Bridge or Barrier to Net Zero? Gas Infrastructure Expansion and the Cost of Electrification

Abstract

This paper investigates the potential cost of natural gas expansion when electrification is a long-term goal. I provide empirical evidence that natural gas expansion shifts consumer choice towards gas-powered appliances and increases the cost of achieving a high level of electrification. Leveraging the expansion of inter-city transmission pipelines in China as a quasi-experiment, I show that the increased accessibility of natural gas via infrastructure expansion significantly raises the market share and sales quantity of gas water heaters. To quantify the welfare implications for water heating electrification, I estimate a structural model of the water heater market, accounting for the impacts of gas infrastructure on consumer choice. Demand model estimates reveal that the expansion of gas infrastructure raises consumer valuation of gas water heaters relative to electric ones. This implies a higher cost of electrifying water heating when gas infrastructure is expanding, as the goal of electrification is to shift consumers towards electric appliances. Counterfactual simulations suggest that, with a 20% increase in gas infrastructure penetration, the cost of electrification rises from 1.4 to 2.2 billion USD, corresponding to an increase of over 50% relative to the status-quo gas infrastructure scenario. The increased cost of electrification will be weighed against both near-term environmental benefits and other consequences from natural gas expansion. The findings underscore a long-run economic burden of utilizing natural gas as a bridge fuel in the transition towards a net-zero carbon emissions future.

Zhenxuan Wang

Assistant Professor

My research interests lie at the intersection of environmental and energy economics, climate policy, development economics, and public economics.