COVID-19 To Cut U.S. Emissions 11% In 2020 As Energy Demand Falls From GDP Shock
- May 27, 2020 10:15 pm GMT
- 3514 views
The COVID-19 pandemic has had devastating global public health and economic effects, and as shelter-in-place orders reduce energy demand across the United States, the pandemic’s associated climate impacts are coming into view.
Significant uncertainty around economic activity mean few emissions reduction estimates exist, but an Energy Policy Simulator (EPS) analysis of three different gross domestic product outlooks forecasts U.S. emissions could decline as much as 11% in 2020 relative to 2019.
Under a business-as-usual setting, emissions will likely approach pre-COVID-19 levels by 2025 and COVID-19 is not likely to have a material impact on annual emissions in 2030 or cumulative emissions through 2050.
Fortunately, the right stimulus response could change that business-as-usual trajectory. If the government’s COVID-19 response includes green investments and smart policy, the U.S. could recharge its economy by kick-starting clean industries with the potential for serious decarbonization.
The implications of COVID-19 on U.S. energy demand and emissions will hinge on national and regional responses, as well as the evolving economic outlook. However, as the situation changes, the ability to simulate recession impacts through the open-source EPS allows anyone to assess how various U.S. GDP trajectories could affect energy demand and emissions across sectors of the economy, including different economic recovery time frames .
Estimating the effect of COVID-19 measures on economic and energy outlooks
Widespread shelter-in-place orders uniquely complicate forecasting COVID-19 impacts based on how U.S. energy demand previously responded in the face of previous economic shocks. For example, commercial building energy use declined by only a small amount during the Great Recession, but office buildings are now shuttered across the country. Similarly, current restrictions are impacting transportation in new and profound ways, and their effects may linger after shelter-in-place measures start to lift.
U.S. petroleum consumption is at its lowest point in decades due to shelter-in-place orders. Electricity demand has fallen steeply, although it’s difficult to disentangle the effects of COVID-19 versus an unusually mild winter. Declines in electricity demand vary by region, for example New York City has seen a 14% decline from its pre-COVID-19 average, while the Mid-Atlantic region as a whole has only seen a roughly 5% decline.
In addition to overall demand reductions, very low natural gas prices are changing the dispatch order of power plants in certain regions, which also contributes to changes in emissions from electricity
The U.S. Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO), which reports metrics such as energy demand and GDP though 2021, incorporates COVID-19 into its latest projections and allows us to estimate the sensitivity of sectoral energy demand to changes in GDP. Several other organizations have released rapidly evolving projections, including the International Energy Agency (IEA), which reports that every month of containment measures may decrease expected annual GDP by more than 2%.
Energy demand and emissions drop in 2020 but rebound by 2025
To explore these future scenarios, Energy Innovation developed the ability to simulate recession impacts in the U.S. EPS. This non-partisan, open-source, and peer-reviewed model uses government data to assess the impacts of dozens of energy-related policies on emissions, costs and savings, and fuel consumption. While the new feature can only very roughly forecast COVID-19 impacts, it can model a range of possible GDP impacts – and thus emissions impacts – published by other institutions.
To explore different GDP projections and the corresponding impacts on energy and emissions, we built a quantitative relationship between GDP impacts and sectoral energy demand (and fuel imports or exports) into the EPS. This quantitative relationship allows us to estimate how various economic outlooks affect sectoral energy demand, which then feed through the rest of the model’s calculations and outputs.
We used the quantitative relationship between GDP and changes in energy use described above with three different GDP outlooks in light of COVID-19. Each of the three sources, Goldman Sachs GSBD, EIA, and the International Monetary Fund (IMF), provide GDP estimates through 2021. We assume a tail on GDP impacts based on the ratio of 2020 impacts to 2021 impacts, where we apply the same ratio in each successive year after 2021 until projections return to baseline.
The sudden drops in GDP result in sharp decreases in 2020 energy demand across the economy.
The three cases result in different emissions profiles depending on the severity of the GDP shock. The 2020 impact on emissions of carbon dioxide equivalent (CO2e) vary from 7 to 11 percent below 2019 emissions:
- Goldman Sachs - 5,294 MMT CO2e in 2020, 7% decrease compared to 2019
- U.S. EIA - 5,100 MMT CO2e in 2020, 11% decrease compared to 2019
- IMF - 5,071 MMT CO2e in 2020, 11% decrease compared to 2019
In each case, the emissions reduction is dominated by decreased transportation, as transportation demand is twice as sensitive to COVID-19 impacts as commercial building and about 30% more sensitive than industry. The remaining emissions reductions are driven by lower demand in industry, electricity generation, commercial buildings, and finally residential buildings.
While residential electricity demand has increased in at least some parts of the country due to shelter-in-place measures, EIA’s STEO reflects marginally lower residential electricity and natural gas demand, which may be influenced by the unusually mild winter.
It is worth noting this analysis does not represent recent fuel price fluctuations given significant uncertainty about the global oil outlook. Electricity sector emissions will be sensitive to the relative difference between coal and natural gas dispatch prices.
A Road to Recovery
America’s path to economic recovery in the face of COVID-19 is still uncertain, and the U.S. response will undoubtedly have a profound effect on short-term energy demand and emissions. While any attempt to exactly map the implications will likely suffer from false precision, the EPS can demonstrate what sectoral changes in energy demand may look like at a high level.
We project that the impact to 2020 GDP will have a strong influence on 2020 emissions, but emissions under a business-as-usual scenario are likely to rebound to pre-COVID-19 levels well before 2030, and short-term emissions impacts from COVID-19 will not make a material difference on cumulative emissions to 2050.
The sum total of these outlooks is a powerful reminder that the strongest economic recovery from COVID-19 could be investing in clean energy industries. More than 200 of the world’s senior economists say spending stimulus funds on low-emission policy initiatives and projects would shift the world to a net zero emissions pathway while offering the strongest economic returns on government spending.
Government stimulus responses to COVID-19 could be generational, totaling trillions of dollars. EPS modeling forecasts that without shifting our energy sources, this year’s emissions reduction could only be a momentary pause in rising temperatures instead of an inflection point in the clean energy transition.
By combining green investments with smart policy to prime consumer demand, policymakers can recharge economies and achieve climate goals, emerging stronger than ever from COVID-19.