Is Ontario’s gas expansion plan undermining its own climate strategy?

By Tyler Hamilton - Published on Aug 09, 2016
Natural gas supplies about three-quarters of primary heating needs for Ontario households, says Statistics Canada. (iStock/Vladimir Semenov)

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When media reports surfaced in early May suggesting Ontario was preparing to ban the use of natural gas for home heating, Premier Kathleen Wynne felt compelled to correct the record. Not only was her government not banning natural gas, she said, it was backing the expansion of natural gas lines into rural and northern communities.

“It’s exactly the opposite of what was reported,” said Wynne, standing beside fellow Premier Rachel Notley during a visit to Alberta in May. “Natural gas will continue to play a critical role in the energy mix of Ontario, even as our climate change plan supports people and businesses shifting away from fossil fuels.”

Despite assurances from Wynne that the two positions were “not in conflict with one another,” some onlookers saw nothing but contradiction. Deborah de Lange, an assistant professor of sustainable business strategies at Ryerson University, couldn’t believe what she was hearing. She called Wynne’s statement “problematic.”

“We shouldn’t be building more [natural gas] pipelines. The more you install the harder it is to get rid of them.”

From de Lange’s perspective, the conflict with the province’s climate plan and targets is real. Ontario has committed to reducing its greenhouse-gas emissions to 37 per cent below 1990 levels within the next 14 years. By 2050, it has pledged an 80 per cent reduction. Neither the 2030 or 2050 emissions target is likely to be met if Ontario doesn’t accelerate its transition away from fossil fuels for heating buildings, and that includes natural gas.

Buildings represent 19 per cent of greenhouse gas emissions in the province, and about two-thirds of that comes from natural gas used for space and water heating. Overall, natural gas supplies about three-quarters of primary heating needs for Ontario households, according to Statistics Canada.

“So why on earth would you extend the natural gas system?” said de Lange.

pie chart showing "how we heat our homes in Ontario"

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Communities that don’t have natural gas service want it for one overarching reason: it’s cheap. The Ontario Federation of Agriculture, one of the biggest proponents of such expansion, describes natural gas as “North America’s lowest-cost and cleanest, most versatile energy source.”

“Having no access to natural gas puts rural communities at a competitive disadvantage,” director Debra Pretty-Straathof wrote in a blog post on the OFA website. “It is difficult to attract new businesses to towns where basic energy expenses will be double, simply because the infrastructure is not there to access natural gas lines.”

The “clean” claim is a matter of perspective. Natural gas, when burned, is cleaner than other fossil fuel alternatives, but it still releases about half the greenhouse gas emissions of coal. Add in the potential for “fugitive” emissions or unintentional leaks during production and delivery and the climate benefits of using natural gas have become less clear in recent years.

Nonetheless, the Wynne government confirmed in April 2015 the creation of a $200 million natural gas access loan and $30 million grant that would help fund expansion of natural gas infrastructure. The goal was to help unserved communities attract industry, create jobs, and lower costs for businesses and homeowners.

It wasn’t long after that Union Gas, one of the province’s two regulated gas utilities, applied to the Ontario Energy Board with a plan to expand its distribution system. The company said it wanted to connect its network to 30 new communities, including Milverton, Lambton Shores, Prince Township, Walpole Island First Nation and Delaware Nation at Moraviantown. When the work was complete, the company anticipated adding about 18,000 new customers, representing slightly more than one per cent of its current customer base.

Knowing the government’s support was mostly in the form of repayable loans, Union Gas asked the energy board if it could charge existing customers a higher rate to help subsidize its expansion plans. It was a bold and controversial request, not to mention new territory for the board, which launched a public hearing into the matter.

David Hatherton came out of retirement because of the natural gas application. The 36-year veteran of Ontario’s geothermal industry called it quits about five years ago after selling NextEnergy, the Elmira-based geothermal installation company he founded in 1998. When he heard about the Union Gas proposal, he decided to help the Ontario Geothermal Association act as an intervener in the hearing.

“I joined because I’m mad,” said Hatherton. “I looked at the energy board proceeding as a good opportunity to force the math on this. I think it’s a fight they didn’t expect would be so vicious.”

The geothermal association’s position is simple: using existing customers in cities and suburbs to subsidize uneconomical expansion of fossil-fuel delivery into new communities makes no sense if a more economical and climate-friendly option is available.

On the question of economics, the geothermal association’s lawyer, Jay Shepherd, got a true sense of the costs during his cross-examination of Steve McGill, manager of strategic projects at Enbridge Gas Distribution. McGill said that to bring natural gas into a community like Fenelon Falls or Bobcaygeon would cost an average of $25,625 per home, not including the expense of installing a furnace, water heater and, if necessary, a forced-air duct system.

graph showing carbon emissions from heating a typical home per year

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McGill said many smaller communities ask for natural gas service, but are unwilling or unable to cover the capital costs. Without subsidies, “most of the time projects don’t go ahead,” McGill told Shepherd at the hearing.

By comparison, an average-sized residential geothermal system that provides both heating in the winter and cooling in the summer ranges in cost from $21,000 to $26,000 depending on the type of installation, according to the OGA. That’s also without subsidy.

“We can install a complete system for the same price as they install gas,” said Hatherton, adding that gas utilities need to start thinking of geothermal as a business opportunity, not a barrier to the status quo. “If they subsidized geothermal at the same rate they want to subsidize natural gas, we’d win. Yet the government is choosing to support gas. They’re picking winners.”

On the question of greenhouse gas emissions, a case can be made for bringing natural gas service to certain households and communities. About five per cent of households in Ontario still rely on furnace oil as their main heating fuel, while two per cent use propane. That works out to about 343,000 homes. Households that use oil would reduce their emissions by 27 per cent if they switched to natural gas. Switching from propane to natural gas would result in a 16 per cent reduction in emissions.

It helps — but is it enough in a post-Paris world? Advocacy organization Environmental Defence, in its own filing to the energy board, pointed out that emission reductions would be far greater if oil and propane users switched to geothermal instead of natural gas. Also, it’s worth noting that 10 per cent of Ontario households still rely on baseboard heaters powered by the province’s low-carbon grid. If even half of those households switched to higher-carbon natural gas, bringing gas into smaller communities would likely lead to a net increase in carbon emissions.

“We cannot assume that specific [gas expansion] projects will lead to reduced greenhouse gas emissions,” the environmental group warned.

Getting more people to heat with electricity appears to be the answer, at least from a climate perspective.

Scientists say the rise in average global temperature must be kept well below two degrees Celsius to prevent the worst effects of climate change. To achieve this, there is general consensus in the international community that clean electricity needs to replace fossil fuels in almost every aspect of our lives.

“Electrification will be a big part of the international effort to live up to the climate

commitments countries made at the UN climate talks in Paris,” according to a June report from Clean Energy Canada titled A Canadian Opportunity: Tackling Climate Change by Switching to Clean Power. “With the right policy signals as a foundation, our country can reap the benefits of a rapid shift to clean electricity as a source of energy across the economy.”

The problem is, electricity prices in Ontario have been rising while natural gas prices have been falling. In the case of households using electric baseboard heating, monthly bills can be three to four times larger than an equivalent natural gas bill. Switching is a scary proposition for low-income households or seniors on fixed incomes.

But not all forms of electric heating are this expensive. Geothermal systems are also a form of heating with electricity. The 120 volts coming out of your wall powers a device called a heat pump, which is efficient at extracting latent heat from the ground and directing it inside a home. Geothermal heat pumps can deliver the same amount of heat as electric resistance systems can while consuming less than a third of the electricity.

The Ontario Geothermal Association crunched the numbers as part of the evidence it submitted at the Ontario Energy Board hearing. Based on today’s natural gas and hydro prices in the province, it determined that the annual cost of operating a natural gas system in a rural setting would be about 50 per cent higher than a geothermal system using current-day technology. Gas costs would be even higher once homeowners and businesses begin paying a price on carbon, which is the plan under the province’s new cap-and-trade program. Union Gas, in response to the geothermal association’s submission, described its cost estimates as “misleading” and an example of cherry-picking data by “using worst-case costs for gas and best case costs for geothermal.” But even if the geothermal association is guilty of putting forward best-case data, its overarching message is difficult to deny: in many locations and settings, geothermal is not being recognized by the province as a competitive alternative to natural gas.

If the OEB application is approved, it could lead to burying hundreds of kilometres of new natural gas pipelines at a time when the province is actively steering homeowners and builders towards clean technology.

Some observers, such as Ryerson’s professor de Lange, wonder if all of this new pipeline infrastructure will be wasted money. “What we’re going to be left with are incredible amounts of stranded assets,” she said, referring to assets that fail to deliver a return on investment.Can renewable natural gas save the day?

She’s not the only one concerned. Environmental Defence, the Consumers Council of Canada, the Federation of Rental-housing Providers of Ontario, the Industrial Gas Users Association, the London Property Management Association and the School Energy Coalition are among those interveners who flagged the risk of expanding “uneconomic” gas infrastructure at a time when carbon regulation and the general shift to a low-carbon economy is putting the squeeze on fossil fuels.

“Neither of the utilities considered the impact of wide-scale incentives included in the Climate Change Action Plan,” said Environmental Defence in its filing.

There’s no denying low-carbon alternatives to natural gas, such as geothermal, are expected to play a more prominent role in Ontario. For example, up to $600 million in cap-and-trade revenues are being allocated over the coming years to help homeowners purchase and install heat pump and solar technologies that “reduce reliance on fossil fuels for space and water heating,” according to the plan. Hospitals, universities, colleges and public schools across the province will be given similar assistance.

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The government’s plan also sets aside more than $1 billion to “keep electricity rates affordable” for residential, business and industrial power consumers. In parallel, a price on carbon resulting from the province’s cap-and-trade program will lead to an increase in natural gas bills.

At the same time, the building code will be updated such that new homes must accommodate geothermal and other renewable energy systems. Energy efficiency standards will be significantly ramped up to encourage, by 2030, the construction of net-zero carbon buildings. About $200 million will be set aside to fund rebates for individuals who purchase homes that “sufficiently exceed” what’s required in the building code.

A net-zero carbon building is a super-efficient building that produces at least as much energy as it consumes on an annual basis, with the idea being that the energy it produces comes from a zero-carbon source, such as the sun or thermal energy stored in the ground, i.e. geothermal.

Jennifer Weatherston, director of innovation at Cambridge-based homebuilder Reid’s Heritage Homes, said a typical net-zero home — like the five homes it has already built and sold in Guelph — uses about two-thirds less energy than a conventional code-built home today. The company’s goal is for all of its new single-family developments to be “net-zero ready” by the end of 2017.

“We figure we can do net-zero ready for an additional $15,000,” said Weatherston, explaining that a “ready” home is super-efficient but still lacks technologies like solar panels or energy storage, which homeowners can easily add on later. “People are starting to see how easy it is and the opportunity. More builders are taking the leap,” said Weatherston

Such homes can still use natural gas, and many will, but because they are designed to be dramatically more efficient, they will use significantly less natural gas. Alternatively, more homeowners will stop using natural gas altogether. They will choose to heat and cool their homes using geothermal or air-source heat pumps that are powered by low-carbon electricity from Ontario’s grid. The bottom line is that, over time, use of natural gas for household heating in Ontario is expected to fall, not rise — which is precisely the point of the province’s new climate plan.

And precisely why, critics argue, the government is making a major mistake by backstopping the costly and uneconomic expansion of natural gas service into new communities. 

Tyler Hamilton is a climate writer and adjunct professor of eco-studies at York University.

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