Issues in Focus

Carbon Emissions in AEO99
Reference Case

In the AEO99 reference case, carbon emissions from energy consumption are expected to reach 1,585 million metric tons in 2000, 18 percent above the 1990 level of 1,346 million metric tons. The projected emissions continue to rise to 1,790 million metric tons in 2010 and 1,975 million metric tons in 2020, 33 percent and 47 percent above the 1990 levels, respectively (Figure 29). Total emissions increase at an average annual rate of 1.3 percent between 1997 and 2020, and per capita emissions also increase at an average rate of 0.4 percent. Throughout the projection period, carbon emissions rise, because continued economic growth and moderate increases in energy prices are expected to lead to increasing energy consumption. Emissions rise at a faster rate than total energy consumption, which increases at an average annual rate of 1.1 percent, for two primary reasons. First, approximately 51 percent of nuclear generating capacity, which is carbon free, is retired by 2020 and no new nuclear plants are constructed. Second, moderate increases in the price of natural gas and decreases in the price of coal lead to slow growth in renewables.

In 2020, electricity generation accounts for 38 percent of all carbon emissions, increasing from 36 percent in 1997. The increasing share of carbon emissions from generation results, in part, from the 1.4-percent annual growth rate in electricity consumption. Of the new capacity required to meet electricity demand growth and to replace the loss of nuclear capacity, about 9 percent is fueled with coal and 88 percent with natural gas.

Energy consumption and carbon emissions for transportation grow the fastest of all the end-use sectors because of increased travel and the slow improvement in fuel efficiency in the reference case. Between 1997 and 2020, both transportation demand and emissions grow at an average annual rate of 1.7 percent, and in 2020 the transportation sector accounts for 35 percent of all carbon emissions. The average efficiency of the light-duty vehicle fleet cars, light trucks, vans, and sportutility vehicles--increases at an average annual rate of only 0.2 percent between 1997 and 2020. Over the same period, vehicle-miles traveled by light-duty vehicles increase by 1.6 percent a year, faster than the growth rate for the over-age-16 population (0.9 percent a year). Growth in both air and freight travel, at average rates of 3.8 percent and 1.8 percent a year, also contribute to the increase in emissions from the transportation sector. Emissions from both the residential and commercial sectors grow by 1.2 percent a year, contributing 19 percent and 16 percent of carbon emissions in 2020 (including emissions from the generation of electricity used in each sector). Continued growth in energy service demand, particularly in electricity-using equipment and appliances, results in the emissions increases, offset somewhat by efficiency improvements in both sectors. Industrial sector emissions increase by only 0.9 percent a year through 2020 and account for 30 percent of the emissions in 2020 (including emissions from electricity generation for the sector). The relatively low growth rate results from efficiency improvements and a shift to less energy-intensive industries.

By fuel, petroleum products are the leading source of energy-related carbon emissions because of the continuing growth of the transportation sector, which is heavily dependent on petroleum. About 42 percent of all emissions, or 823 million metric tons of the total of 1,975 million metric tons in 2020, are from petroleum products, and about 81 percent of the petroleum emissions are from transportation

uses.

Coal is the second leading source of carbon emissions at about 34 percent, or 676 million metric tons, in 2020. Coal has the highest carbon content of all the fossil fuels and remains the predominant source of electricity generation. By 2020, the share

of coal-fired generation, excluding cogeneration, declines slightly from its 1997 level of 56 percent but still accounts for 52 percent of all generation. About 90 percent of coal emissions in 2020 result from electricity generation.

Natural gas consumption for both electricity generation and direct end uses grows the fastest of all the fossil fuels at a rate of 1.7 percent a year through 2020. Natural gas has a relatively low carbon content relative to other fossil fuels (only about half that of coal), and thus carbon emissions from natural gas use are projected to be just 475 million metric tons in 2020, about 24 percent of the total.

Macroeconomic Growth

The assumed rate of economic growth has a strong impact on the projection of energy consumption and, therefore, carbon emissions. In AEO99, the high economic growth case includes higher growth in population, the labor force, and labor productivity, resulting in higher industrial output, lower inflation, and lower interest rates. As a result, GDP increases at an average rate of 2.6 percent a year from 1997 to 2020, compared with a growth rate of 2.1 percent a year in the reference case.

With higher macroeconomic growth, energy demand grows faster, as higher manufacturing output and higher income increase the demand for energy services. Total energy consumption in the high economic growth case is 129.4 quadrillion Btu in 2020, compared with 119.9 quadrillion Btu in the reference case. As a result of the higher consumption, carbon emissions are 2,124 million metric tons, or 8 percent, higher than the reference case level of 1,975 million metric tons in 2020.

Assumptions of lower growth in population, the labor force, and labor productivity result in an average annual growth rate of 1.5 percent in the low economic growth case through 2020. With lower economic growth, energy consumption in 2020 is reduced from 119.9 quadrillion Btu to 110.5 quadrillion Btu, and carbon emissions are 1,826 million metric tons, or 8 percent, lower than in the reference

case.

Issues in Focus

Total energy intensity, measured as primary energy consumption per dollar of GDP, improves at a faster rate in the higher economic growth case, partially offsetting the changes in energy consumption caused by the higher growth assumptions. With more rapid growth in energy consumption, there is greater opportunity to turn over and improve the stock of energy-using technologies, increasing the overall efficiency of the capital stock. Aggregate energy intensity in the high economic growth case decreases at a rate of 1.2 percent a year from 1997 through 2020, compared with 1.0 percent in the reference case and 0.8 percent in the low economic growth case.

Technology Improvement

The AEO99 reference case includes continued improvements in technology for both energy consumption and production-improvements in building shell efficiencies for both new and existing buildings; efficiency improvements for new appliances and transportation vehicles; productivity improvements for coal production; and improvements in the exploration and development costs, finding rates, and success rates for oil and gas production. As a result of continued improvements in the efficiency of end-use and electricity generation technologies, total energy intensity in the reference case declines at an average annual rate of 1.0 percent between 1997 and 2020.

The projected decline in energy intensity is considerably less than that experienced during the 1970s and early 1980s. when energy intensity declined, on average, by 2.3 percent a year. Approximately half of that decline can be attributed to structural shifts in the economy-shifts to service industries and other less energy-intensive industries; however, the rest resulted from the use of more energy-efficient equipment. During those years there were periods of rapid escalation in energy prices, encouraging some of the efficiency improvements. Then, as energy prices moderated, the improvement in energy intensity moderated. Between 1986 and 1996, energy intensity was relatively flat.

Issues in Focus

Regulatory programs have contributed to some of the past improvements in energy efficiency, including the Corporate Average Fuel Economy standards for light-duty vehicles and standards for motors and energy-using equipment in buildings in the Energy Policy Act of 1992 and the National Appliance Energy Conservation Act of 1987. In keeping with the general practice of incorporating only current policy and regulations, the reference case of AEO99 assumes no new efficiency standards. Only current standards or approved new standards with specified levels are included.

Technology improvements in energy-consuming equipment could reduce energy consumption and energy-related carbon emissions to levels below those in the reference case. Conversely, slower improvements could increase both consumption and emissions. AEO99 presents a range of alternative cases that vary key assumptions about technology improvement and penetration.

In the end-use demand sectors, experts in technology engineering were consulted to derive high technology assumptions, considering the potential impacts of increased research and development for more advanced technologies. The revised assumptions included earlier years of introduction, lower costs, higher maximum market potential, and higher efficiencies than in the reference case. It is possible that further technology improvements could occur if there were a very aggressive research and development effort. For the electricity generation sector, the cost and efficiencies of advanced fossil-fired generating technologies were assumed to. improve from reference case values [47].

The low technology case assumes that all future equipment choices are from the equipment and vehicles available in 1999, with new building shell and industrial plant efficiencies frozen at 1999 levels. New generating technologies are assumed not to improve over time. Aggregate efficiencies still improve over the forecast period as new equipment is chosen to replace older stock and the capital stock expands. Also, building shell efficiencies improve with price increases.

In the high technology case, with the high technology assumptions of all four d-use demand sectors and the electricity generation sector combined,

aggregate energy intensity declines at an average of 1.3 percent a year from 1997 to 2020, compared with 1.0 percent a year in the reference case (Figure 30). In the 1999 technology case, the average decline is only 0.8 percent a year through 2020. Total energy consumption increases to 111.9 quadrillion Btu in 2020 in the high technology case, compared with 119.9 quadrillion Btu in the reference case (Figure 31), but increases to 126.6 quadrillion Btu in the 1999 technology case.

Figure 30. U.S. energy intensity in three cases, 1997-2020 (thousand Btu per dollar GDP)

The lower energy consumption in the high technology case lowers carbon emissions from 1,975 million metric tons in the reference case in 2020 to 1,848 million metric tons (Figure 32). In the 1999 technology case, emissions increase to 2,105 million metric tons in 2020. About 30 percent, or 38 million metric tons, of the reduction in carbon emissions in the high technology case compared to the reference case results from lower electricity demand and generation. An additional 51 million metric tons of the reduction, or 40 percent, results from shifts to

Issues in Focus

more efficient or alternative-fueled vehicles in the transportation sector.

The high technology assumptions themselves do not guarantee acceptance and penetration in the market. Technologies must still be cost-effective as judged by the consumers, and penetration can be slowed by the relative turnover of the capital stock. In order to encourage more rapid penetration of advanced technologies, to reduce energy consumption or carbon emissions, it is likely that either market policies (for example, higher energy prices) or non-market policies (for example, new standards) may be required.

The projections in AEO99 are not statements of what will happen but of what might happen, given the assumptions and methodologies used. The projections are business-as-usual trend forecasts, given known technology, technological and demographic trends, and current laws and regulations. Thus, they provide a policy-neutral reference case that can be used to analyze policy initiatives. EIA does not propose, advocate, or speculate on future legislative and regulatory changes. All laws are assumed to remain as currently enacted; however, the impacts of emerging regulatory changes, when defined, are reflected.

Because energy markets are complex, models are simplified representations of energy production and consumption, regulations, and producer and consumer behavior. Projections are highly dependent on the data, methodologies, model structures,

and assumptions used in their development. Behavioral characteristics are indicative of real-world tendencies rather than representations of specific

outcomes.

Energy market projections are subject to much uncertainty. Many of the events that shape energy markets are random and cannot be anticipated, including severe weather, political disruptions, strikes, and technological breakthroughs. In addition, future developments in technologies, demographics, and resources cannot be foreseen with any degree of certainty. Many key uncertainties in the AEO99 projections are addressed through alternative cases.

ELA has endeavored to make these projections as objective, reliable, and useful as possible; however, they should serve as an adjunct to, not a substitute! for, analytical processes in the examination of policy initiatives.