EIA Analysis Shows How Carbon Fees Would Reduce Carbon Dioxide Emissions in the Near Term

(U.S. Energy Information Administration) As part of its most recent Annual Energy Outlook, the U.S. Energy Information Administration (EIA) conducted three alternative policy cases on how carbon fees affect emissions from fossil fuel consumption. In the short term, even relatively modest carbon fees reduce carbon dioxide (CO2) emissions, especially in the electric power sector where natural gas and renewables displace coal. However, once the emissions level associated with coal consumption in the power sector has been achieved, the remaining fossil fuel emissions from natural gas and petroleum consumption are harder to reduce.

EIA’s three carbon fee cases start with $15, $25, and $35 per metric ton (mt) of CO2, beginning in 2021. The fees rise by 5% per year in real dollar terms through 2050. Adding carbon fees increases the costs of certain forms of energy and reduces total consumer disposable income in the economy. In these cases, returning these revenues to consumers partially offsets the loss in disposable income.

All three carbon fee cases share a similar pattern in which energy-related CO2 emissions decline in the near term before leveling off in the late 2030s. In all but the $35 Carbon Fee case, CO2 emissions begin to rise, even as the carbon fees continue to increase.

One of the fastest drivers of change in CO2 emissions occurs in the electric power sector because of accelerated coal-fired generating capacity retirements. In the AEO2020 Reference case, which reflects current laws and regulations, EIA forecasts that almost no coal-fired capacity will retire between 2025 and 2050. In the carbon fee cases, coal-fired capacity retirements continue during that period. In the $35 Carbon Fee case, 15 gigawatts (GW) of coal-fired capacity remains in the United States in 2050—a significant decrease from the 229 GW operating at the end of 2019. Coal is the most carbon-intensive fossil fuel, emitting about 95 kilograms (kg) of CO2 for each million British thermal units (MMBtu) combusted.

Consumption of natural gas, the least carbon-intensive fossil fuel (emitting about 53 kg CO2/MMBtu), increases in the power sector in the near term because natural gas-fired electricity generation replaces coal-fired generation. However, later in the projection period, natural gas loses U.S. electric power generation market share to renewables. Electricity generation from nuclear power also increases in the carbon fee cases, compared with the Reference case, because fewer nuclear plants retire than in the Reference case.

Petroleum is the least responsive fossil fuel to carbon fees. Transportation and industrial uses for petroleum—sectors that accounted for 95% of petroleum consumption in 2019—have few substitutes. Most petroleum fuels have a carbon intensity between that of coal and natural gas: for example, motor gasoline has a carbon intensity of 71 kg CO2/MMBtu.

Excerpt from Politico's Morning Energy: DEM SENATORS JOIN CALL FOR FERC CLIMATE CONFERENCE:Six Democratic caucus senators led by Whitehouse urged FERC Chairman Neil Chatterjee on Monday to accept a request from power providers to hold a workshop on carbon pricing.

A broad coalition of power generators and renewable energy groups petitioned FERC last month, asking regulators to convene a technical conference on how to integrate a carbon price into wholesale power markets. Grid operators in California, New England, the Mid-Atlantic and New York are considering carbon pricing proposals, and the senators called on FERC to "heed the call from a diverse set of energy stakeholders who want to develop long-term certainty in the energy market with policies that could deploy and incentivize reliable, low cost, and emissions free energy."

The letter was also signed by Martin Heinrich (N.M.), Brian Schatz (Hawaii), Ron Wyden (Ore.), Cory Booker (N.J.) and Angus King (Maine), an independent who caucuses with Democrats. READ MORE