After Pipeline Rejection, New York Must Chart a New Energy Path

In May, the State of New York put an end to the $1.4 billion Northeast Supply Enhancement gas pipeline into New York City by denying a crucial water permit. Now state leaders have an opportunity to pursue the efficiency and electrification solutions that can both ensure reliable energy supply and advance the state’s climate goals.

In rejecting the permit, the state acknowledged that long-term investments in new gas infrastructure could jeopardize New York’s climate targets and increase financial risk for customers. Looking ahead, the need for state leadership remains. The pipeline’s demise did not resolve the projected gap between gas supply and demand in downstate New York identified by utility National Grid. Thus, state policymakers will have to choose how to meet those energy needs in the near-term, while simultaneously developing more specific plans for achieving climate goals.

National Grid has proposed a portfolio of investments combining a $59 million liquefied natural gas (LNG) vaporization upgrade, $272 million Iroquois gas compression enhancement, energy efficiency, and demand response, without any electrification of homes and businesses. According to the utility, this combination is less expensive than investing in electrification to close the gap. Detailed analysis by environmental consultancy Synapse has called into question both the actual magnitude of the supply gap and the costs of efficiency and electrification.

And in contrast to National Grid narrow focus on closing the supply gap, a more comprehensive approach would incorporate the substantial emissions reductions mandated under New York’s Climate Leadership and Community Protection Act (CLCPA). The CLCPA is among the most aggressive decarbonization laws in the nation, targeting an 85 percent reduction in greenhouse gas (GHG) emissions by 2050, 100 percent carbon-free electricity by 2040, and 22 million tons of carbon reduction through energy efficiency and electrification, among other targets.

In order to meet these targets, the state will have to aggressively pursue electrification and energy efficiency solutions, whether they are included in National Grid’s downstate supply plans or not. These efforts will need to reduce demand to comply with CLCPA, which will mitigate the extent of any supply gap and reduce the need for spending on gas infrastructure.

Gas Infrastructure Expansion Is Incompatible with Climate Targets

The argument for expanded gas capacity is driven by National Grid’s forecast that peak gas demand will increase through 2030 and beyond, despite analysis on the best pathways to meet the CLCPA targets indicating that it must decline.

In June, consulting firm E3 presented draft findings from a state-commissioned study on pathways to meet New York’s ambitious decarbonization targets. The findings were stark: the state needs to not only stop the growth in gas demand but slash it by roughly 25 percent between now and 2030.

More work is still needed in developing New York’s long-term gas plan; various state agencies and the Public Services Commission (PSC) will weigh in with their proposals for addressing fossil fuel use in light of the climate law. But the finding is significant, in that it provides a clear signal for the need to swiftly reduce gas consumption and stop the buildout of new gas infrastructure.

Non-Infrastructure Solutions Will Be Cheaper for New Yorkers

Gas use has been steadily increasing for years and will not decline without serious intervention. Investments in energy efficiency, demand response, and electrification are critical to reversing that trend. Given that these demand-side investments will ultimately be required regardless of whether National Grid continues to invest in new gas infrastructure, the cost analysis changes significantly, and the non-infrastructure solution becomes the lowest cost.

National Grid’s analysis compares the costs of the different options to close the gas supply gap. This study finds that a combination of electrification, efficiency, and demand response is more expensive than a combination of infrastructure projects (LNG vaporization and gas compression upgrades), plus efficiency and demand response.

However, this misses the point that major investments in electrification, demand response, and efficiency would be included in all scenarios in order to meet the CLCPA goals. Therefore, before committing to any new gas infrastructure costs, New York’s leaders should address key questions. First, do we expect that investments in electrification, demand response, and efficiency will be required to meet CLCPA goals? Then, how does this expectation change the costs of different solutions to address National Grid’s projected gas supply gap?

Ultimately, state policy must create more certainty around the need for widespread electrification and efficiency, including a clear scoping plan from New York’s Climate Action Council laying out expectations for future gas demand. But given the urgency of resolving the projected gas supply issues in downstate New York, policymakers and regulators will have to act in absence of such specific guidance.

Investments in efficiency, electrification, and demand response will contribute both to closing the supply gap and meeting climate targets. By contrast, gas infrastructure investments would either extend the production of emissions from fossil fuels or quickly become stranded costs as gas use declines.

Clear Policy Direction Is Needed

To ensure reliability for impacted ratepayers, the state and utilities must act across the three identified sources of gas demand growth: oil-to-gas conversions, new customer connections, and higher gas usage per customer.

Oil-to-electric switching is cost-effective for customers and can be prioritized in place of oil-to-gas switching. In fact, National Grid’s regional decarbonization white paper for the Northeast calls for heating electrification of 300,000 homes and business per year between now and 2030 across New York and New England. Likewise, all-electric new construction is cost-effective compared to gas-to-electric switching, and new programs and policies can encourage more new construction without gas. Finally, expanded investment in energy efficiency is clearly needed to reduce the increases in gas use per customer.

The changes required to align New York’s energy system with its climate targets go well beyond the scope of a single utility’s mission and focus. Coordinated action from the state, New York City and local governments, and all the downstate utilities will be required to transform the region’s building sector, drive down emissions, and close the supply gap. However, the potential benefits of such an approach are bigger than those of building out gas infrastructure, and can include improved air quality, job growth, and dedicated investment to low income communities.

Recent policies and actions show how many stakeholders are already stepping up to reduce gas demand. These include New York City’s Local Law 97, Governor Cuomo’s announcement of efficiency and electrification investments benefiting 350,000 low-to-moderate income households, and $454 million of heat pump incentives administered by investor-owned utilities through 2025.

We cannot keep investing in gas infrastructure that will put New York further behind on its climate goals. City and state leaders, National Grid and other utilities must expand efforts to reduce gas use to meet climate, reliability, and financial imperatives.