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    US: “Fossil gas has no future in low-carbon buildings” [GasTransitions]


No future for natural gas in buildings in the United States – that’s the stark conclusion of a recent research report from the Rocky Mountain Institute (RMI), an influential renewable energy think tank founded by the famous physicist Amory Lovins in Colorado in 1982. What is it based on? [GasTransitions Volume 1, Issue 2]

by: Karel Beckman

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Premium, Gas Transitions, Energy Transition, Germany, United Kingdom, United States

US: “Fossil gas has no future in low-carbon buildings” [GasTransitions]

As Mark Silbert, senior associate at RMI, writes in an explainer with the report, “Burning gas along with smaller amounts of oil and propane in buildings accounts for 10 percent of total US economy-wide emissions.” Quite a bit. Silbert futher notes that the states “with the highest proportion emissions from fossil fuels all have ambitious climate goals, committing to as much as an 80% reduction of greenhouse gas emissions by 2050.” These targets “cannot be achieved without removing fossil fuels from buildings,” he writes.

The RMI report concedes that switching from oil and propane to natural gas leads to lower emissions (27% in case of fuel oil and 16% for propane), but argues that leapfrogging gas and going straight to electricity is even better. Even with today’s electricity system, which is still partly based on fossil fuels, “electric heat pumps reduce carbon emissions compared to gas heaters.” As the electricity system becomes “greener”, this difference will only grow.

Even more importantly, only 12% of buildings use oil or propane for heating. Over 50% use natural gas.

What about the idea of switching to low-carbon gases instead of electricity? Silberg writes that “two broad schools of thought have emerged ... One school says that we should continue to utilize and expand the existing gas system for decades to come, one day replacing fossil gas with lower carbon alternatives through biological or chemical processes (e.g., biogas, “renewable natural gas”, synthetic methane, or electrolysis hydrogen). The alternative is to electrify buildings, which today will reduce emissions compared to gas, and savings will increase over time as the power sector continues to clean up.”

RMI comes out strongly in favour of the second solution. As Silberg puts it: “A strong case for electrification is shown by our work to date on this issue, as well as our observations of the demonstrated data, political engagement, advocate support, and organic customer momentum toward electrification. This can be contrasted with the excessive cost and lack of availability of zero-carbon gas.”

He adds that “even by the American Gas Foundation’s own analysis, the technical potential of ‘renewable natural gas’ is inadequate to supply all of today’s buildings and industry, let alone electric power. This underscores the importance of ensuring scarce zero-carbon gas resources are utilized for the hardest-to-abate end-uses like industrial processes, manufacturing, and heavy transportation.”

The Rocky Mountain Institute has been closely involved in the Energy Master Plan presented in January 2020 by the state of New Jersey. This plan “charts a practical, affordable course to a decarbonized economy” in New Jersey. In an article on the RMI website about this plan, researchers Mark Dyson and Charles Teplin also refer to the two schools of thought on decarbonization, one via low-carbon substitutes for natural gas, one via electrification. Likewise they conclude that “electrification of buildings and vehicles makes the most sense for New Jersey”.

They give five reasons for this:

  • “Electric vehicles (EVs) and building appliances are approximately three times more efficient than fossil-burning equivalents. 
  • Low-carbon fuels are expensive and/or limited in availability.
  • Electrification is lower risk and provides New Jersey with more options for further decarbonization. 
  • Continuing to burn fuels in buildings and vehicles threatens the health of New Jersey residents, especially the most vulnerable. 
  •  Electrification creates quality jobs by replacing out-of-state fuel purchases with investments in New Jersey.”

This does not mean, however, that RMI rules out all uses of gas altogether. The two researchers write that “as decarbonization proceeds [in the 2030s] the state will need to consider new technologies to maintain electricity reliability, especially during periods where wind and solar production are limited for longer periods. RMI analysis found that today’s battery technologies, even with projected cost declines, would be expensive for these periods.”

Instead, RMI found that “there are a number of options likely to be available when this need for long-duration balancing of energy arises, including:

  • Substituting biogas or carbon-neutral synthetic gas in existing fossil gas generators (biogas was the lowest cost option that was modeled).
  • New, long-duration storage technologies, such as flow batteries.
  • Fuel cells or modified gas turbines fueled by “green hydrogen” created with carbon-neutral electricity.”

United Kingdom: “Expect a period of policy stagnation”

Now that the UK government has declared a zero-carbon emission target for 2050, “blue” hydrogen, based on natural gas with carbon capture, has become less attractive as an option for the decarbonisation of domestic heating, writes researcher Malcolm Keay of the Oxford Institute for Energy Studies. But it is unclear which alternatives the UK will pursue in the building sector.

Just as in other countries, such as Germany and the US, it’s turning out to be much more difficult to reduce CO2emissions in the built environment than in the power sector in the UK. In the period 2013-2018, the emissions from buildings barely changed, writes Malcolm Keay in a research paper, Energy Systems Thinking and the Decarbonization of Heat in the UK,  published by Oxford Institute for Energy Studies (OIES) in February:

How could the UK government tackle this challenge? In an earlier paper, from 2018, Keay argued that “the main favoured solution” was “to introduce hydrogen for heating to replace natural gas”. And “the cheapest way of generating hydrogen (and the main source worldwide today) is via the steam reforming of methane.” So, if combined with CCS, “this could in principle reduce emissions of CO2 to what were then seen as acceptable levels.” In other words, “blue” hydrogen looked like a great solution back in 2018.

However, notes Keay, in 2018, the UK had a target to reduce emissions only by 80% in 2050. Since then, however, “a new goal has emerged, of reaching net zero carbon emissions by 2050”. This new target was adopted by the government in June 2019. Since hydrogen made with natural gas and combined with CCS (“blue hydrogen”) “only removes up to 90 per cent of the CO2”, this is not an adequate solution anymore, according to Keay.

As a result, “thinking has moved on to the consideration of alternative approaches,” although “the overall strategy [of the UK government] remains unclear”. What does seem clear, he adds, is that “a mix of solutions will be needed, with different approaches for buildings on the gas grid and for off-grid buildings, and a range of different measures including greater energy efficiency, low-carbon heat networks, and the use of heat pumps.”

However, “on most analyses, this still leaves a large residual gap to be filled – for properties on the gas grid but not on heat networks,” as shown in Figure 2:

The key problem, writes Keay, is that “gas demand for heating is much more variable and much peakier than electricity demand. Various different estimates of the difference have been made, but the consensus is that peak heat demand is at least twice as high as current electricity demand. Meeting these peaks via electricity, even in the form of heat pumps, would be very expensive and require a huge increase in generating capacity (at a time when there are already significant problems in matching peak demand and generation because of the growth of intermittent generation capacity).”

Hence, the solution currently favoured is “the so-called ‘hybrid’ heat pump model. This would rely on heat pumps for the bulk of heat supply while peak heating demand would be met by an additional boost from a boiler (using hydrogen produced from the steam reforming of methane, or from electrolysis), along with a small amount of resistive heating.”

According to Keay, in such a hybrid system, the boiler would have to be used only about 10% of the time. The hybrid approach “requires considerable investment, of course, but it could still be cheaper than an electricity-only solution, principally because the need for investment in electricity capacity would be lower.”

What is more, notes Keay, “the hybrid approach to heating offers even greater benefits if the strategy evolves at an energy system level and is combined with a move to electric vehicles. In effect, it creates two major new areas of potentially flexible electricity demand – with appropriate pricing and other incentives, neither transport nor heating need add significantly to overall peak demand or increase electricity prices. Overall the systems approach should reduce overall costs, and could actually bring down the price of electricity.”

Thus, there does seem to a way forward: a large degree of electrification, hydrogen to meet peak demand, and battery EVs to help balance the system. Nevertheless, Keay is far from optimistic that the UK will manage to adopt coherent policy that will lead to this outcome. He notes that there are a number of obstacles:

  • Uncertainty – “Many options are still potentially in play and for most or all of them the large-scale deployment needed would not only take considerable investment and disruption, but would need to be preceded by expensive pilot projects to assess the practicability of the favoured options. For a Government reluctant to ‘pick winners’ in a situation where there is no clear front runner, it is difficult to find a way through such a complex and expensive process.” (…)
  • Price sensitivity – “The heating sector is much more sensitive in political terms than transport and electricity … Furthermore, and to a large extent because those sectors already have a significant fiscal and environmental burden incorporated in their prices, the price impacts of decarbonization on the heating sector could be politically unmanageable without significant social measures of one sort or another (subsidies and/or cross-subsidies) to ease through the process.” (…)
  • Lock-in and consumers – “The existing ‘socio-technical regime’ in heating displays a high degree of ‘lock-in’ – people are used to their gas boilers and there would have to be radical advantages in any alternative heating source to make them change.” (…)
  • Network effects – “It would be extremely difficult to present individual consumers with a direct choice between natural gas and hydrogen. The gas network can accommodate only a certain proportion of hydrogen without change, and there is no prospect of competing networks for hydrogen and methane in particular areas. Hydrogen, if it were the government’s chosen option, would probably have to be introduced as a matter of central decision-making rather than consumer choice, and the process of changeover would need to be planned and centrally managed, with appropriate subsidies or cross-subsidies to ensure equity between different consumers.” (…)
  • Ideological obstacles – “The result of the factors set out above is simply to increase uncertainty. Governments are not in a position to pick a technological winner, even if they wanted to do so; but promoting a consumer-driven outcome by the appropriate pricing of energy and the incorporation of environmental externalities is both politically unpalatable to the highest degree and unlikely in any event to produce the desired outcome, because of ‘lock-in’, network effects, and so on. As the apparent task, and the need for a more integrated systems approach, becomes more urgent and more complex, so the capacity of government for dealing with it declines.” (…)
  • Coordination and the need to develop business models – “One of the key problems … is the need to coordinate the activities of the various different parties involved and create business models for each element in the picture. The problems are further compounded when, as described above, a systems approach is required which would coordinate the activities of different energy sources.” (…)

The ”likely outcome”, according to Keay, is “a period of policy stagnation, as the Government looks at a range of equally unattractive options for the heating sector and shrinks from deciding between them.”

Keay ends by offering some suggestions that may help to solve the problem, namely:

  • A carbon intensity target
  • Local energy plans
  • Cluster-based development – e.g. as in industrial clusters
  • Attention to social needs
  • Support for R&D
  • A national policy framework
  • A new institutional architecture

Not exactly simple solutions, as Keay well realizes. They “would lead to the need for a fundamental shift in the policy paradigm.”

Germany: “Gas first choice for home heating”

In Germany, gas still has great potential to grow in home heating systems. Nevertheless, a switch to renewable energy-based heating is on the horizon.

Almost 80% of newly installed home heating systems in 2019 in Germany were based on gas, the advocacy group Zukunft Erdgas ( “future natural gas”) announced on February 21 in a press release. This is a record number and five percentage points more than in 2018. Currently roughly half of home heating in Germany is done with natural gas.

According to Zukunft Erdgas, if all old heating systems in Germany were replaced by gas-based systems, CO2 emissions would be reduced by 30mn tons, roughly a third of all building sector emissions. (Total German CO2 emissions were 811mn tons in 2019.)

Whether this will happen is another matter. Analysts do agree that the switching potential is high. According to an instructive article on the website Clean Energy Wire (CEW), “Heating 40 million homes – the hurdles to phasing out fossil fuels in German basements” (January 17, 2020), “the average German heating system is 17 years old, while around 40 percent were installed more than 20 years ago – the age when the heating industry recommends replacing boilers with a newer model. This high average age leaves "enormous potential" for a transition in heating,” utilities association BDEW said in recent a study.

During the past ten years, around 1.7mn – or just 4.2% – of Germany's 40mn homes have had their heating system changed, notes CEW. “Most Germans who decided to switch energy source when renewing their heating system over the past ten years opted for natural gas (83%), but "overall, the momentum is low and the potential is far from exhausted”, says BDEW. About 188,000 homes have switched to district heating (from oil or gas) during the same period.

“Looking further back on the last 25 years, the use of heating oil has fallen by around 8 percent, while the use of natural gas has increased by about 12% percent. At the same time, district heating and electric heat pumps have each risen by about 2%.”

Interestingly, CEW observes that “the trend in new German buildings is quite different. Here, electric heat pumps and solar heat in combination with gas have, over the last decade, taken a leap forward. In 2018, renewable energies – with a share of 47.2% – for the first time overtook gas as the primary source of heating in new residential buildings finished that year.” In other words: although most new installations are based on gas, most new buildings now choose heating systems based on renewables.

New buildings, however, are only a small part of the building stock. Given Germany’s ambitious climate goals, the country will have to tackle emissions from buildings somehow. (This is also known as the “Wärmewende” in Germany, a variation on “Energiewende”). CEW notes that buildings are responsible for about 9.4% of Germany’s total CO2 emissions (the same as in the US). Unlike the UK, Germany did manage to bring down its building sector emissions: by 30.6% between 1990 and 2016. Nevertheless, fossil fuels keep almost three in four buildings in Germany warm, with remaining homes supplied with heat through electricity, electric heat pumps and biomass. (Figure 2)

The German government is taking various measures to reduce emissions from buildings. As CLEW writes, in its new Climate Action Programme 2030 the government has decided “to ban the installation of oil-fired heating systems from the year 2026 in buildings where more climate friendly alternatives are available – opting out of an outright ban.. To make this economically easier on consumers, a ‘swap-premium’ for replacing old oil-fired heating systems will be introduced which repays up to 40% of the costs for a new and more efficient system. Germany's national carbon pricing system covering the buildings and transport sector is also meant to encourage the switch from fossil fuels to more climate friendly energy sources for heating.”

BDEW notes that of the 5.8mn residential buildings in Germany still heated with oil, 2.7mn could easily be linked to a gas or district heating pipeline. This would save 14mn tons of CO2 emissions on an annual basis. Opting for electric heat pumps would save up to 30mn tons.

For German households, the choice, however, is “far from simple”, observes CLEW. “Lack of knowledge about the different heating systems' advantages, cost-effectiveness and subsidies for installing them pose an obstacle for many people. To make matters more complicated, which investment makes more sense often depends on a number of interrelated factors. For example, if a houseowner can invest in building insulation, a more energy efficient heating system such as an electric heat pump may be possible to install than if insulation measures are economically out of reach.”

According to CLEW, also allows “the energy-efficient renovation of homes to be tax-deductible from 2020. This will for example reduce the cost of installing new insulation or replacing old heating systems or windows by up to 20 percent. A highly heterogenous scene of building types and users – including tenants, landlords, homeowners and housing associations – however, still make it more difficult to regulate the heating sector than it has been done in the power sector. The new tax incentives, for example, only apply to owner-occupied dwellings, ruling out more than half of all German homes which are rented.”