America’s Energy Future: What the Government Misses in Its Energy Outlook and Why It Matters
The U.S. government’s new long-term energy outlook paints a picture of the future that few utilities and energy analysts actually expect to see. It underplays how rapidly coal will retreat from the market and fails to grasp the scale of growth for renewable energy compared to utilities’ plans and analysts’ expectations.
That’s a problem, because the Energy Information Administration report’s base case could be used to overstate the costs of the transition to clean energy in federal and state debates.
“It leads to an aura of inevitability to the continuation of a fossil-fuel-oriented future,” said Daniel Cohan, a Rice University environmental engineer. “I can’t count the number of times I’ve been to a talk and heard from someone from the fossil fuel industry who points to an EIA report and says this is the amount of fossil fuels we’ll need for decades on end.”
The projections in the annual report suggest several future outcomes that energy experts don’t see happening, including that:
- Coal would be the fuel for 17 percent of the country’s electricity in 2050, which is higher than what is envisioned by utilities’ long-term plans and state targets.
- Wind energy collapses when a tax credit expires at the end of this year and wind farm construction nearly ceases. Also, the report anticipates almost no offshore wind construction.
- Greenhouse gas emissions would decline by an average of just 0.1 percent per year through 2050, falling far short of goals under the Paris climate agreement and meaning that government policies, technological advances and market forces would have little to no effect on emissions.
The way the EIA creates its base case for the Annual Energy Outlook has been criticized for years, in part because the projections don’t take into account future changes to laws and regulations. The EIA even stresses in the report that its base case is not a forecast. The findings “are not predictions of what will happen, but rather modeled projections of what may happen given certain assumptions and methodologies,” it says.
But there are real consequences, because EIA’s projections are widely used by federal and state officials, including in 2015 for estimates on the effects of Obama administration’s Clean Power Plan, and this year when Texas regulators used a projection showing low natural gas prices as part of the justification for rejecting plans for what would have been the country’s largest wind farm.
If treated as a forecast, the projections would raise concerns for regions such as the Midwest that are moving away from heavy reliance on coal and have seen rapid growth in wind energy. The report indicates that coal will continue to be a key part of the mix, while wind development would have almost no growth starting in the mid-2020s.
“If this report was true, the wind industry will virtually vanish in terms of construction,” Cohan said. “You’d be looking at huge job losses in places like Iowa and the Great Plains.”
The EIA’s results are based on an economic model whose outcomes vary greatly based on changes to a few basic factors. One factor is the country’s projected electricity demand, which the report says will rise by about 1 percent per year. That would be a faster pace than the last 10 years as energy efficiency and economic changes kept the growth closer to zero.
EIA’s estimate of demand growth reverberates through the report and distorts the results, said Alex Gilbert, cofounder of SparkLibrary, an energy research firm.
“This likely drives overestimates of coal and natural gas,” he said.
Coal: Leveling Off or Continuing to Fall?
The projections in the latest report, released Jan. 24, describe coal falling from 28 percent of the U.S. electricity supply in 2018 to 17 percent in 2050. Most of the decrease would be in the next decade, followed by a leveling off.
The idea of coal holding onto 17 percent of the market in 2050 makes little sense because almost no new coal plants are being built in the United States due to high costs, and the existing ones would be well beyond their useful lives by 2050, said Joshua Rhodes of the University of Texas at Austin.
“To think that we’re going to have the same amount of coal from here on out until 2050 is to assume that these coal plants are going to run into their 70s, and that’s just not happening,” he said.
Instead, many electric utilities have announced plans to shut down their coal-fired power plants sooner than previously expected and to accelerate development of wind and solar power. Xcel Energy last year became the first major utility to announced it would go to zero carbon emissions throughout its eight-state territory by 2050.
Other forecasts are more in line with the market’s apparent trajectory. For example, the New Energy Outlook from BloombergNEF shows coal down to 1.9 percent of U.S. electricity generation by 2050.
David Fritsch, part of the EIA team that wrote the report, says the coal projection shows that the least profitable plants will close down and that some coal plants will remain competitive and keep operating.
Offshore Wind: States See a Different Future
The report recognizes that renewable energy’s share of the electricity market will grow. It projects an increase from 18 percent in 2018 to 31 percent in 2050, with most of the gains coming from solar power.
While that would be significant increase, it’s less than what is implied by the plans of major utilities that are taking steps to phase out most of their coal plants, and state targets calling for a partial or complete transition to renewable or carbon-free energy. Even leading coal-burning utilities, such as Southern Company, have announced major transitions away from the fuel.
EIA’s projection for wind energy shows a decrease in new construction after the phaseout of a federal tax credit this year, followed by a long period with little growth. That suggests that construction would slow to a point that would devastate the wind industry.
“To say that the industry comes to a standstill is a little much,” Rhodes said.
Even if there is a slowdown in new onshore wind farm construction, there is likely to be substantial growth in offshore wind. Yet the report shows only 60 megawatts of offshore wind would be in place by 2050, a figure that is less than one-tenth the size a single project, Vineyard Wind, that will likely begin construction this year off of Massachusetts. Several states, including Massachusetts, New York and New Jersey, now have targets that call for thousands of megawatts of offshore wind power.
Christopher Namovicz of EIA said the wind energy outlook is highly sensitive to natural gas prices, with wind becoming less competitive when gas prices are low, which happens in the report’s base case.
On offshore wind, he said the report does not yet take into account state-level policies because those “are still in something of a state of flux, and it isn’t clear what incentives will be available or how they will play out.”
All of this affects the EIA outlook’s projection that carbon emissions would gradually decrease until the mid-2030s and then rise again through 2050, falling far short of the reductions needed under the Paris agreement. Under the EIA scenario, the average annual change in emissions would be -0.1 percent. Before the Trump administration, the U.S. government had committed to cut emissions 80 percent below 2005 levels by 2050.
State, Local and National Policies Will Evolve
The EIA collects a wide range of essential national data on energy production and consumption, but the report’s projections are different. Namovicz said the report “is most useful when used to consider the range of scenarios and assumptions presented” and should not be viewed “as some sort of statement of how EIA thinks the world will be in the future.”
Yet the report is often used as a prediction of what will happen, which affects debates over climate policy. And, the report’s main scenario appears disconnected from markets, state actions and other dynamics that will shape the future, Cohan said.
“The future is unlikely to look like this,” he said, “because we are unlikely to have mayors, governors and an EPA and presidents that just sit on their hands for the next 30 years.”