Wednesday, May 22, 2013

Recent Trends in U.S. GHGs

The latest EPA report relating to U.S. GHGs is in for 2013, so this seems like a good time to review that data and see what else we can say.  EPA’s 2013 report compiles data through 2011, but there is other information that can help us see what probably occurred in 2012. 

The 2013 EPA report indicates that total U.S. GHGs in 2011 fell by 1.6 percent relative to 2010.  These emissions were 6.9 percent lower than total U.S. emissions in 2005.  An EPA graph showing U.S. emissions since 1990 is reproduced as Figure 1 below.  As can be seen there, the U.S. total has been trending downward since about 2006. 

Figure 1.  Total U.S. GHG Emissions

Why has this been happening?  For one, the U.S. economy was in recession during some of that time, resulting in a contraction of economic activity and thus a reduced demand for energy.  For another, large new supplies of natural gas have been coming onto the market, leading to displacement of coal among power producers.  Gas consumption has approximately half the GHG content of coal on an energy-equivalent basis. 

EPA compiles data for all forms of GHGs, not just those from the burning of fossil fuels.  However, carbon dioxide is by far the largest single contributor to the annual total, making up approximately 85 percent.  Therefore, if we know what happened to GHGs from fossil fuel consumption in 2012, we’ll have a pretty good idea of what happened to the total.

The Energy Information Administration (EIA) compiles data relating to fossil fuel consumption.  Its numbers for 2011 and 2012 are shown in Table 1.  As can be seen there, coal and oil consumption dropped in 2012 while natural gas consumption rose.  These numbers suggest that U.S. CO2 emissions probably dropped in 2012.  This is confirmed by EIA.  According to that source, total U.S. CO2 emissions from fossil fuels fell from 5498 million metric tons (mmt) in 2011 to 5288 mmt in 2012, a decrease of 3.8 percent.  While we do not know the behavior of other U.S. GHGs in 2012, it seems likely that the overall 2012 number, when it is published in 2014, will show another decrease. 

Table 1.  U.S. Fossil Fuel Consumption in 2011 and 2012 (quadrillion BTUs)
Natural Gas

Up to a point, this is good news.  It appears that increased fuel economy in the nation’s vehicle fleet in 2012 probably accounts for much of the decrease in oil-related emissions, and substitution of natural gas and renewables for coal in the power sector likely drove down emissions there.  However, some of the coal not burned in the U.S. was exported elsewhere, where it contributed to other country GHGs.  Whether those GHGs would have been as high without the U.S. coal is a complicated question, too much so to get into here. 

Summarizing, U.S. GHGs have been trending downwards, at least through 2012.  It’s too early to say much about 2013, but the drivers of reduced emissions during the past couple of years remain in place.  Still, more rapid economic growth probably would result in greater use of energy and more GHGs.  Thus, recent annual declines in U.S. GHGs may slow or even reverse.  In other words, if we want to see the recent trend continue, we’ll probably have to take collective action at some point to make it happen. 

Thursday, February 7, 2013

Economic Incentives to Reduce GHGs

In his recent inaugural address, President Obama cited climate change as one policy area he intended to pursue in his second term.  Many commentators welcomed this inclusion, but pointed out the difficulties of securing political agreement on the subject.  In the near term, therefore, prospects for policy change are uncertain.

In the meantime, the U.S. already has been cutting back on greenhouse gas emissions.  In part this is due to the recent recession and slow economic growth.  But in part it is due to economic incentives.  In this note, I explore some of those incentives and the behavior they have induced. 

Energy is a costly input
Energy generally combines with capital, labor and land to produce goods and services.  Though there are substitution possibilities amongst these various inputs, energy more often is complementary to the others, raising their productivity as more is utilized.  Thus, for example, more energy enables workers to raise output per labor hour, and it enables land to produce more product per acre. 
But energy also is costly, providing an incentive for managers to economize its use.  As relative prices of energy and other inputs change and as energy saving technology advances, new possibilities open up.  Over time, the trend is for people to find ways to use energy such that it becomes more productive per unit employed.

U.S. Energy Productivity
Over long periods, the trend in U.S. energy productivity is unmistakable.  The Energy Information Administration has documented energy use per dollar of real GDP over the past 40 years.  The table below shows these numbers starting in 1973 and every ten years since, ending in 2011, the last year for which data is available.  The numbers illustrate that over the period the U.S. has more than doubled the amount of output it secures from a given amount of energy.  

Savings in Energy Costs
The increase in energy productivity means that, averaged over the entire economy, managers can produce the same output as before with less than half the energy.  That’s a lot of savings!
But the dollar savings actually are bigger than this.  They would be the same as the increase in productivity had inflation-adjusted prices of energy stayed the same.  But they haven’t.  On balance, they’ve gone up, in some cases a lot.  The next table shows inflation-adjusted retail prices (expressed in 1982-1984 dollars) for common forms of energy in 1973 and again in 2011. 

The retail prices of oil, here represented by gasoline, and of natural gas have risen in real terms while that of electricity has declined slightly.  Since oil and gas make up almost 2/3 of U.S. energy use, it’s pretty clear that real prices of energy in the U.S. on average have risen.  This implies that the savings from less use of energy per unit of GDP actually are greater than the productivity gain alone.  In the cases of oil and gas in particular, economization has resulted in very substantial dollar savings. 

Implications for Climate Policy
Market based activity isn’t the same as policy measures to deal with climate change.  However, the record indicates that people likely will continue to look for ways to use energy more productively and to economize its use.  Applied to fossil fuels, this clearly will help reduce GHG emissions below what they otherwise would be.  That’s important to understand, encourage, and act on.  And it’s a reason why we wrote Climate Change: What You Can Do Now.  We hope the things we suggest in that book further the effort.