A draft California Energy Commission report seeks to answer some of the questions that have been posed about the potential cost, energy-infrastructure and air-quality implications of meeting state climate goals by decreasing natural gas consumption statewide.

In the process, the report raises still more questions. Namely, how can jurisdictions achieve less natural gas use without making it more expensive?

The 101-page interim report was prepared by Energy and Environmental Economics and the University of California, Irvine, for the Future of Natural Gas Project [PIER-16-011].

The authors looked at natural gas usage in the context of the state's 40-percent-by-2030 and 80-percent-by-2050 greenhouse gas emissions-reduction targets. They emphasized that the report is not intended to be prescriptive, but to provide insights that might be used to make future policy choices.

In the many different scenarios they examined, there is not one that completely removes natural gas from use. In the report's "high building electrification scenario," for example, natural gas demand in buildings starts dropping markedly after 2030, reaching an 89-percent reduction by 2050 with further decreases expected.

There are some instances in the analysis in which natural gas use was modeled to meet industrial demand, and others that allow for industrial use as well as use of renewable natural gas in buildings and in the transportation sector. The report says natural gas could likely be used by compressed natural gas trucks and for transportation. It could also be used in distributed fuel cells to support energy resilience. Rather than using conventional natural gas, more renewable natural gas would be needed to meet the state's climate goals.

If more natural gas is used, certain energy-intensive sectors in the state—heavy-duty trucking and industry—would need to do more to reduce GHG emissions. One possibility to meet the 80-percent-by-2050 target is to increase the share of renewable natural gas in natural gas pipelines; however, the study found that supplies of "relatively inexpensive RNG" are limited and insufficient to meet that target, necessitating use of hydrogen and synthetic natural gas, both of which are more expensive. (The study defines RNG as including biomethane, hydrogen and synthetic natural gas.) By 2050, the commodity cost of this blended natural gas would be more than four to seven times greater than current wholesale natural gas prices. 

Electrification, the report says, will result in lower energy bills and lower costs associated with meeting the state's long-term GHG goals. The authors' cost estimates for the 2050 "high building electrification" scenario run between $5 billion and $20 billion less per year compared with the "no building electrification" scenario, particularly as more electric heat pumps are used for both space and water heating. Electrification is likely lower-cost and lower-risk in the long term compared with renewable natural gas, the report says. New electric loads will temper the costs associated with grid maintenance and hardening. Those savings will be passed on in the form of lower rates. Other benefits include added grid flexibility and a lower cost of decarbonization, as well as improved air quality and public health.

California needs a plan for transitioning away from natural gas use, as there will still be millions of natural gas customers in 2050, the report says. The authors contend a complete transition will take decades to execute, adding that a managed transition is needed to plan and understand the costs associated with moving away from natural gas that will ultimately trickle down to consumers.

In the "high building electrification" scenario, natural gas demand in buildings drops 90 percent by 2050. Even without electrification mandates—in which 56 percent of the pipelines are left as natural gas—more RNG will be needed to meet the state's climate goals, which will trigger higher natural gas costs. If more pipeline decarbonization is needed, the resource costs would be between 10 and 22 times that of natural gas today.

Mirroring some testimony at municipal electrification-ordinance adoption proceedings, the report found that as natural gas demand decreases, the costs associated with operating and maintaining the existing infrastructure will likely increase, and these expenses will eventually be shared among fewer customers. If there is no strategy for a transition away from natural gas, rates could increase after 2030. This could impose a burden on those California residents unable to move from natural gas to electricity, particularly renters and low-income residents.

A comprehensive natural gas system transition strategy that incorporates a range of measures to effectively address numerous issues is needed, the study says. Additional research on issues such as costs and various anticipated legal and regulatory barriers will be required.

The CEC report is still in draft form and is subject to change following public comments. The public comment period on the document ends Nov. 13. There has been no date given for the release of the final report or for when it is expected to be before the commission for approval.