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The Natural Gas Reality Check—A $96 Billion Price Tag?

Sept. 16, 2021, 8:00 AM

The U.N.’s Intergovernmental Panel on Climate Change recently released the first of four reports, issuing a dire warning about the impact of global greenhouse gas emissions. The U.N. Secretary-General, António Guterres called the report “a code red for humanity.”

For environmental activists here in the U.S, the report is an opportunity to ratchet up the pressure on President Biden. They want net-zero emissions and 100% renewables—and they want it done tomorrow. However, their mad dash is running into the reality of our energy demands and the high price tag attached with phasing out fossil fuels.

Millions Use This Affordable Energy Resource

Natural gas consumption is predicted to rise in 2021 as millions of Americans across the country are using it for cooking, laundry, and to heat their homes. It is available at the flip of a switch and more significantly, it is affordable. Those households that use natural gas for cooking and heating save an average of $847 annually in comparison with households that use electricity.

Likewise, businesses also depend on natural gas, with over 5.4 million commercial customers using it for space and water heating, including schools, hospitals, and fire stations.

This appears to matter little to environmentalists who want to take us all on the renewables ride, whether we bought a ticket or not. Unable to stop every pipeline project, they have targeted natural gas in a creative way—pushing for cities and states to prohibit natural gas hookups in new construction homes and buildings.

Berkeley, Calif., was the first out of the gate. Two years later, major cities like San Francisco, Seattle, Denver, and New York have followed their lead, enacting or proposing measures that ban or discourage the use of this critical energy resource. The goal is to reduce greenhouse gas emissions by fully electrifying all new construction. Some policymakers are even taking it a step further by advancing policies to phase out natural gas use in existing buildings.

Price Tag to Convert: $96 Billion

A recent analysis from clean energy research and testing firm Pecan Street Inc. found that nearly 50 million single-family U.S. households would need to spend thousands of dollars to upgrade their homes’ electrical panels before they can “fully electrify” and abandon the use of natural gas.

On average, the upgrades would cost around $2,000 per home, although the cost could go as high as $5,000 in some cases. When considering all 48 million homes that currently rely on natural gas in some capacity, the price tag for conversion would total $96 billion.

Further, a new report published by the National Bureau of Economic Research found that such a phase out will increase costs for the remaining gas customers. As the report notes, “growing utilities add new pipeline infrastructure, but utilities with shrinking customer bases continue to maintain the same amount of legacy pipeline infrastructure. In keeping with this, utility revenues rise (with an elasticity of one) when the customer base grows, but shrink by an asymmetric amount when the customer base shrinks. That is, prices for remaining customers rise.” Those remaining would see their bills increase by an average of $120 if 40% of gas customers exited; that skyrockets to an additional $1600 annually should 90% of customers leave.

The irony in all of this is that natural gas is helping us achieve our environmental goals as utilities take advantage of its abundance and affordability to transition away from coal. According to the U.S. Energy Information Administration (EIA), “increasing use of natural gas has helped reduce overall U.S. CO2 emissions growth because it is the least carbon‐intensive of the fossil fuels used in electricity generation and industrial process heat.”

Natural Gas Can Help Achieve Goal

Natural gas is uniquely positioned to play a supporting—yet significant—role by stepping in should renewables fall short.

That is still not enough for environmentalists who continue to pin their net-zero emissions hopes on renewables. Those hopes run into the reality, though, of what can actually be accomplished by 2050—the goal set by the Biden administration and several states for reaching net-zero emissions economy-wide.

A Princeton University report revealed that to achieve that goal, the U.S. would need to set a lightning pace, investing a minimum of $2.5 trillion into clean energy over the next decade, putting 50 million electric cars on the highways and growing wind and solar generating capacity fourfold, among other initiatives. That’s a tall order for a nation trying to recover economically from the Covid-19 pandemic.

A cleaner environment is a goal most Americans share, but burdening them with increased costs and loading up the nation’s debt is not the right path. With global energy demand increasing and clean energy technology unlikely to keep pace, we will need traditional energy sources to step up—and that’s one reality you can’t escape.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Guy F. Caruso is a senior adviser in the Energy Security and Climate Change Program at the Center for Strategic and International Studies. Prior to joining CSIS, he served as administrator of the U.S. Energy Information Administration (EIA) from July 2002 to September 2008.