Dive Brief:

• A draft study presented to the California Energy Commission (CEC) on June 6 warns low-income customers could be hit hard by rising natural gas costs as the state's demand for the fuel is projected to decline dramatically.
• Broad electrification of buildings could lead to a 60% decline in gas demand, according to the analysis from Energy+Environmental Economics and the University of California Irvine. "As gas demand falls, average costs for remaining customers increase," the report concludes.
• The report calls for a "gas transition strategy" to protect consumers. Responding to the report, the Natural Resources Defense Council said it wants to see all new heating equipment sales in the state be electric by 2040, along with a targeted phase out of gas infrastructure. 

Dive Insight:

California will still be burning some natural gas in 2050, according to the E3 report, but all scenarios lead to significantly lower gas demand. That means, the report warns, the state needs policies in place to ensure an orderly transition.

That strategy could include reducing gas system expenditures through targeted pipeline replacements, changes to gas rates and rate design, and recovery of gas system costs "from electric ratepayers or other funds," according to the report.

The report builds on a 2018 study by E3 that evaluated scenarios to meet California's climate goals, including an 80% reduction in greenhouse gas emissions by 2050. That work concluded electrification of buildings is one of the lowest-cost strategies for GHG mitigation.

The new research aims to consider the economy-wide costs of achieving the state's goals, and what strategies are available to reduce the impacts on consumers.

"Replacing gas equipment with electric equipment upon burnout lowers the societal cost of achieving California's climate policy goals," E3 and UC Irvine concluded.

According to NRDC, the report's findings are "starkly clear" — the state needs to develop a transition strategy "to shield Californians from sharply higher heating bills, protect workers, and meet the state's climate targets."

NRDC said it wants to see the state cease connecting new buildings to the gas distribution system as soon as possible, and start shutting down portions of the gas system where possible, to reduce costs.

Ultimately, the environmental group said a "well-developed market is critical to support building new homes and commercial buildings all-electric and targeted gas pipeline retirements."

NRDC wants to see half of all new heating equipment sales be electric by 2030, and 100% by 2040.

"This rapid market development requires clear leadership and demonstrated policy commitment like incentives and zero-emissions building codes," the group said. "We need long-term goals, with long-term funding, to develop and scale the market for efficient electric heating technology in buildings."