Natural Gas Bans Will Worsen California’s Poverty Problem

RealClear Energy
August 10, 2020

Last year, Berkeley became the first city in the United States to pass a ban on natural gas hookups in new buildings. Since then, about 30 local governments in California have passed restrictions or bans on the use of natural gas and several cities in other states may follow the Golden State’s lead.

These restrictions are being labeled as an essential part of California’s efforts to slash its greenhouse gas emissions. But last week, Southern California Gas Co. sued the California Energy Commission, claiming that by allowing the bans and promoting building electrification, the agency was creating “underground regulations” that were not permitted under state law. The lawsuit also seeks an order that would force the agency to “vacate its anti-natural gas policy.” (The California Restaurant Association has also sued to stop the bans on natural gas use.)

While the litigation deserves attention (and a separate column), it is clear that the bans on natural gas, are, in fact, regressive energy taxes that will hurt low- and middle-income consumers and in doing so, exacerbate California’s poverty problem. As I show in a new report for the Foundation for Research on Equal Opportunity, by banning the direct use of natural gas for cooking, home heating, water heaters, and clothes dryers, California regulators are aiming to force consumers to instead use more electricity which, on an energy-equivalent basis, costs four times as much as natural gas.

That’s unconscionable in California, which has the highest poverty rate of any state in America. When accounting for the cost of living, 18.1% of the state’s residents are living in poverty. For perspective, that means that roughly 7 million Californians — a population about the size of Arizona’s — are living in poverty. Californians also pay some of America’s highest energy prices. Last year, the average cost of residential electricity in California was 19.2 cents per kilowatt-hour, which is 47% higher than the national average of about 13 cents per kilowatt-hour.

Despite these facts, campaigners from the Sierra Club, Rocky Mountain Institute, and other groups have been pushing for restrictions or bans on natural gas use. A recent article in the club’s flagship magazine, Sierra, declared that local governments in California “serve as guiding lights as the state navigates a transition from gas to clean-energy buildings.” The environmental group wants to convince the California Energy Commission to “require or at least support all-electric new construction in the statewide building code.”

Restrictions on natural gas are popular in the Bay Area and Silicon Valley. In June, the city of Burlingame passed a measure that bans natural gas use in new commercial and multi-family residential projects. Municipalities in Silicon Valley that have passed restrictions include Cupertino, the home of Apple; Mountain View (Alphabet); and Menlo Park (Facebook).

These restrictions on natural gas are being implemented at the same time that electricity rates are soaring. Last year, the California Public Advocates Office published a study which found that between 2009 and 2019, baseline rates—that is, the minimum charge assessed to each customer for basic electricity service—“increased at an alarming rate.” Over that decade, San Diego Gas & Electric’s baseline rate jumped by 106%, or more than five times as fast as the Consumer Price Index. PG&E’s baseline rate jumped by 85%, and Southern California Edison’s rate increased by 48%.

In May 2020, electricity prices across all sectors in California jumped by 4.6% over May 2019 numbers. In the rest of the country, electricity prices were flat over that period. Furthermore, California’s electric rates are certain to continue rising. The state’s utilities are facing tens of billions of dollars in costs related to renewable-energy mandates, transmission-system upgrades, and the devastating wildfires that hit the state two years ago, some of which were ignited by power lines.

In addition to the high electricity prices, California ratepayers could be on the hook for costs related to shuttering the natural gas grid. An April report by the California Energy Commission called “The Challenge of Retail Gas in California’s Low-Carbon Future,” found that the “potential for large reductions in gas demand” could result in “unsustainable increases in gas rates and customer energy bills.” That, in turn, would have the biggest impact on “customers who are least able to switch away from gas, including renters and low-income residents.”

Put short, California should not attempt to solve the climate change challenge on the backs of the poor and the middle class. The state should not be abandoning natural gas — the cleanest of the hydrocarbons — at the same time that the United States is producing record quantities of it and prices of the fuel are near multi-decade lows.

The reality is that natural gas will be an essential fuel for decades to come. It is clean, it can be used for transportation, to offset the intermittency of renewables, and to provide low-cost energy services in homes and businesses. With millions of Californians living in poverty, a problem that is being made worse by the pandemic, policymakers must work to keep energy affordable. Banning natural gas will only make energy more expensive.

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