Coal or no coal, all-electric homes are better for the environment

Late last week, the Victorian Government announced a ban on gas connections to new residential homes from 2024. The effect of this policy is that new homes will be required to go all-electric. Even though this is a relatively small step in Victoria’s ambition to electrify all households, it nonetheless triggered a wide range of reactions, including debate on the impact it might have on the state’s carbon emissions.

Here we take a closer look at these claims and clear up some of the misconceptions about electrified homes.  

What is the announcement?

Last Friday, the Victorian Government announced that:

• From 1 January 2024, new homes will be unable to connect to reticulated gas networks.
• These changes will apply to all new homes requiring a planning permit, including new public and social housing delivered by Homes Victoria.
• Commencing immediately, all new public buildings that haven’t reached design stage will also be all-electric. This includes new schools, hospitals, police stations and other government-owned buildings.

Where did this announcement come from?

It is part of the Victorian Government’s Gas Substitution Roadmap, which lays out how the state will decarbonise its gas sector. Emissions from gas currently constitute 17 per cent of Victoria’s net emissions, slightly below the national contribution of 22 per cent.

Gas emissions generally come from three sources:

• Electricity generation – burning gas to generate electricity.
• Industrial use – burning gas to create the high levels of heat needed for some industrial processes and using gas for feedstock.
• Residential (households and small business) – burning gas through low pressure distribution networks for space and water heating, and stovetop cooking.

The figure below shows the breakdown of these sources across the states and territories. What stands out is that in Victoria, most of its gas comes through residential use.

Figure 1: Sources of gas use by state 2021

Source: Grattan Institute Getting Off Gas (p7)

Reducing residential gas use is made tricky by the cumbersome fact that emissions are dispersed across millions of source points (i.e. residential homes and small businesses), rather than a few concentrated plants (e.g. a power station or manufacturer). Complicating this further is that Victoria is the state with the highest percentage of residential gas use, and emissions are increasing roughly in proportion to the population.  

Figure 2: Trends in residential gas emissions, Victoria 1990-2020

Source: Victoria Government Victorian Greenhouse Gas Emissions Report (p27)

Through its Gas Substitution Roadmap, the Victorian Government identified that this trend is not compatible with its carbon targets of 75 – 80 per cent emissions reduction by 2035 and net-zero emissions by 2045. It determined that electrification is the most cost efficient and environmentally friendly option to substitute gas for residential use. This direction aligns with that of other jurisdictions, both within Australia (e.g. the ACT), and internationally (e.g. the UK and Germany).

Of course, transforming households from gas to electric is no small feat. It requires careful planning and community messaging to encourage change in customer habits, both of which are fraught with political risk. These risks came to the fore following last week’s announcement, with accusations that all-electric homes are more costly and worse for the environment.

This article does not go into much detail about costs. Suffice to say that independent modelling, like here from the Grattan Institute, shows that households save money over time by upgrading to electric appliances, and government support can help cushion the initial upfront costs. Moreover, the higher cost forecasts come through retrofitting existing households, something last week’s announcement does not propose to do. 

Figure 3: Household savings over 10 years by upgrading to electric appliances (includes upfront costs)

Source: Grattan Institute Getting Off Gas (p15)

So, what about the environment?

Will electrification increase Victoria’s emissions?

The argument being made is pretty straightforward: Victoria still relies on brown coal for most of its electricity, so switching from gas to electric will increase the demand for brown coal generation.

While this makes for a good headline, the electrification process is not so simple.

First and foremost, there is a thermodynamic factor: electricity is far more efficient at producing heat than gas. Gas-fired heating is inefficient, with even new gas heaters losing between 10 to 40 per cent of heat.

Conversely, the International Energy Agency says the energy output of modern heat pumps is about four times greater than the electricity energy used to run it (i.e. an efficiency ratio of 400 per cent), though newer technologies can reach as high as 600 per cent.

This is because heat pumps extract heat from ambient air and concentrate it in the building or water being heated. Furthermore, unlike a gas heater, a heat pump can provide heating as well as cooling (for example, a reverse cycle air conditioner).

The Grattan Institute highlights these conversion efficiency differences:

“Providing sufficient hot water for a family of four for a year requires about 30,000 megajoules of gas used in an instantaneous gas water heater. Providing the same amount of hot water using an electric storage water heater requires [the equivalent to] 23,400 megajoules. Using a heat-pump water-heater requires [the equivalent to] 11,900 megajoules”.[1]

These efficiencies are so stark that the International Energy Agency has concluded that “heat pumps still reduce greenhouse gas emissions by at least 20% compared with a gas boiler, even when running on emissions-intensive electricity. This reduction can be large as 80% in countries with cleaner electricity”.[2]

With these efficiency numbers, we can do an indicative calculation of the likely overall emissions output of gas versus electric heating using the Australian National Greenhouse Accounts Factors.

To produce 1MWh of gas heating:

• CO2 emissions factor of natural gas is 0.05153kg CO₂/MJ.
• 1MWh = 3600 MJ.
• 1MWh of gas burnt produces: 0.05153 x 3600 = 185.5kg/MWh of CO₂.
• Efficiency of modern gas heater assumed to be 75 per cent.

185.5kg/75% = 247.3 kg CO₂.

To produce 1MWh of electric heat pump heating:

• CO2 emissions factor of Victorian grid electricity generation is 920kg/MWh of CO
• Efficiency of modern electric heating assumed to be 400 per cent.

920kg/400% = 230 kg CO₂.

This CO2 emissions factor includes transmission loss factors. What it does not include is behind the meter electricity like that supplied by rooftop solar and home battery installations. It is reasonable to assume that many new homes will have one or both rooftop solar and home battery installed, significantly reducing further the electricity heating emissions. Some new homes will also purchase heat pumps above 400 per cent efficiency.

But why use Victorian generation as the source of emissions?

Putting aside these thermodynamic factors, concerns that Victoria’s emissions will increase mistake how the electricity system works. Victoria’s generation fleet is part of the National Electricity Market (NEM) and the electricity it produces is pooled together with other electricity generated in the NEM. The Australian Energy Market Operator (AEMO) then dispatches this electricity supply in real time to meet demand.

Any uptick in demand will consequently be met through the NEM, not Victoria on its own. To use the same equation as above, but replace Victoria’s emissions factor with that of the NEM (690kg/MWh of CO₂), the emissions from a modern heat pump come to:

690kg/400% = 172 kg CO₂.

And it goes without saying that these emissions will only go down as the NEM, and Victoria, continue to decarbonise their electricity grids.

Figure 4: Projected CO₂ emissions factor of electricity in the NEM and Victoria to 2035

Source: AEC graph using Federal Government’s Australia’s Emissions Projections 2022 (p81)

By 2025, the projected emissions from a current heat pump are: 440kg/400% = 110 kg CO₂ – less than half the emissions of a current gas heater.

Taking the above data into account, any suggestion that electrification is worse for the environment doesn’t stack up.

[1] Grattan Institute, ‘Getting Off Gas’, June 2023, p9.

[2] International Energy Agency, ‘The Future of Heat Pumps’, December 2022, World Energy Outlook Special Report, page 13.