America s Carbon Cliff

1 Shrink That Footprint is an independent research group devoted to helping people concerned about climate change understand, calculate and reduce their carbon footprints. In particular we focus on reducing emissions that arise from our housing, travel, food, product and service choices. Our guide, carbon calculator, reports and weekly posts can be found at: shrinkthatfootprint.com

f 2 America s Carb on Cliff: Dissecting the decline in US carbon emissions Shrink That Footprint Lindsay Wilson March 2013

3 Executive Summary Energy related carbon emissions in the United States declined by 12% between 2005 and 2012, suggesting that America may be on track to meet its emissions reduction target of 17% by 2020. In 2012 energy related carbon emissions per American were at the lowest level in almost 50 years. Not since 1963 have per capita emissions been as low. While this decline has been widely noted in the press, a detailed analysis of what is behind this dip in emissions has been lacking. The most common explanation offered is that the switch from coal to gas in the power sector has been the key driver of falling emissions. While this has certainly played a major role, our analysis suggests the rise of gas in the power sector is only responsible for approximately 35 40% of the total cut. In fact the power sector as a whole is responsible for just half of the recent fall in US carbon emissions. To see the whole picture we must also consider the emission declines in the transport, industrial, residential and commercial sectors. Using recent data from the Energy Information Administration (EIA) this report analyses the recent fall in emissions by both fuel source and sector. The report shows that both coal and petroleum emissions are down significantly, while natural gas emissions are up. The fall in emissions can be attributed by sector as follows: electricity (50%), transport (26%), industry (14%), residential (8%) and commercial (2%).

4 Contents Executive Summary... 3 Contents... 4 1: America s Carbon Cliff... 5 2. Carbon Emissions by Fuel Source... 7 3. Sector Emissions Overview... 9 4. Electricity Emissions... 11 5. Transport Emissions... 13 6. Industrial Emissions... 16 7. Residential Emissions... 18 8. Commercial Emissions... 20 Discussion... 21 Conclusion... 22

5 1: America s Carbon Cliff In the seven years since 2005 energy related carbon emissions in the United States have fallen by 12% (Figure 1.1). This decline has brought the US back to an emissions level not seen since 1994, putting it on course to achieving its target of a 17% cut on 2005 levels by 2020. Energy related carbon emissions are responsible for more around 80% of America s total greenhouse gas emissions. Because they are reported in a much more timely fashion than non energy emissions they can be used as a useful barometer of progress for US emissions as a whole. Using data from the Energy Information Administration s latest Monthly Energy Review we can show the scale of the decline in carbon emission in recent years. The data shows that between 2005 and 2012 energy related carbon emissions dropped by 694 Mt CO 2, or 12%. A large share of this decline occurred in 2008 and 2009 in the wake of the US recession.

6 Looking further back in time we can see that this 12% decline in emissions is even greater than occurred from 1979 to 1983, following the second oil shock. If we look at these same emissions in per capita terms, the decline looks even more impressive (Figure 1.2). Between 2005 and 2012 American per capita energy related carbon emissions fell 3.4 t to less than 17 t CO 2 /capita. This fall of 17% was significantly greater than in the early eighties. Energy related carbon emissions per capita are now at their lowest level in almost 50 years. The last year in which per capita emissions were as low as in 2012 was 1963. Although at 17 t CO 2 /capita US energy emissions remain very high by an international standard, the rapid fall in emissions in recent years is a welcome development. Despite the fact that most discussion of this decline centers on the shift from coal to gas in the power sector the drop is also the result of rising oil prices and the recession, much as it was from 1979 to 1983.

7 2. Carbon Emissions by Fuel Source Energy related carbon emissions in the US can be separated into their respective fuel sources. By separating emissions into those from petroleum, coal and natural we can improve our understanding of the recent emissions decline. Using figures from the EIA recent Monthly Energy Review we can break carbon emissions up by fuel source (Figure 2.1). When separated by fuel source we see that petroleum is the largest source of emissions in the US, but that coal has been responsible for the greatest decline in emissions since 2005. Between 2005 and 2012 petroleum emissions in the US fell 363 Mt, coal emissions dropped 515 Mt and natural gas emissions grew by 183 Mt (Figure 2.2).

8 Looking at these figures it is important to remember that the change in both coal and natural gas emissions was dominated by the power sector, while the cut in petroleum emissions occurred largely in the other sectors. The distribution of emissions between petroleum, coal and natural gas has changed significantly since 2005 (Figure 2.3). Coal emissions share of total emissions has declined from 36% to 31% in the last seven years, natural gas share has risen from 20% to 26% and petroleum is down from 44% to 43% of total energy related carbon emissions.

9 3. Sector Emissions Overview Although separating emissions by fuel source helps to highlight the relative importance of coal, natural gas and petroleum emissions, it doesn t give us the full picture. By further dissecting emissions into the sector in which they occur we can further improve our understanding of recent emissions declines (Figure 3.1). By grouping electricity emissions in their own sector, rather than in their end use sector, we are able to identify which sectors are responsible for declining US carbon emissions. Emissions reductions in the power sector from 2005 to 2012 totaled 351 Mt CO 2. The transport sector was next most important with 181 Mt CO 2, followed by industry with 95 Mt CO 2 and the residential sector with 56 Mt CO 2. Despite being the dominant source of emissions cuts, declining electricity emissions account for only half of the recent emissions decline in America (Figure 3.2).

10 When we look at the emission declines in isolation we can see that the power sector was responsible for 50% of cuts, transport 26%, industry 14%, residences 8% and the commercial sector 2%. Because total electricity generation was almost exactly the same in 2012 as it was in 2005, we know that the decline in electricity emissions came from the much discussed changes in the fuel mix. The declines in transport, industrial and residential sector emissions are more complicated. In each case declining petroleum emissions play a significant role. By taking a closer look at emissions in each sector we can gain a more thorough understanding of what is driving the change in emissions.

11 4. Electricity Emissions Emissions from electricity generation have fallen sharply in recent years, largely as a result of the switch from coal to gas, but also due to the growth of wind and the declining use of fuel oil (Figure 4.1). Emissions from coal in the power sector have declined 456 Mt since 2005, natural gas emissions are up 176 Mt and petroleum emissions are down 72 Mt (Figure 4.2).

12 Although these figures help us to understand what has happened to power sector emissions they do not tell the full story. For the full picture we also need to consider the broader fuel mix including nuclear, hydro and renewables (Figure 4.3). Coal s share of total generation fell 12% in the last 7 years. In contrast natural gas was up by 12%. The renewables share of total generation was up 3% and petroleum was down 2% while both hydro and nuclear were flat. According to the EIA Short Term Energy Outlook total generation was 4,055 TWh in 2005 and 4,043 TWh in 2012, declining just 0.3% over the period. Because total generation was steady between 2005 and 2012 we know declining electricity emissions are largely the result of natural gas and wind displacing coal and petroleum. Natural gas was responsible for roughly 65 85% of the emissions cuts, while wind was good for 15 35%. The true value is dependent on whether wind displaced coal and oil, or whether is displaced gas. This question is beyond the scope of this report, but has been extensively discussed elsewhere.

13 5. Transport Emissions Between 2005 and 2012 transport emissions declined by 181 Mt CO 2 and accounted for 26% of the total decline in energy related carbon emissions. To provide further understanding as to how transport emissions have declined it is useful to separate transport emissions by fuel type (Figure 5.1). Gasoline emissions are the largest source of transport emissions, accounting for 60% of total transport emissions. Distillate used for trucks and jet fuel are the two other major sources of emissions. Between2005 and 2012 emissions from gasoline, distillate and jet fuel all declined significantly. By isolating the emissions declines we can get a clearer picture of where reductions are occurring in the transport sector (Figure 5.2).

14 The 96 Mt CO 2 decline in gasoline emissions accounted for around half of the fall in transport emissions over the last seven years. Distillate emissions fell 42 Mt CO 2 and jet fuel emissions dropped by 35 Mt CO 2. Underlying the decline in each type of petroleum product emissions has been the rising price of oil (Figure 5.3).

15 The average oil price paid by US refineries rose 71% between 2005 and 2012. Rising oil prices and the recession of 2007 2009 played a significant role in reducing demand for all types of petroleum based transport fuels. While each of the declines in distillate, jet fuel and fuel oil emissions can be understood largely as a combination of rising oil prices and the recession effect demand, the picture for gasoline emissions is more complicated. The 96 Mt CO 2 decline in gasoline emissions is the result of three main factors: increased ethanol supply, declining vehicle miles travelled and improving fuel economy. Based on rough calculations we estimate about 45 Mt of the decline in gasoline emissions resulted from the increased supply of ethanol, 20 Mt is a result of the decline in total vehicle miles travelled and 30 Mt is due to improvements in fleet fuel economy due to the rising fuel economy of new vehicles since 2005. The emissions decline resulting from ethanol may in fact overstate the true reduction in emissions. Much of this figure could be shifted to other areas of the economy in the form of both energy and non energy emissions. To date the reduction in gasoline demand due to rising fuel has been quite modest, reflecting the fact the average fuel economy of new cars only began to rise significantly after 2005. The tightening of CAFE standards and high gas prices is likely to make this effect more pronounced in the coming decade, as older cars gradually make way for more efficient ones.

16 6. Industrial Emissions The 95 Mt CO 2 decline in industrial emissions since 2005 is in many ways a mix of what has happened in the power and transport sectors. Rising oil prices have fueled a move away from petroleum use, while falling prices as a result of the shale boom has made natural gas even more competitive (Figure 6.1). When we separate industrial emissions between natural gas, coal and petroleum emissions we can see clearly the effect of the recent recession on industrial emissions. In 2008 and 2009, during the depths of the US recession, emissions from each fuel type fell significantly suggesting a broad based reduction in demand for energy. Following the recession emissions from natural gas have increased significantly, while those from coal and petroleum have stagnated. This reflects the relative competiveness of natural gas prices in recent years, as well as the high price of oil.

17 Between 2005 and 2012 petroleum emissions fell by 83 Mt CO 2, coal emissions were down by 53 Mt CO 2, and natural gas emissions were up by 41 Mt CO 2 (Figure 6.2). These changes share much in common with fuel choice in the power sector, reflecting the relative competitiveness of cheaper natural gas. But unlike in the power sector industrial energy use has declined significantly since 2005. According to the latest Monthly Energy Review, total industrial energy use from coal, petroleum and natural gas was down 8% between 2005 and 2012. Given that industrial carbon emissions from these fuels were down 10% over the same period, it is likely that reduced energy demand was a larger driver of the decline than fuel switching. Energy demand is down due to a mix of the recession and efficiency improvements in the face of high oil prices. The remaining reductions are the result of fuel switching to natural gas and some renewable sources.

18 7. Residential Emissions Despite being a relatively small sector in terms of emissions, the residential sector contributed 56 Mt CO 2, or 8%, of the total emissions decline between 2005 and 2012. The declines in emissions were shared between natural gas and petroleum, as coal is rarely used as a residential fuel in the US anymore (Figure 7.1). In terms of declines by fuel it looks like this (Figure 7.2):

19 Although it is tempting to suggest that the majority of this decline is a result of improvements in the efficiency of the US housing stock weather is likely to have played a large part (Figure 7.3). If we compare total residential emissions on the left axis with the US average heating degree days on the right axis, we can see a close correlation between emissions and weather. The mild winters of 2006 and 2012 resulted in significantly lower emissions, as households required less energy to stay warm. The gradual separation of these two lines over time would suggest a slight improvement in the weatherization of the housing stock.

20 8. Commercial Emissions Commercial emissions decline by 13 Mt CO 2 between 2005 and 2012, accounting for just 2% of the total emissions decline. A quick look at emissions by fuel shows that although the declines were shared among different fuels, the weather is likely to have had a similar effect on commercial emissions as it has on residential emissions. (Figure 8.1). The path of natural gas emissions is similar to those in the residential sector, suggesting heating demand is the leading cause of change in the sector (Figure 8.2).

21 Discussion The obvious limitation of this study is that it does not account for greenhouse gas emissions beyond carbon dioxide from coal, natural gas and petroleum. Other emissions include some non energy carbon dioxide, methane, nitrous oxide, HFCs, PFCs and SF6. In the EPA s draft inventory of greenhouse gasses and sinks from 1990 to 2011 there is limited change in total emissions from these sources. The most important change of note, outside of energy related carbon emissions, is a 50 Mt CO 2 e deterioration in the performance of US sinks from land use, land use change and forestry. In the context of this report, a few points are worth noting. Poorly controlled fracking has the potential to increase fugitive methane. Although reported natural gas system methane declined between 2005 and 2011, further research is being conducted to better assess fugitive methane from shale gas. Unconventional oil supply increases petroleum supply chain emissions, many of which are exported to the country of production. As such these emissions are often overlooked. As already noted ethanol production may result in shifting significant carbon burden away from gasoline combustion to other areas of the supply chain. Finally, by focusing purely on production emissions rather than consumption based emissions we omit roughly 450 Mt CO 2 e of net emissions from trade. Traded emissions are, however, not accounted for in national emissions inventories, and thus always excluded from this type of analysis.

22 Conclusion The purpose of this report has been to provide a better explanation of what caused the historic decline in US carbon emissions between 2005 and 2012. By analyzing emissions by fuel source within each sector we have shown this decline took place throughout the US economy, rather than simply in the power sector. The 12% fall in energy related carbon emissions since 2005 has created considerable optimism that the US may reach its target of a 17% cut by 2020. Such optimism is welcome, but should be tempered by the fact that the Energy Information Administration is forecasting a rebound in emissions in the coming years. In the early release of its 2013 Annual Energy Outlook the EIA has forecast that energy related carbon emissions will rise 3% from their 2012 level by 2020, due largely to growing industrial emissions (Figure 9.1). The EIA s recent forecast is that energy related carbon emissions will rise back to about 5,450 Mt CO 2 by 2020, whereas the 17% target requires emissions to fall to about 4,980 Mt CO 2.

23 How accurate this forecast is remains to be seen, but it is a clear warning that much of the momentum of recent years could easily be undone without action, and that there remains a 500 Mt CO 2 gap between the EIA s forecast and the 2020 target. Given that electricity, transport and industry account for 90% of all energy related carbon emissions they will decide much of whether the US reaches its 2020 goal. As such we will finish by highlighting a trend in each of these sectors we believe will play the major key role in determining America s emissions path over the next decade. 1: Coal s future in power Coal made up just 37% of the electricity generation fuel mix in 2012, down from almost 50% in 2005. If coal s share of generation continued to decline to 25% by 2020 a further cut in emissions in the order of 300 400 Mt CO 2 could be achieved. Most forecasts however predict coal s share to stabilize at around 40% in the coming years. The key factors driving the fuel mix in coming years are likely to be the relative price of coal and natural gas, the future of the production tax credit for wind, and regulatory pressure on coal generation emissions. 2: The price of oil Declining gasoline usage in coming years has the most potential to deliver significant emissions cuts in the transport sector. If oil prices remain high total vehicle miles travelled may well remain stagnant, as they have since 2006. If vehicle miles travelled fail to rebound in coming years, the rise in the average fuel economy of new cars that began in 2005 will begin to reduce gasoline consumption. New CAFE standards mean a rise in fuel economy is locked in for much of the next decade, as new more efficient vehicles replace older cars.

24 Emissions from distillate use, jet fuel and residual fuel oil will also be heavily influenced by oil prices and the extent of the recovery in the US economy. 3: Industrial energy demand The path of US industrial emissions in the coming years will be determined by how energy intensive the recovery in US industry is and how much scope for fuel switching remains. Given that natural gas is already the dominant fossil fuel used in the industrial sector, and that it does not substitute for all coal and petroleum uses, fuel switching to gas may have less potential than it does in the power sector. Consequently, how energy intensive the rebound in US industrial production is in coming years will have a large effect on industrial emissions. High oil prices will continue to incentivize improvements in industrial energy efficiency for petroleum uses, while low natural gas prices may have the reverse effect.