Carbon Pricing and Lighting, EVs, Heat Pumps, & Electric Everything

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This is the second article of a series. You can read the first article here.

What does the US need to do to help the world prevent the worst of climate change? End the use of fossil fuels fast. Many are stepping up to the challenge with aggressive goals. The EU wants to be fossil free by 2050. Joe Biden’s campaign wants the US to be fossil free by 2050 as well, based on his stated climate policy: “As president, Biden will lead the world to address the climate emergency and lead through the power of example, by ensuring the U.S. achieves a 100% clean energy economy and net-zero emissions no later than 2050.”

What will it take for the US to be carbon neutral by 2050? We need to do three things:

• Encourage conservation and energy efficiency throughout the economy
• Green the grid
• Electrify everything

I think it is likely the US can get to a virtually green grid by 2040 or sooner by adopting a steadily rising price on carbon with the revenues rebated to US residents as a dividend. I support the Energy Innovation and Carbon Dividends Act (EICDA) and believe the incentives in the bill are strong enough to lead utilities to completely green the grid by 2040.

The EICDA has been filed in the US House of Representatives with 80 co-sponsors, House Bill 763. The carbon fee rises from $15 a ton in its first year to about $300 a ton in 2050. It establishes a series of carbon reduction targets along the way such that, if we don’t meet the target in a year, then the carbon fee goes up faster. If we never meet any goals, the carbon fee could be as high as $450 a ton by 2050.

The EICDA carbon fee creates a situation in which wind and solar will be cheaper to build and operate than just operating existing fossil plants. The advantage of wind and solar grows year by year, not even considering the likely further declines in the prices of wind, solar, and energy storage:

The cost advantages of renewables will become so profound that existing solutions for the nagging issue of intermittency will be economical, and future solutions will have a big payback.

But the electric grid produces only 27% of US carbon emissions. Obviously, during and after the process of greening the grid, we must also work on electrifying everything. And we can do that by converting all energy uses of fossil fuel directly into electric uses or create a fuel using low/no-carbon electricity that can substitute for a fossil fuel (e.g., hydrogen electrolysis). A fee on carbon and ongoing technological development will guide the economy to the proper mix between those solutions.

Lighting, Driving Your Car & Heating Your Home

A lot of research is going into this idea of electrifying everything, and I hope to look at the whole process from a top-down overall energy point of view in a later article. Mark Jacobson at Stanford has looked at the issue exhaustively and has concluded that it is feasible and economic. Bottom line — electrifying a process is:

1. more efficient
2. economically competitive in most cases
3. produces low or zero CO2 with a greener or 100% green grid
4. often brings other advantages such as unbelievable acceleration for EVs or cleaner indoor air for heating.

The cost competitiveness for replacing existing equipment is the roadblock in many cases, whereas the need for technological breakthroughs (especially energy storage) is the key in others.

Lighting

You may have forgotten that we used to light our homes with gas lanterns or candles.

I compared electric bulbs versus a propane camping lantern in terms of energy efficiency. A lantern you can buy on the internet takes about ¼ gallon of propane burning on high to produce about the same amount of light as two 75-watt light bulbs. To produce that same amount of light it would take over 100 candles burning for four hours! Electricity has a huge efficiency advantage in this case, and we don’t need to put a fee on carbon to stop CO2 emissions for lighting because it is so much more efficient to light with electricity than with candles or propane lanterns. Here is the relative energy consumption for lighting with a 100-watt incandescent bulb for one hour:

It’s no surprise we’ve already electrified lighting! Electricity is more energy efficient and that efficiency translates into real dollar savings. The cost of getting the light from a 60 watt equivalent LED light 3 hours a day for a year at $0.13 per kWh (national average) would be about $1.28, whereas the cost to get the same light from the propane lantern would be over $60! I have no idea how many candles it would take.

Some things get electrified because electricity is so much better! No need for further discussion about lighting – it’s already electrified almost 100%! What is interesting, though, is that the technology for transforming electricity into light has continued to improve from Edison’s breakthrough in 1879 to ongoing advances in LED lighting. Research and invention paved the way!

Home Heating

I live in Asheville, NC – a cold place by southern standards – in a home heated by natural gas. The last few years we have been able to heat our home with 556 therms (100,000 BTUs) of natural gas. BTU, or British Thermal Unit, is the standard measure for heat and for energy production. I assumed our furnace is 90% efficient and a comparable furnace that burns heating oil is 80% efficient.

Electric alternatives include baseboard resistance heating, which is 100% efficient before grid losses, air source heat pumps at an HSPF (heating system performance factor) of 9.2, which is 2.7 times as efficient as electric baseboard, or geothermal electric heat systems, which are about 3.7 times as efficient as electric baseboard. First I compared the energy use, and did so under two scenarios — the electric grid as it is today (which is itself only about 35% efficient due to losses from converting fossil fuels to electricity) or a 100% renewable plus nuclear grid, which would be 90% efficient or so (no conversion to fossil fuels, but line losses and use of battery or other storage result in some efficiency loss).

Today there are some significant advantages to burning fossil fuels at the point of use when only heat is the required output. Fossil fuels are excellent at that. Electric resistance heat is a poor substitute for gas heat. It should be avoided. Heat pumps convert electricity into substantially more usable heat than resistance heat for the same energy, and geothermal heat pumps are the best. And when we green the grid, heat pumps end up saving lots more energy. Progress is continuing in heat pump technology (and it would help to speed that process up), but when it comes to cost, natural gas currently has the edge:

It is insanely cheap to heat our home right now. We have lots of insulation and gas is under $1.00 a therm. Only electric geothermal heat pumps would beat gas heat, but the extra cost of a geothermal system could hardly be justified by the savings if gas is an alternative. It would pay to switch out an aging fuel oil furnace to electric heat pumps, and certainly would pay to scrap that resistance heat in favor of natural gas or a heat pump.

Which emits more carbon? I prepared 3 scenarios for the electric part — today’s grid, an intermediate stage which could happen soon if we start to seriously green the grid, and a 100% renewable grid. The current grid is about 40% no carbon, with coal at around 20% and gas at about 40%. The intermediate grid might be no coal, gas at about 40%, nuclear at 20%, and renewables about 40%, for 60% no carbon.

This is a doubling of renewables from where we are today. The final scenario is assumed 100% carbon free, maybe 20% nuclear and 80% renewable energy (or could be 100% renewable), for another doubling of renewables. Also, I decided to drop oil heat and electric resistance heat and instead focus on the lowest cost options:

Carbon emissions are less, but not much less, for heat pumps today versus natural gas. But the future grid, if we start greening, allows a lot of savings for heat pumps versus natural gas. As you can imagine, this will have an impact when we consider carbon pricing, as those carbon savings will factor into the cost of fuel for natural gas, increasing the advantage of heat pumps.

Driving

The following compares the energy consumption for driving 10 years at 20,000 miles a year for a Tesla Model 3 or Model Y, which get about 4 miles per kWh, and an equivalent gasoline car or SUV, which gets, say, 30 miles per gallon:

EVs are more efficient today and will get even more so with a green grid. The efficiency gains for EVs are greater than they are for home heating. Heating a home with fossil fuels directly uses the heat from burning the fuel. In the case of a fossil fuel car, burning gasoline must convert the heat BTUs into the movement of the car, and there is a loss of efficiency in that process. An electric motor can use electricity directly with no conversion and little loss of efficiency. Then, as the grid gets greener, the electric car gets more efficient because the power used to run the car gets more efficient.

And this efficiency results in major CO2 savings:

And cost savings. The following graph looks at the cost savings from electrification of vehicles and compares that to savings from heating for the air source heat pump versus natural gas:

Without accounting for the societal cost of CO2 emissions, natural gas saves money for home heating today, but electric vehicles are far cheaper than gasoline for driving a car. This is a strong case for people to switch to EVs, especially once EVs reach purchase price parity with gasoline cars, which is expected to happen in the next few years as battery costs come down. Maintenance savings are another advantage. On the other hand, low natural gas prices mean we will not electrify heating from natural gas any time soon.

Can Carbon Pricing Electrify Everything?

It’s a big help if we can put fossil fuel and zero-carbon electricity on an even footing. Fossil fuels have an implicit subsidy — they don’t have to pay any cost for the climate and environmental damages they cause. Plus, all the major climate models say we need to wean ourselves from them over the next 30 years or sooner. A fee on carbon makes fossil fuels pay their fair share, and a fee sends a corrected price signal to consumers and businesses when they buy anything. A fee on carbon also tells us a lot about how to proceed to transition off of fossil fuels, by letting us pick the low-hanging fruit of actions that are economic today and delaying actions that require a technological breakthrough or a very high price on carbon to finally make sense.

With a carbon fee, consumers won’t have to give up on creature comforts if there is a ready electric alternative. If there is not a ready alternative as the fee gets higher (could be the case with air travel), then we might need to decide to consume less of something because it is getting too expensive, and spend our money in other ways, like driving our EV for vacations.

In the case of driving and home heating, there are ready alternatives, but still the carbon fee helps us discern the best path forward. Look at the following case numbers:

The chart above shows savings over 10 years for a new car or a new (or replacement) heating system, assuming the car is driven 20,000 miles a year. The electric system is assumed to be gradually greening with a reduction of 30% per kWh by 2025, 63% by 2030, and 100% by 2040. This reduces the carbon fee to electric to zero by 2040.

By 2040, savings on a new vehicle purchased that year would be $22,000 for 200,000 miles, and by 2050 you would save $28,000. For heating, the savings over 10 years are $5,842 by 2040 and $7,314 by 2050. A lot of people will be making the switch just based on the economics. I predict that switch will become a mass migration by 2030 for cars and by 2040 for heating. And the beauty of a steadily rising carbon fee is that it gives us the economic signal that that is how we should proceed. Furthermore, the same mechanism that will cause the greening of the grid also causes us to electrify at an increasing rate, especially once the grid has been greened.

Obviously, this is just one scenario. There are an infinite number of comparisons because people live in different places and have different sized homes, their driving habits vary greatly, and one could make any number of assumptions about how green the grid will get when. Nevertheless, it is obvious that (1) there are great savings already for electric cars and losses for electric heating and (2) over time as the EICDA carbon fee gradually rises, the economic calculation changes and economic savings appear for electric in both cases.

I don’t know if these carbon prices will be high enough to electrify everything. There are a lot of other factors that go into these decisions. But the relative economics will be a major factor in encouraging the transition. I do think that the case is strong that we will get a full electric vehicle transition with the EICDA. Gas cars last 15 years or so and that means that a car that is 15 years old today will get replaced twice by 2050 and a new car today will get replaced once.

With EV upfront price parity arriving early this decade, the fuel and maintenance savings should make this a “no brainer” for most people. Should we bite the bullet and just ban new gas cars at some point, or impose extremely high efficiency standards? If the EICDA is passed into law, I don’t think we will need to. Perhaps instead we could have some sort of “cash for clunkers” implemented at some point that will benefit low-income people. And build lots of EV infrastructure. And continue to support research to drive battery costs down.

In the case of heating, it’s a longer road. The carbon price is telling us to electrify transport first and go slower on heating. Heating systems last longer and my experience is that keeping the old systems limping along is much less expensive than buying new. The first thing that will happen is the replacement of all the old propane and fuel oil heating systems that are still in use. Then developers will stop putting gas infrastructure in place for new homes. Then as natural gas systems wear out consumers will switch to electric. Finally, the prices will get to be high enough that people will begin to tear out perfectly good gas furnaces and replace them with heat pumps. But that’s much later.

There are certainly government policies that would help on the transition to electric for heating. Research and business innovation could bring down the cost of heat pumps. (Maybe Tesla will take the new heat pump technology in the Model Y and invent something highly efficient!) At some point, incentives to replace old fossil heating systems with new electric could be introduced, perhaps focused on low income homeowners.

Conclusion

A carbon fee will provide the economic backdrop to strongly encourage electrifying everything. That price signal will become more compelling over time. But more will likely be needed depending on how fast the climate scientists and politicians decide we need to go, and how much of a technological breakthrough is needed.

Onward with the great transition!

Brad Rouse lives in Asheville, NC and is deeply involved in local efforts around the energy transition. He lobbies Congress for carbon fee and dividend as a volunteer for Citizens Climate Lobby. In 2016 Brad started a non-profit – Energy Savers Network – that mobilizes volunteers to help low income people save energy. He has a 10KW rooftop solar installation and his family cars are a Tesla Model 3 and a Prius Plug-in hybrid with 150,000 miles and still about 9 miles of EV only range.  He has been studying energy economics for over forty years and holds a BA in economics from Yale University, where he learned about pricing pollution through a fee in freshman economics class. He also holds an MBA from the University of North Carolina at Chapel Hill.