“Ballparking” The Cost of Electrification

Contributed by Robert Lyman © 2020

EXECUTIVE SUMMARY

The Trudeau government has adopted the aspirational goal of reducing Canada’s greenhouse gas emissions to “net zero” by 2050 and is now seeking to enshrine that target in legislation so it will legally bind all future federal governments in Canada. The goal of completely “decarbonizing” the economy would require the elimination of oil, natural gas and coal from the fuel mix, essentially taking away about 83% of our current sources of supply and replacing them almost entirely by electricity generated by renewable energy sources. The key question that one must answer to determine the financial costs and implications of this are therefore related to the consequences of total electrification.

In this article, I offer a rough estimate of the costs to the Canadian economy of total electrification using a methodology and data borrowed from a similar study published in the United States. I hope that illustrating just the order of magnitude of the costs will help to illustrate for the average person, now probably unconcerned about what climate policy will mean to his or her life, how large the impact may be.

What Total Electrification Means

Total electrification means converting the entire Canadian economy to use electricity as a fuel. This includes all appliances in residential and commercial buildings, all furnaces, all transportation uses in every mode, and all other uses. For purposes of analysis, it includes assuring that 100% of the existing and new demand for electricity is met with renewables plus electricity storage. As no other energy sources would be used, it would mean abandoning the infrastructure now used to produce, transport and process oil, natural gas and coal; these would become “stranded assets”.

To calculate the costs of such a transition, we need access to estimates of the costs of different electricity generation options and of the different electricity-consuming applications, such as equipment and vehicles. This analysis is based upon the data from the United States Energy Information Administration (EIA). It also included estimates of the costs to satisfy peak loads that may occur in a weather event or other emergency.

There are four generic types of costs to be considered:

•The costs of replacing current electrical generation facilities with renewable energy and related storage facilities
•The costs of electrifying the industrial, commercial, residential and transportation sectors of the economy
•The costs of prematurely retiring the “stranded assets” or fossil fuel production, transportation and processing plants and related infrastructure that would no longer be used
•The deadweight losses of forgoing the income from development of existing fossil fuel resources

Overall, the estimates of the cost of electrifying the United States economy range between $18 trillion and $29 trillion in “first costs”.

Translating U.S. cost data into probable costs for Canada requires one to make some assumptions. If the costs of complete electrification in Canada are directly proportional to the current patterns of energy demand by fuel and sector, then the costs of electrification would be at least 15% of those in the United States. That would place the costs of electrification at somewhere between U.S. $2.7 trillion (Cdn $3.6 trillion) and U.S. $4.35 trillion (Cdn $5.9 trillion). That does not include the stranded assets costs or the deadweight losses which, based on the value of the oil sands alone, would appear to be at least $9 trillion.

The cost to electrify the U.S. economy would translate into annual cost increases of at least U.S. $5,000 per household, paid directly and indirectly. Annual consumer expenditures for energy would roughly double. Translating this into Canadian dollars and adding 15% would mean that the added cost per Canadian household would be $7,760 per year. This, of course, excludes the cost to the economy for the stranded assets and the deadweight losses. It is also a national average; the costs to households in Alberta, Saskatchewan and Newfoundland and Labrador would be much higher.

To this one might add the non-monetized costs such as the loss of consumer preference, the increased risks to energy security and reliability and the increased vulnerability of the energy system to disasters.

A central premise of those who foresee complete decarbonization of the global economy is that all of the economic sectors and services whose energy needs are now met by fossil fuels can be electrified. Yet, today the technologies needed to make this feasible do not exist outside the laboratory, if there. That is especially the case in the transportation sector, where the high energy density of oil products makes them the ideal source of motive power. With currently available technology, there is no way to switch to the use of cellulosic ethanol, to have hydrogen vehicles, to electrify commercial aircraft for passenger or freight movement, or to electrify commercial trucking. While it is technically feasible to electrify passenger rail and even freight rail systems, the costs of replacing existing locomotives, cars and infrastructure are in the trillions of dollars, and no privately-owned and operated rail company would accept the risks. To claim that this could be accomplished within a few decades is simply beyond the pale of belief.

About the Author

ROBERT LYMAN is an economist with 27 years’ experience as an analyst, policy advisor and manager in the Canadian federal government, primarily in the areas of energy, transportation, and environmental policy. He was also a diplomat for 10 years. Subsequently he has worked as a private consultant conducting policy research and analysis on energy and transportation issues as a principal for Entrans Policy Research Group. He is a frequent contributor of articles and reports for Friends of Science, a Calgary-based independent organization concerned about climate change-related issues. He resides in Ottawa, Canada. Full bio.