Two New Jersey gas utilities owned by South Jersey Industries, SJI,— South Jersey Gas and Elizabethtown Gas — are petitioning the New Jersey Board of Public Utilities, BPU, for approval to be acquired by JP Morgan-backed investment firm IIF. The companies’ proposal relies on a business model of continued expansion of the natural gas distribution system, and suggests that decarbonization can be achieved by blending hydrogen and biomethane into gas pipelines. But increasing gas use is not aligned with state climate policy, and the proposed blending options are not assured climate solutions. The BPU should impose conditions on the proposed transaction to ensure consistency with state climate goals. Additionally, all New Jersey policymakers must recognize the importance of avoiding wasteful investments in gas system expansion — in particular, legislation promoting gas utility spending on biomethane and hydrogen raises serious concerns.
New Jersey must reduce natural gas reliance
The NJ Global Warming Response Act requires an 80% reduction in statewide greenhouse gas emissions by 2050, and Executive Order 274 calls for a 50% reduction by 2030, below 2006 levels. Achieving these targets is essential to protect New Jersey communities from the harmful impacts of the climate crisis. Residential and commercial buildings account for 26% of New Jersey’s greenhouse gas emissions — primarily from the combustion of natural gas for heating — making the building sector the second-largest source of emissions in the state, after transportation. The 2019 New Jersey Energy Master Plan provides guidelines for electrifying 90% of buildings and a significant decrease in pipeline gas demand by 2050 to achieve necessary emission reductions. Analysis for the BPU indicates that statewide natural gas consumption should decrease by 25% or more by 2030 to remain on track under the Plan.
Proposed Acquisition of New Jersey Utilities Must be Consistent with Climate Goals Click To TweetMeanwhile, the foundational premise of the proposed SJI acquisition deal is that gas utilities “will continue to operate and grow in their respective service territories just as they do today.” This business-as-usual approach is inconsistent with the urgent need to reduce natural gas reliance. Regulators and gas utilities should be planning for a managed contraction of the gas distribution pipeline system and reduced gas demand. Long-term investments in gas infrastructure today may become stranded assets in the decades to come, and consumers shouldn’t be saddled with the costs of polluting infrastructure.
Deploying hydrogen and biomethane into gas pipelines is not a comprehensive climate solution
South Jersey Industries asserts that its acquisition by IIF will facilitate “clean energy and decarbonization initiatives” by using hydrogen and biomethane in the existing pipeline system. But this proposal is premised on inaccurate assumptions and will not cost-effectively reduce greenhouse gas emissions on the scale required to achieve state climate goals.
Hydrogen is a leak-prone, indirect greenhouse gas that is expected to play an important but limited role in decarbonization. Blending hydrogen into a complex natural gas distribution pipeline network should not be pursued without clear justification — partly because transporting hydrogen is likely to increase leakage, creating climate and safety concerns. This can also be costly and inefficient — it is more energy intensive to use renewable (or fossil) power to develop and pipe hydrogen into a home for heating than it is to heat a home directly with renewably generated electricity. Expert analyses indicate that hydrogen will be most useful for hard-to-abate sectors such as heavy industrial processes, while electrification remains preferable for buildings.
Biomethane (also referred to as renewable natural gas or RNG) is still methane — just like natural gas — but is derived from organic sources. Combustion of biomethane must achieve a net reduction in methane emissions in order to yield any climate benefits, which happens only when the methane is captured from already-emitting sources like landfills. Developing new feedstocks solely to create additional biomethane supply, however, is not beneficial. Because supplies of climate-beneficial biomethane are limited, it is not a viable path to fully decarbonize gas distribution systems. Furthermore, leaking methane and local air pollution from gas combustion in buildings remain ongoing concerns for biomethane, just like fossil fuel methane.
Despite issues with biomethane and hydrogen, recent proposed legislation in New Jersey, S1366, inappropriately promotes biomethane and hydrogen as a climate solution. The legislation states without analytical support, that “gas public utilities can reduce greenhouse gas emissions from the direct use of natural gas by procuring renewable natural gas and investing in renewable natural gas infrastructure.”
Any deal to acquire South Jersey Industries must protect the environment
State law requires that utility ownership transactions must ensure “safe and adequate” utility service, which includes protection of the environment. If the BPU approves the proposed acquisition of SJI, it should impose conditions to ensure that the deal is consistent with state climate policies to reduce greenhouse gas emissions and natural gas use.
The BPU has approved EDF’s intervention into the case, and in testimony from experts, the organization proposes a number of recommended conditions that the utility regulator should require utilities to ensure the transaction benefits the environment and public health in New Jersey:
- Long-term planning and investment should be consistent with New Jersey climate objectives – The utilities should be required to engage in comprehensive long-term planning to avoid inappropriate costly investments in the fossil fuel system and assess how their role in the energy system will change with decarbonization.
- Avoid unnecessary expansion of the gas system – The utilities should be required to pursue Non-Pipe Alternatives whenever feasible, and to revise existing practices and tariffs to avoid unnecessary expansion of the gas distribution system.
- Halt hydrogen and biomethane investments – The utilities should not be allowed any investments in hydrogen and biomethane until the BPU has assessed the climate, community, health, and cost impacts of the proposals, with opportunities for stakeholder and community input and BPU approval.
Learn more about EDF’s intervention in the proposed acquisition of SJI by IIF here:
- Testimony of Tianyi Sun for EDF, regarding climate science, hydrogen, and biomethane
- Testimony of David Hill for EDF, regarding South Jersey Industries’ climate targets and GHG emissions
- EDF Motion to Intervene