Gas: More Efficient than Coal but not a Transition Fuel

Many energy companies, their industry associations and trade groups advocate for use of natural gas (methane) as a transition fuel (or bridge fuel) to replace coal, appealing for industry subsidies and support from government in direct competition with renewable energy. The International Energy Agency carefully states that natural gas can play a limited role in the transition to renewables, but there are no clear scenarios where building out natural gas infrastructure in preference to renewable energy production makes sense. In a carbon accounts-based economy, the credibility of gas as a transition fuel disappears completely.

However, fossil fuels are simply a fuel, and renewables are not. Fossil fuels are dispatchable and provide baseload power. Building out renewable energy infrastructure and generation is a brave new world for the industry because renewable energy is intermittent, and of course the sun doesn’t always shine and the wind doesn’t always blow. So many in the industry won’t consider renewables, quoting the national grid infrastructure or the nature of demand.

So despite the lack of a robust financial proposition, this message from the fossil fuel industry is often the only message that gets heard. There is the added argument that gas is massively less polluting than coal in ways other than CO₂ as well. This is how natural gas gets its ‘clean’ label.

Transition Fuel

This massive advantage of gas over coal does make it easier to see why decision-makers won’t go on to consider renewables. Their long term projections obviously don’t consider the concept of stranded assets (investments that go wrong). Clearly, reducing CO₂ emissions by 65% is better than keeping coal. However, calling gas a transition fuel is a highly subjective choice of words, when, all other things being equal (e.g. construction), renewable energy generation will produce zero carbon emissions.

This is plainly bad news and there are many reasons for it, some nefarious but most mundane. It is easy though to see how the government, public utilities and the energy markets would behave if the nation introduced carbon accounts and energy production took into account not just in cash, but also carbon tokens coming from citizens’ personal carbon allowances. This is how it stacks up per kWh:

A kilowatt-hour of electricity from a renewable energy tariff would cost an actual but negligible number of carbon tokens. On an average monthly usage of 400 kWh, it would look like this:

An average British citizen will cause, in total from all activity and purchases, about a ton of CO₂ emissions per month, i.e. 1000 tokens, so for those trying to keep their carbon account below the national average, coal-fired power would be a sizeable chunk of their budget. The UK has now shut down all its coal-fired power stations, so its citizens would never be offered the chance to spend over 40% of their carbon budget on coal. 15% for gas-fired power would be discouraging enough.

The result would be strong demand for renewables tariffs from both the retail customers and from business and industry. If the national grid cannot supply enough zero emissions power, then there is little doubt that small scale renewable generation will increase to meet the demand, funded privately by local communities or businesses. A stark example would be how Microsoft has entered into a power purchase agreement (PPA) with the Three Mile Island nuclear power plant, guaranteeing the entire output of one reactor for its planned zero carbon data centre.*** Perhaps Microsoft consider uranium as a transition fuel.

The advent of carbon accounts would greatly accelerate the demand for decentralised and distributed power generation. The country’s power infrastructure needs to move in this direction anyway. The usage of carbon accounts and the consideration of a parallel carbon token price for electricity can only help, as zero emissions energy would become a ‘must-have’. It would facilitate forecasting and planning in the evolution of the retail and wholesale energy markets and the development of the whole national grid.

More Resources

*The data from the UK government website: https://www.gov.uk/government/publications/fuel-mix-disclosure-data-table/fuel-mix-disclosure-data-table

** It is entirely possible that a renewable energy provider in a carbon accounts economy would still have need in its business during the energy transition to pay for items or services that have a carbon token cost. So “zero” might actually be 0.01 or 0.1 or 1 token.

*** Microsoft deal propels Three Mile Island restart, with key permits still needed

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