A4. Bridge Fuels and Stranded Assets

While getting to a 100% decarbonized power grid is certainly a noble goal, the transition can’t happen overnight; it will take several years to expand the generation and transmission infrastructure necessary. Along the way, however, it’s important to not bottleneck electricity usage – if we can’t build sufficient amounts of solar and wind generation capacity fast enough to keep up with overall demand growth (perhaps driven by electrification of transport and industry), then other generation sources will need to be built as a “bridge” to the target power mix. Currently, natural gas is acting as that “bridge fuel” of choice: as shown in Figure 6 in Section 1.3, new generation capacity that isn’t wind or solar is almost always natural gas, thanks to the favorable economics of such plants. No new coal plants have been built in the US since 2015 [i]; new generation nuclear capacity hasn’t been expanded since 2016 (which at the time was the first addition in 20 years) [ii].

The shift from coal to natural gas (detailed in Section 1.3) has been beneficial, at least in the short-term, as far as emissions are concerned: natural gas power produces far less emissions than coal power does (see Section 2.6). Whether such benefits are long-lasting, however, is more murky. Woollacott’s literature review (done in December of 2020) indicates no consensus: some studies find that there's little net impact on emissions from natural gas, some find limited impact, some find negative impact (e.g. by delaying deployment of renewables), and some find positive impact: “Hausfather (2015) find that, with modest leakage assumptions, gas generation can be operated 1.5− 2.4 times longer than coal for equivalent emissions impacts assuming a limited role for renewables” [iii].

What is clear is that while getting to a 100% decarbonized power grid requires intermediate steps along the way (i.e. 50% decarbonization, 75%, 90%), optimizing locally doesn’t always yield globally optimal paths. In other words, chasing emissions reductions as fast as possible doesn’t necessarily result in the fastest time to a zero-carbon power system overall, especially since generation additions today have consequences for several decades. Woollacott notes that “…absent an effective exit strategy for natural gas emissions such as negative emissions and carbon capture technologies, building gas-fired generators with 30-year useful lives beyond 2020 will conflict with mid-century decarbonization goals” [iv]. In other words, natural gas can only be included in a zero-carbon power grid if there’s carbon capture (or some other negative-emissions technology) to cancel out the emissions produced; building natural gas plants now that will be potentially useless in the future will increase the cost of such capacity. Furthermore, investments in electricity generation could perhaps better allocated to technologies with longer useful lives (e.g. wind and solar).

The issue brings up the category of stranded assets problems – in a zero-carbon power system, many assets that formerly had value (e.g. natural gas pipelines, oil refineries, coal power plants) will suddenly face rapid depreciation. This disincentivizes capacity from being built, though if investors face uncertainty in the speed of the transition, generation decisions that favor a more aggressive expansion of natural gas generation capacity will be made: “Foresighted modeled investment is responsive to these trends, declining in the carbon tax and completely halting at a tax of about $40/ton… results suggest that on the order of $10 billion in annual investments in natural gas generation are being set that would not go forward if moderate-to-stringent climate policy were certain” [v]. In other words, when investment decisions are made with clear guidance on future carbon tax levels, billions of dollars worth of new natural gas capacity wouldn’t be built. Instead, demand needs would likely be served by low-carbon electricity sources. This highlights the importance of clearly communicated and stable long-term policies aimed at emissions reduction.