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Emissions from Energy Development on Federal Lands Lag U.S. Climate Goals

Nathan Ratledge's picture
Resources for the Future / Apogee EP
  • Member since 2018
  • 6 items added with 3,660 views
  • Sep 27, 2016
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The Obama Administration has set a variety of targets for US greenhouse gas (GHG) emissions reductions, notably the Clean Power Plan (CPP) and the US commitment to the Paris Agreement – which was ratified by President Obama in partnership with the Chinese in early September. Despite myriad efforts, little has been done to manage emissions specifically from federal lands.

The Department of the Interior’s (DOI) January 2016 decision to review the federal coal leasing program provides a new opportunity to begin addressing this oversight. In her announcement Secretary of the Interior Sally Jewell noted that DOI and the Bureau of Land Management (BLM) must account for the causes and impacts of climate change. DOI also agreed to measure annual GHG emissions from all fuels produced on federal lands.

DOI’s coal review has incredible potential to reform how the government manages federal resources with respect to climate change, which is significant given that 40% of US coal and nearly 20% of oil and gas are produced on federal lands. Perhaps, more importantly, DOI’s review creates a unique opportunity to price and internalize climate externalities associated with fossil fuel development.

Figure 1 shows historic and projected emissions from fossil fuel development (coal, oil and gas) on federal lands and a linear profile of three US climate commitments. Future projections are based on the Annual Energy Outlook’s 2016 reference case, which includes CPP implementation.  The climate reduction targets represent direct application from established economy-wide goals, including a target of 17% reduction by 2020; 26-28% by 2025 and 80% by 2050. 2005 is the base year for each of the three emissions scenarios.

Figure 1. US Federal Lands Emissions and Climate Commitments (millions tons CO2e)

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Over the 2005 through 2014 historic period, lifecycle CO2e emissions from federal coal, oil and gas averaged just over 20% of total US lifecycle emissions. Federal lands emissions peaked in 2009 and declined thereafter largely due to decreased coal use in the electricity sector.

The 2015 through 2030 projection peaks in 2020 before declining to new lows in the late 2020s. The trend is due to the continued decline in coal emissions, driven by the CPP. However, emissions reductions from lower coal use are offset in part by increased oil and gas production on federal lands.

From a climate perspective Figure 1 highlights that federal lands emissions projections are substantially above near and middle-term targets. While there are complications with slicing out one specific component of national fuel supply, this analysis shows that federal lands – under existing policy, are not playing a commensurate role in economy-wide GHG reductions.

Figure 2 shows the cost of these lifecycle emissions in 2014 at 4 discount rates; 3% is the commonly used rate. These values were calculated by applying the SCC to net emissions from federal lands.

Figure 2. Lifecycle Cost of CO2e from Fossil Fuel Development on Federal Lands ($2007 billions)

Screen Shot 2016-09-26 at 3.33.53 PM

The lifecycle cost from GHG pollution is estimated to be $51b in 2014, rising to over $70b by 2030. While emissions decrease modestly over the period, the rise in cost is due to the increasing SCC in future years.

A significant opportunity presented by the federal coal review is the chance to begin internalizing the sizeable externalities noted in Figure 2. One straightforward route is to apply the SCC to upstream (or direct) emissions related to coal development and collect a ‘carbon adder’ fee as part of the royalty payment. Figure 3 shows the cost of upstream emissions per ton of federal surface coal.  Surface coal accounts for the vast majority of federal coal production, mostly occurring in the Powder River Basin of Wyoming and Montana. At the common 3% discount rate the estimated carbon adder of $1.27 for surface coal is relatively small. (The adder for underground federal coal is estimated to be just over $6.00 per ton.)

Figure 3: 2014 Cost of Upstream CO2e Emissions Per Ton of Coal Produced—Federal Surface Coal

Screen Shot 2016-09-26 at 3.34.02 PM

According to 2016 research from Vulcan Philanthropy and the Council of Economic Advisors an adder in the range of $1 to $2 would have only a modest impact on coal production and emissions. Despite the marginal near-term impact to production and emissions, an upstream adder is a pragmatic approach for a few reasons. Notably, the outsized impact of a lifecycle adder is economically and politically challenging, and direct emissions are more clearly under the purview of land managers. Similar points were argued in a 2015 Resources for the Future report. Perhaps most importantly, beginning to price carbon in an efficient and transparent manner represents a distinct shift in the way federal lands and resources are currently managed.

Across fuels, its clear that emissions from federal lands do not play a commensurate role in meeting economy-wide reduction targets through 2030 based on the AEO 2016 reference case and that externalities represent an annual loss worth tens of billions of dollars. Given these two conclusions – and that practical strategies exist to price GHG emissions, DOI should develop and implement a carbon pricing mechanism as part of the programmatic coal leasing review.

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