Are we underrating the transition risks in natural gas?

I have been speaking to a lot of people about the path to decarbonization. I often hear that natural gas is the “bridge fuel” between coal and zero-emissions energy. Natural gas combustion produces half the CO2 as coal for the same amount of energy. Natural gas also produces fewer toxic byproducts, which is why you see buses that proudly say: “powered by clean natural gas.”

If natural gas is a bridge fuel, we can expect it to play a vital role in the changing economy. Some experts even say that a rapid switch from coal to natural gas is essential to have any hope of hitting our climate goals. If these views are correct, the short-term and mid-term prospects are rosy for natural gas.

However, the recent UNEP Production Gap report outlines three weaknesses to natural gas as a bridge fuel that we should be aware of. First, researchers have found that large increases in natural gas production may depress gas prices increase consumption. This cheap gas may even cause a net increase in emissions as it delays the implementation of zero-emissions energy technologies (McGlade et al. 2018).

The second problem is the leakage of methane from natural gas production. Researchers found that the rate of methane leakage is far higher than official estimates (Alvarez et al. 2018). Worse, since methane is such a potent greenhouse gas, these leaks were comparable in their short-term warming impact to CO2 emissions from natural gas. The media is just beginning to explore the extent of these leaks and bring them to public attention. A recent NY Times piece described a major leak in Ohio, stating “the Ohio disaster leaked as much methane as the entire oil and gas industries of some nations release in a year.” Even if the current US administration is relaxing methane standards, it's hard to imagine other regulatory bodies ignoring this issue.

Finally, the bridge may be far shorter than expected. Advances in battery technologies and the plummeting cost curves of wind and solar power suggest a faster transition between coal and zero-emissions energy. The longer we delay decarbonization, the smaller the role for natural gas.

All these factors make me believe there is a greater degree of transition risk in natural gas than many people think. Policymakers may find that natural gas does not provide the clear path to decarbonization that they once believed it did. More concerning is the likelihood of stricter controls around methane emissions, especially as the problem becomes better understood. Such a policy move could have major implications for the industry. Finally, given the continued failure to reach more binding global agreements (as COP25 unfortunately showed), decarbonization will begin later. This gives more time for zero-emissions technologies to mature. Indeed, we may choose to jump rather than take the bridge. 

I lead the TCFD banking pilot at UNEP-FI. The program brings together nearly 40 global banks to understand and assess their climate risks and opportunities.