Even before Covid-19, face masks weren’t an unusual sight in many cities around the world. Not to protect against a virus, but to avoid inhaling toxic pollution particles that result from the use of high-emitting fuels in transportation, power and industry – mostly coal and oil. Inside homes, a large part of the world’s population – almost 3 billion people – still do not have access to clean cooking, and they are using dirty fuels that pollute their homes and communities causing 4.2 million premature deaths every year.

Gas technologies that enable fuel switching away from these polluting fuels offer an immediate solution to reduce localized air pollutants including particulate matter, nitrogen oxide (NOx), sulphur dioxide (Sox), and ozone – cleaning up the air, in addition to climate benefits. Gas combustion produces very low levels of air pollutants, but the direct cost of fuel and infrastructure have impeded the switch.

In developing regions where the environmental opportunity is largest, particularly Asia, coal is still typically the lowest-cost source of energy. Thanks to the lower gas import prices and technological innovation, the gap has been shrinking, but gas is still a high-price fuel relative to coal in much of Asia and Africa.

A key factor is that the burden of (high) cost of air pollution falls on the healthcare sector and the economy at large, as an externality that is not reflected in the cost of fuel. Similarly to the social cost of greenhouse gas (GHG) emissions and environmental degradation, these costs are socialized.

 

“In sum, action on pricing carbon and addressing the cost of pollution is critical to bring the world onto a path consistent with the Paris Agreement, and gas technologies can competitively deliver immediate reductions in emissions of air pollutants and GHG’s needed to stay on that path.”

 

A recent report, completed jointly by the International Gas Union and the Boston Consulting Group shows that if the external costs of air pollution from coal use in China are incorporated into the Levelized Cost of Electricity (LCOE), gas would be cheaper than coal. A carbon price of $40/mt in China, for instance, would mean using natural gas for power would be 30% cheaper than coal. More generally in Asia, a carbon price of $20 to $50 per ton would bring gas to achieve cost equivalence with coal. These are all still well below what is required to get the world onto a trajectory compatible with the Paris Agreement 2° Celsius pathway – about $125 per ton (global average). Furthermore, investments in new gas infrastructure today, with these measures in place, would remain cash positive, as seen in the example below.

This projection (chart below) shows that even for new Combined Cycle Gas Generators built now, there would be a positive cash-flow through 2040, if carbon pricing is in place.

For context, the current median price of carbon across 46 national jurisdictions that implemented it in some form, is roughly $13 US/ton, ranging from 40 cents to over 100 dollars, but only about a third of the prices fall above the $20 mark (as of Sep. 2020). In sum, action on pricing carbon and addressing the cost of pollution is critical to bring the world onto a path consistent with the Paris Agreement, and gas technologies can competitively deliver immediate reductions in emissions of air pollutants and GHG’s needed to stay on that path.

Furthermore, as the costs of technologies like distributed generation and small-scale LNG show potential to reduce upfront capital costs for gas access by 50% or more, the environmental and social value that gas can deliver is immense. Government policy will be essential to realize this value. Actions to price carbon, regulate emissions, and invest in technology-enabling infrastructure, will decide the fate of the Paris Agreement and Sustainable Development.

 

Innovation in Key Gas Technologies Bringing Down Costs of Adoption & Reduced Emissions

 

The adoption of natural gas technologies has already proved to be a highly cost-effective solution for improving air quality and reducing emissions, through fuel switching away from coal and oil. Continuing innovation also offers great potential to unlock further environmental gains, but policy will remain necessary to enable this potential. Namely, governments will have to fairly price the costs and benefits within energy systems – pricing carbon, controlling pollution, and rewarding efficiency.

Innovation to date has increased the technical possibilities of gas use technologies, including efficiency, flexibility, and modality of applications. Ongoing technological progress and potential for new breakthroughs are promising to push them even further, and developments in the digitalization of energy system management, heat recovery, and industrial process redesign are emerging to enable sizable emissions reductions. In buildings and industry, improved design and efficiencies of gas turbine and boilers are reducing upfront capital costs and operational expenditures by up to 20%. Boiler efficiency is already reaching 98% in some cases.

Combined heat and power (CHP) applications have been a particularly effective way to maximize efficiency – these are systems which enable the utilization waste heat for power generation in other industrial applications. Recent innovations in CHP have largely focused in small scale applications, prioritizing system redesign and integration steps that enable easier adoption of CHP in small scale systems. In road transport, gas engine and storage technologies are improving the economics of gas fuel adoption. While innovations in LNG bunkering technology are delivering higher engine power output (by up to 25%) and reducing space requirements for storage on ships (by up to 60%).

 

Enabling Renewable Power

 

In power generation, gas technologies are getting nimbler to bring larger quantities of renewable energy online more cost-effectively. For example, Combine Cycle Gas Turbine (CCGT) generator ramp rates grew by up to 44%, while capital costs have fallen by up to 25%.

Additionally, a number of emerging technologies are set to further bolster the flexibility of CCGTs. Improved heat retention, smarter control systems, and predictive-maintenance monitoring are some examples. The integration of batteries with existing gas plants (gas-battery hybrid) could be another very interesting flexibility tool in the new age of energy transition.

 

“Achieving energy transformations around the world in time to avoid irreversible environmental consequences will be a tremendously challenging task. It will require a continuous effort to reduce carbon intensity, increase efficiency, more renewables, and cleaner transport. It will require aggressive technology and innovation policies, and an all-hands-on deck approach. The natural gas sector will play a major role.”

 

Natural gas provides the lowest-cost, low-emitting source of flexible generation for long durations, hence it has an important role in meeting the demand for grid balancing, needed to scale up renewable generation. While battery storage is an excellent short-duration flexibility provider, analysis indicates that even with sustained improvements in battery costs, gas is likely to remain the lowest levelized cost option for managing intermittency, beyond 4-8 hour range, and close to half of peaking events fall into that category.

To date, dedicated gas turbine capacity has mainly been developed in North America and, to a lesser extent, the Middle East and North Africa. To ensure sufficient peaking capacity to manage intermittent renewables, a step change is required in investment across Europe and Asia. An estimated $15 to $25 billion of investment per year will be required to develop sufficient peaking capacity to support renewables development in line with the IEA’s Sustainable Development Scenario.

All these examples highlight that investment in technology and innovation in the gas sector is a critical requirement for achieving the global emissions reduction goals and clean air ambitions. Achieving energy transformations around the world in time to avoid irreversible environmental consequences will be a tremendously challenging task. It will require a continuous effort to reduce carbon intensity, increase efficiency, more renewables, and cleaner transport. It will require aggressive technology and innovation policies, and an all-hands-on deck approach. The natural gas sector will play a major role.

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