Renewable Natural Gas: Worth the Price?

Should Ontario meet some of its energy needs from renewable sources, if it would reduce our greenhouse gas emissions, but might cost more than the current price we pay for energy? That debate has been raging in the electricity world in recent years, and now it’s coming to the natural gas sector. Last week, the Ontario Energy Board was asked to rule on an application from Ontario’s gas utilities (Union Gas and Enbridge) for a pilot program that would allow them to pay a premium price for renewable natural gas and pass this cost on to customers (the amount of renewable natural gas would initially be capped, to keep the average cost impact for residential customers to less than $1.50/month). While there are some differences, the program the gas utilities proposed bore many similarities to the Feed-in Tariff program in the electricity sector.

Renewable natural gas is essentially methane which can be produced from organic matter. The most likely near-term supplies in Ontario are landfills, agricultural residues and manures, and wastewater operations. Captured gas can be cleaned up and fed into the gas pipeline networks, where it mixes with traditional natural gas and is delivered to customers. The City of Hamilton has already worked with Union Gas to inject renewable natural gas from its wastewater treatment plant into the gas distribution system.















In some cases, renewable natural gas can provide a double benefit in reducing greenhouse gas (GHG) emissions. First, the carbon dioxide emitted during combustion equals the amount that was removed from the atmosphere by the bioenergy source during its lifetime. Second, the collection of the source material can prevent methane, a much more potent greenhouse gas than carbon dioxide, from escaping into the atmosphere. However, not all sources of “renewable natural gas” are created equal – I have previously noted that landfill management practices designed to capture methane for energy production may actually increase fugitive methane emissions, more than offsetting any potential reduction in greenhouse gas emissions.

Last week, the Board ruled that it does not have enough evidence to make a final decision on Enbridge and Union’s application, and needs more details from the utilities. However, the Board did drop a few hints on its policy views. It concluded that reducing greenhouse gas emissions does have a value that should be recognized, and signaled openness to balancing environmental benefits with economic prudence:

The Board finds that a gas supply portfolio which includes an amount at a premium price but which has significant environmental benefits may simultaneously achieve the Board’s objectives related to consumer protection and energy conservation and efficiency. Programs which reduce GHG emissions and enhance energy efficiency are arguably aligned with the established policies of the Ontario government. The interests of consumers are protected, and their economic circumstances are taken into account, by ensuring that the cost impact is reasonable and in keeping with the environmental benefits achieved.

This is an important and welcome conclusion. Part of the Board’s conundrum on reaching a definitive conclusion on the merits of the application relates to the challenge of weighing the costs and benefits of renewable natural gas. In particular, the Board noted that there is no market price on carbon in Ontario.  I have argued that such a policy is needed. Similarly, the Board considered arguments that the benefits of the application could be given greater weight if linked to specific objectives of the Board’s mandate, and the government has not given the Board an objective to promote the generation of natural gas from renewable energy sources, like it has with electricity.

I have been critical of Board decisions that placed too much emphasis on rate impacts and near term costs, and for not taking into account the environmental impacts associated with energy consumption.  Accordingly, I have recommended that the Minister of Energy amend the Ontario Energy Board Act so that the Board’s objectives include having regard to the environmental costs associated with energy consumption.

We’ll have to wait and see if Enbridge and Union make another attempt. They have until October 31 of this year to submit a revised application. Given that the GHG emissions in Ontario in 2009 from the direct use of natural gas were more than double the emissions from the electricity sector, Enbridge and Union should be commended for starting the discussion of how to reduce the emissions from our natural gas system.