INSIGHT by Ceres
Last week, Ceres published a report that provides guidance for investors to effectively influence and support utility companies in decarbonizing the gas distribution industry and align with the global goal of limiting warming to 1.5 degrees Celsius.
Decarbonizing U.S. Gas Distribution: An Investor Guide provides insight into the diverse decarbonization options that can be deployed to viably reduce the industry’s greenhouse gas emissions. The report also underscores the financial importance of decarbonization in the utility sector, citing the substantial investor-owned assets totaling $379 billion in the gas distribution industry. By embracing decarbonization, utility companies can both mitigate financial risks and tap into substantial financial opportunities while ensuring energy remains reliable and cost-competitive for consumers. With major technological improvements across the industry and new investment spurred by the historic Inflation Reduction Act, the time is ripe for the industry to achieve a cleaner, more efficient, and equitable energy future.
“Decisive action on the part of utility companies is imperative for the gas distribution industry to successfully decarbonize. To ensure shareholder capital, maximize financial opportunities, and minimize costs to customers, their actions must also be grounded in viability. Companies that are not aligned with a 1.5°C pathway need to move quickly by developing, implementing and investing in pathways that are both deeply impactful and feasible.
“Our report provides an array of viable pathways that utilities can follow, empowering them to make informed decisions. This analysis also equips investors with the necessary tools to effectively engage and support these companies in their transition toward sustainable energy.”
-Dan Bakal, senior program director of the climate and energy team at Ceres
The report’s key findings offer a clear roadmap for the industry’s transition:
〉Electrification presents compelling growth opportunities for both electric-only and dual-fuel service territories. It opens avenues for deploying capital in generation, transmission, distribution, storage, and appliances.
〉Electrification and efficiency-centered pathways emerge as the most viable strategies to align with the 1.5°C target. These approaches often outperform low-carbon fuels and are already cost-competitive against unabated gas distribution.
〉While renewable natural gas (RNG) and hydrogen-centric pathways have potential benefits, the evidence indicates they lack economic viability at the necessary scale to make substantial contributions toward 1.5°C alignment.
〉Deep hybrid electrification presents an effective interim solution, particularly in regions with harsh winter climates. This strategy harmonizes electric grid congestion, averting costly capacity upgrades and their related expenses.
〉Decarbonization plans must prioritize economic justice and equity, ensuring customer access and affordability are central. This approach fosters an optimized system which can benefit customers, utilities, and investors alike.
According to the International Energy Agency, the building sector—which closely corresponds to the emissions reductions needed in the gas distribution industry—needs to see a significant reduction in global average end-use carbon dioxide emissions of 46% by 2030. Furthermore, global methane emissions also need to drop by 75% by 2030.
The gas distribution industry is a significant contributor to greenhouse gas emissions—representing approximately 14% of total U.S. emissions. With its vast network of pipes delivering energy to both homes and businesses, it plays an essential role in the energy landscape.
Ceres is committed to decarbonizing the six highest-emitting sectors of the U.S. economy—including the electric and gas utility sector—through its Ambition 2030 initiative.
Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. Through our powerful networks and global collaborations of investors, companies and nonprofits, we drive action and inspire equitable market-based and policy solutions throughout the economy to build a just and sustainable future. For more information, visit ceres.org and follow @CeresNews.
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.