The Challenge of Retail Gas in California's Low-Carbon Future
Energy and Environmental Economics, Inc.
This study evaluates scenarios that achieve an 80 percent reduction in California’s greenhouse gas emissions by 2050 from 1990 levels, focusing on the implications of achieving these climate goals for gas customers and the gas system. Achieving these goals is not guaranteed and will require large-scale transformations of the state’s energy economy in any scenario.
These scenarios suggest that building electrification is likely to be a lower-cost, lower-risk long-term strategy compared to renewable natural gas (RNG, defined as biomethane, hydrogen and synthetic natural gas, methane produced by combining hydrogen and carbon). Furthermore, electrification across all sectors, including in buildings, leads to significant improvements in outdoor air quality and public health. A key uncertainty is whether consumers will adopt electrification technologies at scale, regardless of their cost effectiveness.
In any low-carbon future, gas demand in buildings is likely to fall because of building electrification or the cost of RNG. In the High Building Electrification scenario, gas demand in buildings falls 90 percent by 2050 relative to today. In the No Building Electrification scenario, a higher quantity of RNG is needed to meet the state’s climate goals, leading to higher gas commodity costs, which, in turn, improve the cost-effectiveness of building electrification.
The potential for large reductions in gas demand creates a new planning imperative for the state. Without a gas transition strategy, unsustainable increases in gas rates and customer energy bills could be seen after 2030, negatively affecting customers who are least able to switch away from gas, including renters and low-income residents.
Even in the High Building Electrification scenario, millions of gas customers remain on the gas system through 2050. Thus, this research evaluates potential gas transition strategies that aim to maintain reasonable gas rates, as well as the financial viability of gas utilities, through the study period.
