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The Not Too Surprising Emissions Surprise

The Not Too Surprising Emissions Surprise


The Rhodium Group, an independent economic and policy research firm, released a report Tuesday estimating that US energy-related CO2 emissions increased by 3.4 percent in 2018. That marks the largest year-over-year emissions increase in more than twenty years, surpassed only by 2010’s emissions as the economy bounced back from the Great Recession.

To some observers, the uptick in emissions may come as a surprise given a decadal trend of national emissions decline, the notion that we had somehow decoupled emissions from economic growth (spoiler alert – we haven’t), and notable breakthroughs in clean energy technologies such as renewable power, battery storage and vehicle electrification. But emissions are driven by a complex mix of market, policy and natural factors that can change over time.

This is a story of “Even Withs”. Even with a near-record number of coal-fired power plant closures in 2018, natural gas beat out renewables to replace the lost coal generation while also meeting most of the growth in electricity demand. Electricity demand growth itself is a phenomenon that runs counter to the recent trend of flat growth. Even with a decrease in gasoline consumption, demand for diesel and jet fuel drove transportation emissions up one percent. Rhodium points out that the biggest change came from sectors that often go ignored in policy discussions: industry and buildings.

A Reversal of Emission Trends?

US energy-related CO2 emissions peaked in 2007 at about 6 billion tons. Even with last year’s increase, CO2 emission in the US are still down 11 percent since 2005. The Great Recession played a role in bringing down emissions, but so too did transitioning electric power generation from coal to natural gas and renewables. The 2018 uptick, though, can be seen as part of a phenomenon years in the making: even though overall emissions are down since the mid-2000s, the pace of that decrease has been slipping. In 2015, emissions fell by 2.7 percent. In 2016, emissions fell only 1.7 percent, and in 2017 that number was just 0.8 percent.

Coal generation dropped in 2018, but less so than it did in 2012, 2015, and 2016. The key difference, though, is that in those other years, electricity demand was flat or falling. In 2018, electricity demand picked up, and natural gas beat out renewables in replacing coal’s lost generation. Natural gas generation emits roughly half the CO2 of coal, but the scale of natural gas’s growth canceled out emission reduction benefits. The Rhodium report points out that natural gas-fired generation increased by 166 million kWh from January to October 2018. That is three times the decline in coal generation and four times the combined growth in wind and solar.

Rumors Of Decoupled Emissions And Economic Growth Have Been Greatly Exaggerated

“The big takeaway for me is that we haven’t yet successfully decoupled U.S. emissions growth from economic growth,” Trevor Houser, head of Rhodium’s Energy and Climate group, told the New York Times’ Brad Plumer. And 2018 was by any measure a year of relatively high economic growth in the US.  The New York Times piece highlights manufacturing emissions specifically, noting that as the economy revved, “emissions from the nation’s industrial sectors – including steel, cement, chemicals and refineries – increased by 5.7 percent.”

Plumer notes that policymakers at the federal and state levels have focused on decarbonizing the electricity sector but have largely avoided regulating heavy industry, which now contributes about one-sixth of the country’s carbon emissions, a share that is growing. The industrial sector is, of course, very directly tied to macroeconomic conditions and thus the relative lack of decarbonization of industrial processes means that those emissions remain tightly coupled to economic growth.

The notion that emissions have been decoupled from growth has always been a bit oversold. The well-known “Kaya Identity” tells us that GHG emissions are the product of four factors: population, per capita economic output (GDP), energy intensity of GDP and carbon intensity of energy. So by definition, emissions can never be completely decoupled from economic growth, at least until energy is completely carbon-free (or energy-free). Over the last decade in the US, decarbonization of electric power driven by coal to gas substitution has played a major role in the fact that emissions declined while the economy grew. But the relationship between emissions and the economy remains fairly strong, as the post-Recession plummet in emissions and the 2018 emissions and economic bump suggest.

Transportation Retains A Pivotal Role

Transportation has now surpassed electric power as the largest single source of US GHG emissions.  Rhodium reports that from January through September of 2018, gasoline demand declined by 0.1 percent even though there was a slight increase in vehicle miles traveled. That can likely be attributed to modest vehicle fuel efficiency gains. Preliminary data from the fourth quarter of 2018 reflects an even greater decline in gasoline demand. The catch, though, is that demand for diesel and jet fuel – propelled by trucking and air travel – saw robust growth (3.1 percent and 3.0 percent, respectively). Those trends also continue into the fourth quarter.

While President Trump’s decision this summer to freeze future fuel economy standards at 2021 levels is important for the future trajectory of transportation emissions, that decision did not cause a three percent increase in diesel and jet fuel use in 2018.  Though fuel efficiency mandates played a role in the slight drop in emissions from personal vehicles, diesel and jet fuel emissions are the slices of the pie that has been more impervious to policy efforts. These two sources are tied largely to bulk transportation and aviation and thus are more tightly tied to economic activity, are more technologically challenging and thus have been less influenced by policy.

Changing transportation fuel sources to electricity or hydrogen, of course, could shift matter considerably. A substantial uptake in electric or hydrogen fuel cell vehicles would bring down transportation tailpipe emissions with it, but shifting the fuel source from petroleum to electricity would shift the emissions accordingly. The net effect on emissions will then be determined by the carbon intensity of electric power generation or hydrogen fuel production.

Baby It Was Cold Outside

Buildings also saw a tremendous increase in emissions in 2018. The Rhodium report points out that despite modest improvements in the efficiency of oil and natural gas furnaces, it was not enough to offset the emissions impact of population growth and increased demand for heating and other building energy services. Early 2018 saw particularly cold temperatures, especially in New England, compared to 2017. The number of heating degree days across the U.S. increased by 15 percent during the first quarter of 2018 relative to 2017. The first three months of 2018 were still warmer than average for the US, though, so absent a deeper understanding of the cyclicality of polar vortexes, the 2017-18 change may be best viewed as a blip rather than a recurring trend.

The Outlook

As I have argued elsewhere, markets have provided the engine by which emissions reductions have occurred in the US over the last decade, but policies have not only influenced those market responses to date, they are necessary to sustain reductions over time. Because energy costs money, there are natural market incentives to conserve it and the resulting improvements in energy efficiency will continue to drive some emission reductions so long as energy is not dirt cheap. But carbon emissions are largely treated as free, so there is no natural incentive to conserve there without policy intervention.

That leaves three options for deep carbon reductions concurrent with economic growth: (1) put a price on carbon to motivate reductions, (2) mandate or otherwise incentivize the development and use of low-carbon technologies, (3) hope that low-carbon technologies that are cheaper or higher performing than the carbon-intensive alternatives will emerge on their own. The first two approaches require deliberate policy. The third is a matter of faith.

[Will Niver of the Duke University Energy Initiative provided research and writing assistance for this post.]



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