Phasing out natural gas in the EU. A cost-benefit analysis comparing different timeframes of phase-out.

Abstract

The EU has, in response to the rising climate crisis, Russia’s war in Ukraine, and the high price of natural gas, decided to reduce its consumption of natural gas. This decision has initiated more depth in the discussion regarding the energy transition towards renewable energy. The aim of this study is to research, through a cost-benefit analysis (CBA), the economic plausibility of replacing imported natural gas with solar and wind power. Three potential phase-out scenarios, that follow different time frames and intensities, are compared with each other and with a counterfactual scenario. The net present value (NPV), benefit-cost ratios (BCR), and the break-even times (BET) are calculated and compared, to determine when the respective scenario can be economically argued for from a societal point of view. One main finding examining the NPVs and BCRs is that the benefits of the energy transition are price volatile to the price of natural gas. When the price was assumed to be high the ranking always preferred the faster phase-out. Decreasing the costs of renewable energy did not impact the turn-out when the price was high. However, when the price was low, decreasing the costs of renewable energy benefited postponing investments into the future. Further, the BET calculations showed that all scenarios, when the values were based on future projections, had benefits overtake costs before the year 2058. For greater validity and analysis of the full impact of natural gas, future research should extend the study to include both infrastructure and natural gas production.