Gas Ban Economics 101

“Strange bedfellows (akin to Baptists and Bootleggers) support government-promoted electrification: electric utilities and environmentalists.”

“Because a gas ban has virtually no effect on global climate and is likely to increase energy costs for consumers, one would have to look far to find a governmental action that is so intrusive, imbalanced and detrimental to society’s welfare.”

Political attempts to curtail gas supply and demand have met with limited success. Methane rules, drilling restrictions on public land, and opposition to new pipelines have incrementally slowed the growth of natural gas in the United States. But the radical anti-fossil-fuel lobby and their government allies want much more: moratoriums on new gas service and bans on natural gas usage and appliances.

Bans by municipal jurisdictions with (presumably) the legal authority to do so are in the news. The city of Berkeley initiated municipal efforts in July 2019 to electrify by prohibiting natural gas in their new buildings. Since then, dozens of cities in other jurisdictions, largely in California, and most conspicuously San Francisco, have sought to restrict the use of gas in new buildings.

Some cities have even considered banning or restricting natural gas appliances from existing homes and businesses, as well.  The major purpose of these efforts is to mitigate climate change, however infinitesimal in the whole, by making buildings zero carbon. 

A ban is much more drastic than just creating a tax to discourage consumption of a product. With a tax, the decision is still left to consumers on how much of a product to purchase. A tax can counter a negative externality that is allegedly unaccounted for in the decisions of either suppliers or consumers, such as pollution or second-hand smoke; a gas ban obliterates consumer choice for meeting space and water heating needs, not to mention a flame for superior cooking and taste.

Such prohibition is contrary to consumer freedom to purchase a desired product (natural gas or propane) in place of an inferior one, namely electricity. Cheapness and quality are sacrificed on the alter of an environmental want that is itself debatable. (For starters, since U.S. electricity is generated primarily by fossil fuels, the “emissions elsewhere” argument comes into play.)

Untenable Justification

In technical economic terms, a gas ban fails miserably with the benefits virtually zero and the costs likely more than minimal. The benefit-cost (B-C) ratio is close to zero or the C-B ratio is infinite; or as public policy, a ban is off the charts as being exceptionally bad.

Here is why:  Less than 9% of carbon-dioxide emissions in the U.S. come from direct use of natural gas in homes and buildings. The U.S. emits about 15% of world CO2 emissions. Thus, converting all buildings to all-electric, and assuming that all electricity is produced from “clean” sources (it is not), reduces world-wide emissions less than 1.5%, which according to climate models, would not have a detectable effect on global climate, temperature, sea level, or otherwise.

A ban can look good politically by giving the appearance that a severe problem is receiving immediate, absolute attention. And a ban is certainly less universal and noticeable than a carbon tax or a budget gap from new taxpayer subsidies. But at least these two approaches preserve consumers to choose their energy source, rather than precluded from doing so with a ban.  

Strange bedfellows (akin to Baptists and Bootleggers) support government-promoted electrification: electric utilities and environmentalists, who of course have different objectives. This represents a particularly strong coalition for electrification to reckon with and portents its growing popularity in the years ahead. The problem is that vocal minorities who stand to gain economically or ideologically drive government action over the (relatively unorganized) majority who individually lose little.

The observation that a gas ban derives primarily from a religious opposition to fossil fuels is credible given the lopsided cost-benefit calculus. Climate activists regard natural gas as a competitor for renewable energy in power generation and for electricity in end-use applications. Their position seems to be that “getting rid of the competitor” would make it easier to have more renewable energy and clean electricity. But is natural gas really bad?

Bad Motivations against Superior Natural Gas

The good that comes to energy consumers and society from natural gas far exceeds the bad.  What natural gas has going for it is plenty:

  1. Abundant domestic availability,
  2. Low prices for the foreseeable future
  3. Relative cleanliness when compared with other fossil fuels
  4. Promising technological prospects for a more benign environmental footprint in the future
  5. Flexibility in electric power production, one use being a back-up to renewable energy.  

It seems absurd to ban or even restrict a product that has done, and expected in the future to do, so much good for both energy consumers and the economy. A ban on natural gas is throwing out the baby with the bath water.

Conclusion

Is it only because of special interests that we would even consider prohibiting consumers to choose natural gas as an energy source to meet their space, water heating, and cooking needs. After all, in most parts of the country where gas is available, it is the most economic and desired source of energy. Propane, too, has distinct advantages where natural gas lines are not available.

Gas bans are little more than symbolic, reflecting a stance of “we have to do our part”, or perhaps more accurately “whatever it takes”, even if bans resoundingly fail a cost-benefit test.  

Good policy balances the economic and environmental consequences in achieving an outcome that is in the public interest. Because a gas ban–command-and-control policy at its worst–has virtually no effect on global climate and is likely to increase cost and reduce quality for consumers, one would have to look far to find a governmental action that is so intrusive, imbalanced and detrimental to society’s welfare.

——————————-

Kenneth W. Costello is a regulatory economist/independent consultant who has worked for the National Regulatory Research Institute, the Illinois Commerce Commission, and Argonne National Laboratory. He can be reached at costellonewmexico@gmail.com.

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December 7, 2020 at 01:05AM

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