The U.S. Energy Information Administration (EIA) released its Annual Energy Outlook 2020 (AEO2020) in January 2020. The AEO2020 Reference case generally assumes that existing laws and regulations remain as enacted throughout the projection period, including when the laws or policies are scheduled to sunset. However, in the area of policies that target emissions reduction, history has demonstrated that there is significant uncertainty in this assumption. For example, tax credits supporting wind and solar electric generation are often extended year to year, and vehicle emission standards, etc. are the subject of legislative debate and action. There are also examples, such as the Clean Power Plan, where rules are issued and later repealed. Therefore, it is important to consider the uncertainty associated with the assumption of current laws and legislation.
This Issues in Focus article presents a series of cases related to the uncertainty around a set of current policies including
- Accelerating carbon-free generation
- Carbon fee
- Reimbursement of residential solar photovoltaic (PV) generation at wholesale electricity prices
- Affordable Clean Energy rule
The alternative cases examined are intended to identify and quantify uncertainties in energy system model inputs associated with potential future changes in the legislative environment and to describe the effect these uncertainties could have on modeled U.S. energy markets, including total U.S. energy-related CO2 emissions.
This article discusses legislative uncertainty in the AEO2020 Reference case. It does not consider a full range of policy options available to policymakers. Furthermore, the assumptions used in the alternative cases should not be construed as EIA opinion regarding how laws or regulations should, or are likely to, be changed.
Each of the four sections in this paper discusses alternative cases. Unless otherwise specified, cases presented in this article start with the AEO2020 Reference case and change particular assumptions to address uncertainty about the future of selected existing laws and regulations. A summary table identifying the alternative cases and detailing their assumptions are found in Appendix 1.
50% Carbon-Free Generation case
The 50% Carbon-Free Generation case assumes that all Lower 48 states achieve at least 50% of electricity sales by 2050 from carbon-free electric generation sources. States are assumed to continue current programs, such as a Renewable Portfolio Standard (RPS) and clean energy standard (CES), and add new policies, as necessary, that achieve the 50% carbon-free generation by 2050 using a combination of generation technologies that emit little to no net CO2. These include
- Existing large-scale and new hydropower
- Fossil-fuel generation with at least 90% carbon capture and sequestration
- Solar PV (including large-scale and distributed generation)
- Solar thermal
- Onshore wind (including large-scale and distributed generation)
- Offshore wind
Wind and solar photovoltaic generation growth is similar to the AEO2020 Reference case until 2035 and 2045, respectively, when growth accelerates to reach 10% and 17% higher than the AEO2020 Reference case in 2050. Nuclear generation helps meet the carbon-free generation requirements, resulting in fewer nuclear plant retirements than in the AEO2020 Reference case and 19% higher nuclear generation by 2050. This case results in total U.S. energy-related CO2 emissions that are 3% lower in 2050 than in the AEO2020 Reference case and 7% lower in 2050 than in 2019.
Renewable Portfolio Standards Sunset case
The Renewable Portfolio Standards (RPS) Sunset case assumes that all states terminate existing RPS policies in 2020 and do not enact new RPS or carbon-free generation policies. This case illustrates the effects of current RPS policies. It shows that eliminating current state RPS requirements would reduce renewable generation by 4% by 2050 compared with the AEO2020 Reference case and that total U.S. energy-related CO2 emissions would be 1% higher in 2050 relative to the AEO2020 Reference case and 3% lower in 2050 when compared with 2019.
Carbon Fee cases
The carbon fee cases assume economy-wide implementation of a $15, $25 and $35 fee (2019 dollars per metric ton of carbon dioxide) starting in 2021. These fees increase by 5% (in real dollars) per year and reach $61.74, $102.90, and $144.06 (per metric ton of carbon dioxide), respectively, by 2050. Emissions revenues are distributed back to consumers via lump-sum payments, keeping the government deficit neutral.
The three carbon fee cases show that total energy-related CO2 emissions decline early in the projection period before leveling off in the late 2030s. The electric power sector is the most responsive to carbon fees, as coal loses market share to natural gas and renewables even faster than projected in the Reference case. The $35 carbon fee case shows total U.S. energy-related CO2 emissions would be 27% lower in 2050 than in the AEO2020 Reference case and 30% lower in 2050 when compared with 2019.
No Affordable Clean Energy Rule Case
The AEO2020 Reference case includes the Affordable Clean Energy (ACE) Rule, which was issued by the U.S. Environmental Protection Agency in June 2019 to establish guidelines for states developing plans to limit carbon dioxide emissions at their coal-fired power plants. AEO2020 reflects this program in its projections by requiring that all coal plants with the potential to improve plant heat rates undertake these projects or retire by 2025. As a sensitivity case, the No ACE Rule case assumes that the existing ACE Rule is not implemented and that all coal-fired power plants continue to operate at their current efficiency levels if economical to do so.
In this case, fewer coal-fired power plants retire, and coal-fired electricity generation falls at a slower rate relative to the Reference case. By the 2040s, less-efficient coal-fired capacity is either dispatched at lower operational levels or remains in service to satisfy reserve requirements rather than to meet growing electricity demand. This case shows that total U.S. energy-related CO2 emissions would be 1% higher in 2050 than in the AEO2020 Reference case and 3% lower in 2050 when compared with 2019.
Utility Rate Structure Cases
In the Reference case, residential end users who sell electricity to the grid are compensated at the retail electricity rate. The utility rate structure cases assume all distributed solar PV generation will be compensated at the wholesale or marginal price of electricity. The change in compensation increases payback periods and leads to fewer installations and less residential PV generation. With less onsite electricity generation, electricity sales from utility-scale power plants increase slightly relative to their AEO2020 case counterparts. This case shows that under Reference case assumptions total U.S. energy-related CO2 emissions would be similar in 2050 to the AEO2020 Reference case and 4% lower in 2050 when compared with 2019.