The Role Gas Local Distribution Companies Play in Advancing Decarbonization Measures

This is Part 2 of our series on gas utilities’ role in decarbonization. Read Part 1 on leveraging gas infrastructure in pursuit of a clean-energy future. 

Gas LDCs are advancing a wide range of decarbonization measures and plans, often as part of jurisdiction-sponsored study and planning efforts. State-level commissions in California, Massachusetts, Maryland, the District of Columbia, and elsewhere are asking reasonable and tough questions about how to encourage electrification and other meaningful steps to decarbonize gaseous and liquid carbon-based fuels across all economic activity. 

The natural gas LDCs are responding in kind, aiming to educate and explain the nature and role of the natural gas system in supporting the U.S. economy. In some of these venues, the gas companies have emerged with well-put-together long-range plans composed of a portfolio of integrated actions that can lower the sector’s carbon intensity. At the broadest levels, these plans emphasize the role of the gas company in aggressively promoting efficiency, electrification, and the use of alternative low-carbon fuels–the essential table stakes of a credible long-term decarbonization solution driver.    

There are many attributes to these plans. They promote the natural gas companies as active participants, working synergistically and competitively with the electric companies to drive carbon reductions. The many measures are available for pursuit today. While they require funding commitments to move into pilots and demonstrations, they don’t require massive overhauls of the regulatory construct—at least in the formative years of action. Rather, large parts of the regulatory and cost-recovery toolkit are in place today that can support gas LDC decarbonization actions.   

The actions within the long-range plans operate across the spectrum of the gas company operations.  For example, through purchasing power, they are ably positioned to source gas from suppliers willing and able to certify the quality of the gas supply in terms of its low fugitive emissions attributes. While these actions can be voluntary, separate, and uncoordinated, they promise to drive sector-wide impacts.  

Exercising this leverage over this supply is not an unreasonable stretch goal; we routinely witness similar leverage played out in other markets. If Google and Amazon choose (as they do) to run huge data farms with green energy, surely the gas supply community—with the right mixture of incentives and pressures—can move toward providing a greener product to U.S. consumers.  

The gas LDCs are also doing more to lower fugitive emissions in the distribution pipe networks. Known as Scope 1 emissions, the gas companies track and report on these emissions as part of their integrity reporting requirements. Many are also deploying and evaluating advanced emissions detection technology, some of which are even satellite-based. They are also working with national not-for-profit organizations such as Environmental Defense Fund (EDF) to improve detection, tracking, and planning prioritization for remedial action as part of asset integrity plans.   

Another focus area for long-term planning purposes is conservation and the associated energy efficiency measures to educate, encourage, and facilitate wiser customer choices around energy use, including natural gas: for example, providing rebates for new HVAC equipment and water heaters, as well as home weatherization measures. 

Conservation and energy efficiency must remain a high priority of both gas and electric companies and should not be relegated to strictly the domain of the electric utility. In fact, restricting efforts to the electric side of the challenge would be a great impairment of our cumulative and collective organizational capabilities and resources that must be levered to address decarbonization challenges.   

The gas LDCs have a strong track record of providing effective energy management solutions. One survey of 10 gas companies found programs reducing annual energy use by nearly 160 million therms at attractive cost-effectiveness levels. Accordingly, the gas LDCs long-term decarbonization plans include emphasis on continuing and expanding demand-side management, particularly in ways that work in concert with electric company demand-side and electrification measures.   

Closely adjacent to these measures—but a notch up the chain in terms of technical complexity and market segment—is the role of combined heat and power (CHP) solutions. CHP is an important component of many microgrid designs. While using natural gas in highly efficient, locally situated turbines could increase local emissions while also driving total emissions down in part by capturing process waste heat and reusing it. They also ensure that microgrids can be designed to meet a wide range of energy services, including space heating and air conditioning needs as well as backup power for reliability and resiliency considerations.    

While CHP leaning on natural gas can help decarbonize and improve local grid resiliency, developers of microgrids are looking at taking microgrid designs further by deploying hydrogen electrolyzers as part of the microgrid design schema. These systems will complement or displace natural gas as the fuel source and further credentialize microgrids for their green attributes.   

The gas LDCs are also investigating the role that geothermal might play in reducing carbon emissions.  The concept of networked geothermal has bubbled up as a compelling infrastructure solution particularly around large-scale residential and commercial building development opportunities. The gas LDCs believe they are well-suited to support this market for “thermal” services even if their regulatory franchise needs amendment.   

As these measures suggest, heat transfer technologies and systems are getting increasingly sophisticated and right-sized to meet local grid support needs, including to support an enhanced focus on grid reliability and resiliency. The natural gas system and infrastructure will play an important, if not vital, role in supporting this evolution and transition.   

Chapter 1: Investments in low-carbon fuels

Pursuing programs and improvements that better tune the delivery system are important for the efficacy of these plans. However, long-term decarbonization will also require investments in the demonstration and deployment of the infrastructure needed to distribute alternative, low carbon fuels. The principal alternatives are renewable natural gas (RNG) and hydrogen. RNG is produced through the breakdown of waste streams, such as from the waste found at water treatment facilities or at dairy farms, into its usable methane fraction. Hydrogen, for its part, is produced with mature technology; if it can be produced at larger scales using green, renewable power, it becomes an attractive fuel for decarbonizing several end-use sectors.  

These fuels hold promise as safe, reliable, and affordable fuels that can be blended into the gas stream, lowering the resulting carbon intensity of pure methane. For example, gas LDCs are demonstrating the electrolysis of water using green, renewable energy as the power source to generate hydrogen fuel that can be stored and blended into the distribution network at small percentage blends. The industry contends that blends up to 25% are feasible without undue safety or pipe integrity risk. Long term, it’s possible to dedicate portions of the network to deliver pure hydrogen to large commercial and industrial customers who are interested in decarbonizing their operations and processes. 

While RNG and hydrogen hold great promise, reaching “scale” will take time and will be location-dependent in the U.S. Take RNG as an example: The supply of RNG is small today, and the price of the product is high. Today, there are approximately 200 certified RNG suppliers delivering 910 million therms per year into the market. This market is expected to grow quickly, with market potential as high as 100 billion therms of the fuel by 2030. 

Interestingly, many points along the RNG value chain are well-established, facilitating market development and transactions amongst counterparties. RNG can be traded through both physical and virtual contracts for supply and offtake and can certify the carbon quality of the supplied gas for credit purposes. It’s now feasible, for example, that a group of Midwest dairy farmers might supply certified RNG into a local network for an off-taker hundreds of miles away, with market intermediaries providing financing and risk diversification.     

Hydrogen may also play a key role in the gas company’s future. Hydrogen is a low carbon fuel that can be blended into natural gas pipelines and used to power a variety of transportation and industrial end-uses. As an indication of its support from a climate policy point of view, green hydrogen, which releases no emissions when combusted, has received $9.5 billion in federal funding from the Infrastructure Investment and Jobs Act (IIJA), which is poised to scale up the technology and brings its decarbonization potential to new markets. In addition, the Inflation Reduction Act will further stimulate investment in domestic energy production while promoting clean energy. 

Chapter 2: Implementation strategies and considerations

Many gas LDCs throughout the United States are focusing on these and other measures to drive decarbonization across their organizations. There are many examples of specific, practical plans that the companies expect will have a positive impact on decarbonization. Many in fact, have made formal commitments in support of decarbonization across Scope 1, 2, and 3 emissions. The various individual program components–energy efficiency, CHP, RNG, hydrogen, etc.–will all contribute to driving today’s combined gas and electric sector CO2e emissions to compliance-mandated levels.   

The gas LDC can bring additional attractive considerations to the table (as illustrated in Figure 1) but none of these are perfectly resolved in any paths forward. Rather, any pathway (including those that are exclusively reliant on electrification) that seeks to decarbonize will have to pay close attention to these attributes and their relationship to plan reasonableness, feasibility, risks, and costs. The gas LDCs maintain, however, that the balanced nature of their diverse and long-range plans provides the right balance of risk and value and, in turn, holds the greatest promise for bending markets toward a decarbonized future. 

It’s also notable that the gas LDC measures do not require massive overhauls of today’s regulatory mechanisms that serve well the needs of gas LDC program funding and investment cost recovery. Rather, they can largely proceed today with the right amount of resolve amongst all company stakeholders, at least during the next several years. This includes increased levels of investment and program funding (that recognizes the value of carbon emission reductions) and the right dose of monitoring and accountability on the part of the gas LDCs to demonstrate to their stakeholders the practicality of their plans. 

Gas LDCs must recognize that more funding, incentives, and sector coordination in the long term will be required as decarbonization proceeds. Whether this constitutes regulatory reform is less important of an issue than identifying the measures that are needed to make markets respond to the imperatives of decarbonization. Regardless, work is needed in identifying the right mix of requirements and incentives that hold the most promise for coordinated actions that can influence markets in accretive ways.   

For instance, a recent study of the PJM market performed by E3 found that policies broadly aimed at reducing greenhouse gas emissions are more cost-effective than decarbonization regulations requiring the use of specific technologies. E3’s analyses also reveal that implementing a cap-and-trade scheme that limits emissions is the lowest cost approach (and the most flexible). Such a scheme permits a portfolio-based energy mix that incorporates electric, gas, and other types of power sources. This approach encourages the deployment of renewable power by capping emissions while also allowing for helpful redundancies to be built into the system. 

It’s irrefutable that the gas LDCs and their electric counterparts will need to lean into the challenges of enabling competitive cooperation in the service of decarbonization. This will require innovative thinking—and even trials—to sort out what’s most reasonable and feasible in meeting customer requirements. 

Chapter 3: Gas decarbonization principles to consider

The gas LDCs recognize that a tremendous amount of effort is required moving forward to prove out their essential role in ushering in meaningful pathways in support of decarbonization.  

A few salient policy-oriented principles of this essential role include:  

• Gas LDC actions need to be coordinated as part of electric and gas sector measures.  
• Incentives and opportunities should be created that tap into competitive proclivities.  
• More funding is needed to promote major pilots and demonstrations of RNG and hydrogen. At the same time, the regulatory toolkit to promote needed changes is in place, at least in the near-term. 
• Change needs to work with customer preferences and choice and be captive to whole system thinking. Plans that sideline our energy system participants (particularly major ones) and turn them into passive actors are ill-advised and doomed to failure. 
• The gas LDCs can and should support electric company-sponsored electrification where that makes sense from a cost effectiveness point of view. In making these decisions, marginal and not presumed average system costs (invested and avoided) should be dispositive. 
• The electric and gas companies need to address system resiliency holistically, as the shared energy landscape diversifies and becomes more decentralized. The role of green hydrogen may be as an important, flexible energy source to help balance and support the grid as it shape-shifts in its new load patterns and growth directions. 
• The energy landscape needs to transform in ways that are just and equitable. Coordination in planning and programs between the gas and electric sectors will allow cities and jurisdictions to achieve equitable outcomes. Otherwise, certain customers and customer demographics will be disadvantaged by the planning process. 

The imperatives of climate change action are keenly perceived by gas LDCs. The pressure to decarbonize coincides with equal measures of optimism about the potential of innovation to support the long-term transformation of the U.S. energy system, including that segment served and supported by the gas companies.    

The gas LDCs are well positioned to play an important role in sponsoring a wide range of decarbonization measures, but proving the merits of these measures will require action by gas LDCs and state commissions alike to fund initiatives and incentivize large-scale pilots and demonstrations in innovative areas such as low-carbon fuels. 

Recent federal legislative is a huge help in firming up the policy support for the role that the natural gas sector—and the gas delivery companies—should and can play as part of a decarbonized future; getting these funds working in major demonstration projects is a high priority. So, too, is the needed policy and political resolve to fund energy efficiency programs and to address other areas of that value chain that are challenged by decarbonization. The gas LDC’s diverse, long-term decarbonization plans help to indicate where this resolve can and should be focused.