New report urges better planning to avoid sunk cost on gas lines

Natural gas networks snake underneath roads and buildings to heat nearly half the homes in Canada. But a report released Thursday says provincial and territorial governments could implement policies to help electrify heating and keep energy affordable as risks and needs change with the climate.

The report by the Canadian Climate Institute notes that gas networks are currently expanding, and no province has mandated the transition to an electric system. Instead, money continues to be poured into gas lines for existing and new buildings. But the report stresses that energy infrastructure needs to be shifted from fossil fuels to avoid saddling governments and consumers with costly stranded assets down the line.

Across Canada, a mix of public and private utilities are responsible for distributing electricity and heat, all of which fall under provincial jurisdiction. Energy regulatory boards, which operate independently from the provinces, make decisions about “infrastructure that will affect ratepayers’ costs for decades,” explains Kate Harland, research lead at the Canadian Climate Institute.

Currently, those regulators are not required to consider climate targets, including Canada’s goal for net-zero greenhouse gas emissions by 2050.

“That big disconnect could drive up energy bills in the decades ahead,” said Harland. “Provinces need to make forward-looking decisions about energy system investments, and they need to make plans and policies today to protect consumers in the economy-wide energy transition that’s underway.”

The report argues provincial governments should push regulators, utilities and system operators to transition off gas by ensuring energy system planning is aligned with the transition off fossil fuels. Specifically, it says provinces should commission ongoing independent assessments of energy systems to reveal options for reaching a net-zero energy system. All provincial governments should also legislate a target of net zero by 2050 specifically for buildings, so it’s mandatory for regulators to make decisions that align with climate science.

While natural gas is touted as an affordable energy source by industry, the report stresses transitioning gas systems to electric is the most affordable way to achieve net zero emissions by 2050.

Natural gas is made mostly of methane, which is responsible for approximately a quarter of global warming and is over 80 times more powerful than carbon dioxide (CO2) for the first 20 years in the atmosphere. The production of natural gas is a huge source of methane leaks in Canada and the gas also produces CO2 when burned.

In a net-zero-by-2050 scenario, 99 per cent of home heating will be either entirely or mostly powered by electricity, leaving little room for natural gas, explained Jason Dion, senior research director at the Canadian Climate Institute. However, by combing through energy regulator documents from the provinces and territories, they determined current policies are instead enabling expansion of gas.

“We found that across the country, provinces with large gas networks have seen significant growth in those networks in the past decade,” said Dion, who also noted that emissions from the building sector grew by about nine per cent between 2005 and 2022.

The report found about 44,000 new gas customers in Ontario were added to the system each year between 2013 and 2022. In B.C. during the same period, over 13,000 customers were added, and in Alberta, there were over 19,000. In total across Canada, 778,000 new customers were hooked up to gas during the decade.

Energy Regulators

A large part of the disconnect stems from how energy regulators operate, Harland explained. While their aim is to keep energy rates reasonable for customers, they aren’t inherently considering climate change in their decision-making.

Instead, they need “clear direction” from their provincial governments to “think about climate” and deliver “clean, affordable and reliable heat” within the context of climate change and the volatile price of fossil fuels, she said.

The report’s authors pointed out that Ontario is doing the opposite by pushing forward new legislation to overrule the provincial energy regulator, who had decided real estate developers must pay for new gas infrastructure upfront in order to protect customers, who would have to take on the costs over decades.

Meanwhile, some municipalities have taken the fight against gas into their own hands, with varying success. Montreal announced it will no longer allow gas in new buildings of up to three storeys as of October 2024. The city will also ban gas as of April 2025 in larger new builds. Nanaimo, B.C. announced new buildings won’t be allowed to use natural gas as the primary heat source as of July 2024.

Vancouver was on a similar path before its city council rejected the motion to ban natural gas hookups in new buildings in May.

Harland notes that a piecemeal approach might not be the best approach, anyway, since municipalities have limited resources and “a provincial approach makes a whole lot of sense from a capacity perspective, but also just because it's a system that's interconnected.”