‘Expanding gas infrastructure to heat buildings today is like investing in video rental stores 15 years ago’

The natural gas system must stop expanding for Canada to meet emissions goals and avoid cost spirals, Canadian Climate Institute report says.

This article was written by Marco Chown Oved and was published in the Toronto Star on June 13, 2024. It was updated on June 17, 2024.

The natural gas system must stop expanding in order for Canada to meet its climate goals and to avoid saddling customers with rising costs as people switch to electric heat, according to a new report by the Canadian Climate Institute.

“Expanding gas infrastructure to heat buildings today would be like investing heavily in a chain of video rental stores 15 years ago,” said Jason Dion, senior research director at the institute and one of the authors of the report. “Energy systems need to plan for the reality that is arriving on our doorstep. The smart approach to protect consumers and ensure affordable, reliable energy in the future is to grow the electricity system — not lock in more dependence on gas.” 

The report comes on the heels of a controversial move by the government of Premier Doug Ford to overrule the Ontario Energy Board’s decision to end the subsidization of gas hookups in new buildings. 

The OEB had ruled that gas hookups were artificially cheaper than electricity hookups because of the practice of allowing the cost to be spread out over 40 years, instead of being paid upfront, and that gas consumption would likely drop significantly in that time, leaving fewer customers to pay for aging pipeline infrastructure.

The Ford government said it was unacceptable to make new houses more expensive by adding the full $4,400 gas hookup fee.

The dispute is emblematic of a problem that spreads across Canada: that utility regulators aren’t taking climate change and emissions reductions targets into account in their decision making and business as usual risks “costly dead-end pathways,” said Saachi Gibson, a research director at the climate institute.

“The sector is stuck,” she said.

For Canada to achieve net zero emissions by 2050, gas use will have to drop by 81 to 98 per cent in buildings, the report found. Electric heat (including heat pumps and baseboard heating), which now account for 34 per cent of heating systems, will need to more than double to 86 per cent over the next two and a half decades, with the remaining 14 per cent of systems (mostly in Alberta) powered by a hybrid of gas and electricity.

Yet natural gas systems continue to expand. Thousands of kilometres of new distribution pipelines have been built over the last decade and hundreds of thousands of new customers have been added, the report found. This is because gas utilities don’t make money by selling gas, which they don’t mark up. Instead, they get a guaranteed rate of return on their investments in pipelines and other infrastructure.

“They have a direct economic incentive to pursue continued growth of gas infrastructure and new customers, even if the long-term usage case is uncertain,” said Dion. 

This incentive structure needs to change, Dion said, pointing to Quebec, where electrical utilities and gas companies work together to provide hybrid heat, and Massachusetts, where regulators are required to consider other options before approving the replacement of end-of-life gas pipelines.

To better align climate goals and utility infrastructure decisions, provinces need to legislate emissions reductions targets and empower utility regulators to take them into account, the report said.

“Provincial governments should stop treating gas system expansion as the default option, and equip regulators to consider alternatives,” said Kate Harland, the research lead on the report. 

Cities and states around the world have started to ban gas hookups in new buildings, saying that electrifying heat is such a large undertaking, with millions of buildings that need to be transitioned, that the first step must be to stop adding new fossil fuel heating. 

These gas bans have passed in Vancouver, Montreal, New York state and Germany. But in Ontario, natural gas customers pay fees to cover new pipelines and network expansion. As more and more people switch to electric heating, those left on the system will have to pay more to maintain the infrastructure.

While Ontario has a plan to expand electricity generation, including new nuclear plants, gas plants, grid-scale batteries and renewables, there is no similar long-term vision for the natural gas system.

“It’s our hope that (Ontario) will halt the continued expansion of the gas network in the interests of ratepayers over the long term,” said Dion.