Fueling the transition: The infrastructure and retrofitting hurdles to natural gas uptake

Abstract

We examine how technical characteristics influence firms' decisions to adopt natural gas as an alternative fuel in their production processes. Using firm-level data, we first identify key drivers of adoption through probit models, highlighting the roles of heating equipment, cost competitiveness, and prior knowledge of natural gas. To extend the analysis, we apply LASSO regression to incorporate a wider set of predictors, including infrastructure access, retrofitting costs, electricity source, environmental awareness, and firm characteristics. Our results show that proximity to fueling or regasification stations is strongly associated with a higher probability of adoption, while high retrofitting costs show a robust negative correlation. Firms reliant on major grid-based electricity providers or familiar with renewable energy sources are less open to switching, suggesting perceived reliability of existing energy sources or a preference for technologies more directly aligned with renewable commitments. Conversely, firm-level familiarity with natural gas consistently exhibits a positive and significant association with adoption. We observe moderate heterogeneity in openness to switch to natural gas across firm types, with the highest propensity among those using heating equipment in core operations. These findings emphasize the importance of infrastructure access, technical knowledge, and financial constraints in shaping the transition to cleaner fuels in industrial sectors. We highlight the “renewable energy commitment effect,” which is the reluctance to switch to a fuel less committed to renewables.