funding, to develop and scale the market for efficient electric heating technology in buildings. Manufacturers, distributors, contractors, and builders all need to know for certain the direction California is heading.

This study’s preliminary findings send a clear call to action to develop a plan for a safe, affordable, and fair transition away from gas use in buildings. Let’s get to work!

About the Authors

Merrian Borgeson

Director, California Policy, Climate & Clean Energy Program

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