Government must stimulate smarter use of scarce green gas
Sustainable green gas on the rise – now it needs to find the right destination
A sustainable replacement for natural gas can be achieved by using green gas. Demand for green gas far exceeds supply, so policy choices must be made. As long as the social value is not considered in the cost-benefit analysis, green gas may never reach its optimal destination, such as heating homes in (old) city centers. Now is the time to make the right choices for the optimal use of scarce green gas – where it delivers the greatest social value. This is necessary to achieve our ambitions outlined in the Climate Agreement at the lowest possible social cost and with a limited increase in energy bills for households and businesses. An article about this appeared this week article in the economics journal ESB by Annet Jantien Smit, researcher at Hanze University of Applied Sciences Groningen and Ruud Paap from New Energy Coalition.
'Off natural gas'
Now that we're moving away from (natural) gas even faster than expected, due to the aversion to Russian supplies, there's a diligent search for alternatives, and these are by no means always sustainable. Necessity knows no law, especially in the short term. The Netherlands is still heavily dependent on fossil fuels. Current natural gas consumption in the Netherlands is 40 billion cubic meters. Since less gas is being extracted from Groningen, the Netherlands is also importing natural gas.
Sustainable alternative
The Dutch gas market is part of the open, integrated European gas market. Until recently, the European Union imported 142 billion cubic meters of natural gas annually from Russia. The reduction in Russian gas supplies is causing major changes in the international gas market. This will have repercussions throughout Europe: the gas market will become even tighter, prices will become more volatile, and possibly reach unprecedented levels in the long term.
A sustainable alternative to natural gas is green gas. Green gas is produced by fermenting residual flows, such as organic waste, manure, roadside grass clippings, or sewage sludge. Bacteria convert residual flows into biogas – upgraded to natural gas quality, it is called green gas. This gas is equivalent to natural gas and can be injected directly into the natural gas grid and used without modification in all installations that currently are using natural gas, such as industrial furnaces and boilers, central heating boilers, gas stoves, and hybrid heat pumps in the built environment (commercial buildings, residential buildings).
Green gas can also be liquefied for use as a sustainable transportation fuel: BioLNG (Bio Liquefied Natural Gas), making it ideal for heavy-duty transport vehicles such as trucks and ships. It can also be compressed under high pressure and used as a transportation fuel for vehicles, for example, under the name BioCNG (Bio Compressed Natural Gas). The high demand for green gas necessitates a rapid scaling up of green gas production – especially given the current challenges in the gas market.
Social value
Given the gap between supply and demand, the logical question is where the application of green gas is most cost-effective compared to other sustainable alternatives such as (future) green hydrogen, electrification, or geothermal energy. Although the business model for BioLNG is currently more attractive for the transport sector than the business model for green gas for industry and the built environment, the social value of green gas is not the same for every application. By encouraging the use of green gas without considering where it generates the most social value, there is a risk of suboptimal deployment of green gas.
What counts in the definition of social value is not only the production costs per avoided ton of CO2, but also the additional supply chain costs (infrastructure, grid reinforcement, adjustments to the natural gas network for hydrogen) and support for, for example, the costs for end users, such as new heating boilers. Based on this definition of social value, the use of green gas for heating old city centers creates more social value than for industrial process heat or maritime shipping.
Old city centers
Based on this conclusion, should the 2 billion cubic meters of green gas production targeted for the Netherlands by 2030 be used entirely in old city centers? That's premature, based on a single study. However, there seems to be no guarantee that the green gas will be used where it offers the greatest added value.
The question is what the consequences of the announced blending obligation will be for the built environment from 2030 onward. As long as there is sufficient green gas to meet both obligations (the existing blending obligation for transport and the new obligation for the built environment), it won't make much difference. In that case, the obligation with the highest payment will be supplied first, and the remainder will be used to meet the other obligation. It becomes more difficult if, due to scarcity, a choice must be made between the two. In that case, both obligations will compete with each other, driving up the price. Given the volumes required to meet both obligations, this is not an unlikely scenario.
Ultimately, the obligation for the built environment will prevail because there is no alternative within that obligation, while there is one within transport. Biodiesel, bioethanol, etc., can also be used there. Green gas will therefore eventually end up in the built environment, but at a price.
Annet Jantien Smit, Lecturer / Researcher at Hanze, and Ruud Paap, Green Gas Expert at New Energy Coalition conducted research into the necessary incentive and share their findings in the article below.
