Power

Over the coming decades, the power sector is expected to be the lynchpin in efforts to decarbonize the economy. The electrification of transportation, industry, and buildings could reduce their collective emissions by nearly 70 percent by 2050, assuming a substantially decarbonized power sector. The sections below outline policies to drive these sectors’ electrification and to improve their energy efficiency. Their increased reliance on electricity means the power sector must meet much higher levels of demand even as it dramatically reduces its own carbon intensity. Meaningful economy-wide carbon pricing, as recommended above, can drive significant emissions reductions, but a range of complementary policies will also be needed to decarbonize the power sector and to ensure coordinated efforts across all sectors. Priorities over the coming decade include accelerating the development and deployment of low- and zero-carbon generation technologies, building low-carbon infrastructure, and modernizing wholesale power markets.

Key Recommendations

• Congress should provide a range of tax credits for zero-carbon generation and should mandate the use of carbon capture or corresponding sequestration-based offsets for all fossil fuel-fired power generation by a date certain.
• In the absence of meaningful economy-wide carbon pricing or a national clean energy standard, all states should adopt ambitious clean energy standards that can be met by the full range of zero-carbon technologies, including renewables, nuclear, large hydro, and fossil fuel generation with carbon capture.
• Congress should direct the Federal Energy Regulatory Commission to develop a comprehensive, long-range infrastructure strategy and should prioritize the siting of “climate-critical” infrastructure. The commission also should reform wholesale power markets to more explicitly value the low-carbon, capacity, and reliability attributes of competing power sources.
• State public utility commissions should work with the power sector to help facilitate the electrification of other sectors.

Accelerating Zero-Carbon Generation

Since 2005, U.S. electric power sector emissions have fallen by 27 percent due to a shift from coal to natural gas, the increased use of renewable energy, and a leveling of electricity demand. Both market- and policy-related factors contributed to this emissions decline. Voluntary targets recently adopted by some of the country’s largest utilities will help drive further emission reductions. However, several existing nuclear plants, currently the largest source of zero-carbon electricity, are projected to close—either prematurely, due to economic pressures, or as they reach the end of their permitted lifespans in the 2030s. Without new policies, the share of electricity obtained from all zero-emitting sources is not projected to rise quickly enough over the next 30 years.

An economy-wide carbon price enacted in the near term and escalating over time, as recommended above, will provide the power sector the incentive and flexibility to more rapidly reduce emissions by accelerating deployment of the full range of low- and zero-carbon options.

Alongside a carbon pricing program, Congress should extend existing tax credits for renewable generation, provide new investment tax credits to help keep existing nuclear plants in operation, and provide dedicated investment tax credits for offshore wind and energy storage. To help extend the lives of existing nuclear plants, Congress should ensure timely review of nuclear license renewals. To ensure the expeditious transition of the nation’s expanding fleet of natural gas-fired power plants to zero-carbon power, Congress also should mandate the use of carbon capture or corresponding sequestration-based offsets for all fossil fuel-fired power generation by a date certain, so that any necessary retrofits can then be integrated into plants’ planned upgrades. As an economy-wide carbon price escalates, technology-specific incentives should be phased out.

To ensure the availability of a wide range of technology options, Congress also should increase funding for the research, development, and demonstration of new low- and zero-carbon generation sources, as recommended by the White House-led low-carbon innovation agenda. Priorities should include advanced nuclear technologies; carbon capture, utilization, and sequestration retrofits for a range of plant types (e.g., steam coal, natural gas combined cycle, natural gas peakers); advanced renewables (e.g., solar, onshore and offshore wind, geothermal, hydro, tidal power); and batteries and other storage, including long-term options such as hydrogen and ammonia.

Many states are already employing renewable energy or clean energy standards to require utilities to supply a growing portion of their electricity from zero-carbon sources. A growing number of states have adopted or are considering the goal of fully decarbonizing their power sectors. In the absence of meaningful economy-wide carbon pricing or a national clean energy standard, all states should adopt ambitious clean energy standards that can be met by the full range of zero-carbon technologies, including renewables, nuclear, large hydro, and fossil fuel generation with carbon capture. In the interim, states with existing renewable portfolio standards should convert them to a more inclusive clean energy standard.

Creating the Infrastructure

Greater contributions of variable renewable energy to the grid, and higher electricity demand as other sectors electrify, will require additional transmission and distribution lines, substations, and energy storage. An expanded and strengthened grid can also help optimize electricity generation, make the power system more resilient to climate impacts and other risks, and take advantage of digital advances to more efficiently manage supply and more quickly recover from outages.

Creating a 21st-century grid to facilitate the decarbonization of the economy requires strong leadership from the federal government. In 2005, Congress granted the Federal Energy Regulatory Commission (FERC) new authorities under the Federal Power Act to expand, modernize, and improve the reliability of the nation’s transmission grid. This included the designation of national interest energy transmission corridors, where the commission could override state authorities when necessary on siting decisions. Court challenges, however, have stymied its use of these authorities.

Congress should direct FERC to develop a comprehensive, long-range infrastructure strategy and should more clearly establish its authority on siting decisions. This infrastructure strategy should be informed by a multi-stakeholder process and establish clear priorities for staged expansion and enhancement of the grid, including the designation of high-priority high-voltage transmission routes (co-located, where feasible, with existing rights of way).

While most utilities produce periodic long-range plans that include transmission and other infrastructure upgrades, greater national, regional, and cross-utility coordination (typically, electricity and natural gas) is needed. FERC’s strategy should identify what needs to be built and where, at a level of granularity necessary to manage progress and ensure that the desired system is deployed before mid-century. It should assess the value of national or regional interconnection of existing networks and should prioritize the development of complementary networks for distributing hydrogen, CO₂, renewable natural gas, ammonia, and other fuels for seasonal energy storage and cross-sectoral purposes (e.g., fuels for transport and industry). Informed by the commission’s national infrastructure strategy, Congress should prioritize the siting of “climate-critical” infrastructure, including grid upgrades (and grid hardening, to
better protect customers from weather-related outages) and other key resources such as storage batteries and energy pipelines.

Modernizing Power Markets

The nation’s power markets will also need to be modernized in order to facilitate decarbonization while maintaining diverse, reliable, and affordable power supplies.

Under current market rules, wholesale power prices are set largely on the basis of a generator’s fuel costs. With rising deployment of wind and solar energy, whose fuel costs are effectively zero, wholesale prices will continually decline, providing utilities with insufficient revenue to deploy other generation sources needed for a well-balanced power supply. This dynamic is contributing already to the early retirement of nuclear power plants, which currently account for more than half of the nation’s zero-carbon power.

The Federal Energy Regulatory Commission should undertake rulemaking to reform wholesale power markets to more explicitly value the low-carbon, capacity, and reliability attributes of competing power sources. This should include new ways of compensating zero-emission generators in energy, capacity, and ancillary markets, including new methods of market bidding (e.g., total costs versus variable costs) and of paying generators for essential system functions (such as system reliability or flexible generation).

Power regulators must also play a role in managing the electrification of the transportation, industry, and buildings sectors. The increased demand for electricity from these other sectors must be coupled with energy efficiency and the decarbonization of the power sector to avoid unintentionally increasing demand for fossil fuels. At the state level, public utility commissions (PUCs) should work with the power sector to help facilitate the electrification of other sectors, including through appropriate rate structures and incentives to maximize the environmental benefits of electrification at the lowest possible cost.

A Vision: Power in 2050

The U.S. power sector is producing nearly twice as much electricity as in 2019 to support economic growth and the electrification of other sectors. This growing demand has been tempered by wide-scale deployment of energy efficiency strategies and technologies. As the generation portfolio has evolved, electricity has become far less carbon-intensive, and a national high-voltage transmission system connects renewable resources with demand centers across the United States. Advanced digital controls help balance supply and demand, while decentralized power generation and new energy storage options help reduce peak load and improve system stability. Onshore and offshore renewable generation supply a much larger portion of the nation’s power, and carbon capture is deployed on all fossil fuel-fired electricity generation plants. Small advanced nuclear reactors provide industrial heat, hydrogen, district heating, and water heating, in addition to clean electricity. New and repurposed pipeline networks for hydrogen, carbon dioxide, and ammonia are used for seasonal energy storage; power plant fuel; carbon capture, utilization, and sequestration; and cross-sectoral purposes (e.g., transportation and industry fuel).

Power: Emissions at a Glance

• Electricity generation accounts for 28 percent of total U.S. greenhouse gas emissions. The sector’s emissions rose steadily through the early 2000s, as growing power demand led to increased coal use, then started to decline as natural gas began to replace coal.
• Improved energy efficiency has held total power consumption steady in recent years. The continued substitution of natural gas for coal and the rapid growth of wind and solar energy have reduced the sector’s emissions by 28 percent since 2005.
• Under business as usual, emissions will continue to fall in the near term. But as power demand steadily rises, emissions are projected to return almost to today’s levels by 2030 and remain there through 2050. Under these projections, natural gas rises to 39 percent of total electricity generation and renewables to 31 percent, while coal falls to 17 percent and nuclear to 12 percent.

U.S. electricity generation by source and total sector emissions

Transportation

While the economy-wide carbon pricing recommended above will encourage lower-carbon transportation, its impact on the sector will be limited, as fuel represents only a small portion of the cost of owning and operating a vehicle. Strong complementary policies are thus especially critical in the transportation sector. Key strategies for decarbonizing the sector include accelerating the deployment of zero-emission vehicles (ZEVs), building out the charging and fueling infrastructure these vehicles require, supporting a wider range of personal mobility options, and decarbonizing other modes of transportation, including aviation, rail, and shipping. The White House-led decarbonization effort should include a working group to coordinate these efforts.

Key Recommendations

• Congress should direct the Environmental Protection Agency to establish a greenhouse gas performance standard ensuring that half of new light-duty vehicle sales are zero-emission vehicles by 2035, and a similarly ambitious standard for medium- and heavy-duty trucks.
• Congress should extend the current electric vehicle tax credit, make it available as a point-of-sale rebate, and expand it to include all new ZEVs, including fuel cell electric vehicles and medium- and heavy-duty trucks.
• States should develop comprehensive long-range plans to accelerate the deployment of zero-emission vehicle charging and refueling infrastructure. Congress should fund the development of these state plans and should provide funding to states that have plans to construct charging and refueling infrastructure.
• Local governments should—with dedicated federal planning support—develop integrated transportation and land use plans that expand non-automotive transportation options in order to strengthen mobility while reducing congestion, air pollution, and carbon emissions.
• Congress should establish a performance standard that freezes aviation emissions at 2020 levels, allowing for the use of biofuels and offsets, modeled on the Carbon Offsetting and Reduction Scheme for International Aviation.

Deploying Zero-Emission Vehicles

On-road transportation constitutes roughly 82 percent of the sector’s overall emissions, making the conversion of the nation’s automotive, truck, and bus fleets to ZEVs the top priority in decarbonizing transportation. Given the average lifetime of a vehicle, this transition will take time; therefore, strong, early signals are vital. A suite of complementary policies are needed to establish a pathway for rapidly converting to ZEVs, including vehicle standards, support for new infrastructure, and targeted incentives.

Light-duty passenger vehicles are responsible for approximately 41 percent of total U.S. transportation emissions. According to the U.S. Mid-Century Strategy, decarbonizing transportation requires that ZEVs represent half of new passenger car and truck sales by 2035. Congress should direct the Environmental Protection Agency (EPA) to establish a greenhouse gas performance standard ensuring that half of new vehicle sales are ZEVs by 2035. Standards should also be set for medium- and heavy-duty trucks, which account for about 40 percent of transportation emissions. Unified national standards that allow trading of credits among vehicle classes will enable manufacturers to expand the market as efficiently as possible. Any state-level standards should be at least as stringent as the corresponding federal standard.

As an incentive to rapidly expand manufacturers’ ZEV offerings, rather than prioritizing incremental improvements to internal combustion engines such as hybrids, manufacturers should receive additional credits for every ZEV sold during the early years of the program. In addition to the vehicle standards, the federal regulatory framework should accommodate any biofuels demonstrated through lifecycle analysis to be low- or zero-carbon fuels.

Although electric cars’ lower fuel and maintenance costs can make them cheaper than conventional models over the life of a vehicle, their higher upfront costs have hindered consumer adoption. An existing $7,500 federal tax credit helps to offset that premium, but phases out after 200,000 vehicles per manufacturer. Congress should extend the existing tax credit, make it available as a point-of-sale rebate, and expand it to include all new ZEVs (including fuel cell electric vehicles). A substantially higher tax credit should be offered for medium- and heavy-duty ZEVs, offsetting their higher initial costs. States should similarly offer point-of-sale rebates and tax credits for new light-, medium-, and heavy-duty ZEVs.

Specific strategies for incentivizing ZEVs for public-sector transit and fleets are needed since operators do not benefit from tax credits because they are exempt from federal taxes. Congress should increase funding to help states and cities expand ZEV transit and fleet procurement, including through leasing and programs such as the Federal Transit Authority’s Low or No Emission Vehicle Program and EPA’s School Bus Rebate Program. Where feasible, cities and states should utilize cost-sharing agreements to attract private-sector support for such projects.

To orient state and local efforts and drive investment in manufacturing capacity, states, counties, and cities should set clear targets for the electrification of mass transit. For example, California has established a requirement that all new public transit buses be electric by 2029, and New York City has likewise set a goal of a fully electrified bus fleet by 2040. Further, to leverage their buying power, cities and states should undertake collective procurement of fleet vehicles through initiatives such as the Climate Mayors EV Purchasing Collaborative.

The conversion of fleets to low- and zero-emission vehicles will likely take place against the backdrop of other fundamental shifts, such as the growth of shared mobility services and the emergence of autonomous vehicles. Research suggests that the electrification of ride-hailing services could have significant emissions benefits, provided they do not draw commuters away from public transit or lead to a dramatic increase in the overall volume of traffic. States and cities should set targets and provide incentives for the electrification of ride-hailing services and provide support to help low-income ride-share drivers with upfront costs. Meanwhile, analyses to date suggest that the introduction of autonomous vehicles could either increase or decrease vehicle miles traveled and, by extension, emissions. The White House-led decarbonization effort should include an interagency working group to recommend steps to ensure that the wide deployment of autonomous vehicles contributes to decarbonization.

Creating the Infrastructure

All levels of government must play a role in mobilizing investment and new business models to quickly build the charging and alternative fueling infrastructure needed to enable broad ZEV deployment.

States should develop comprehensive long-range plans to accelerate the deployment of ZEV charging and refueling infrastructure. These plans should be developed in consultation with local governments and the private sector and should provide for coordinated state and local efforts, provide for any necessary changes in land use policy, and ensure infrastructure access for multi-family housing and low-income communities. To facilitate private-sector investment, local governments should establish clear, standardized permit review and inspection processes for the installation of new infrastructure. To address interstate needs, states should work together to develop regional charging and refueling networks such as the REV-West Initiative, in which eight mountain west states are collaborating to develop EV charging corridors. To support state and local efforts, Congress should fund the development of state infrastructure plans and provide funding to states that have such plans to establish ZEV charging and refueling infrastructure.

Another priority is to ensure the interoperability of vehicles, chargers, and payment systems is another priority, and efforts are underway within the private sector to develop a common set of interoperability standards. To promote compatibility across systems, Congress should require that any charging and refueling infrastructure built with federal funding meet prevailing industry standards for interoperability.

State public utility commissions play a vital role in facilitating linkages between the transportation and power sectors. Many have authorized programs to incentivize workplace, home, or multi-family unit charger procurement by offering rebates and incentives through the local utility. Where feasible, public utility commissions should allow utilities to own and operate—or to partner with other companies that are building—charging infrastructure, provided that a competitive market is maintained. Given the potential of battery and plug-in hybrid electric vehicles to act as additional storage capacity for the power grid, public utility commissions should also work with electric utilities, vehicle manufacturers, and other stakeholders to develop safety and market access standards and pilot programs for vehicle-to-grid integration. Vehicle-to-grid integration has the potential to improve the economics of all EVs, particularly medium- and heavy-duty vehicles with larger batteries that, in some cases, sit unused for long durations in centralized locations. Such integration, when applied to electrified mass transit, could generate valuable revenue for local transit agencies.

Beyond facilitating the infrastructure needed for broad ZEV deployment, governments should act at all levels to reduce the emissions impact of transportation-related infrastructure. The federal government should assess the carbon footprint of all major transportation-related infrastructure grant programs, where possible. Governments also should use their procurement dollars to support infrastructure-related materials that can reduce emissions, such as carbon-absorbing cement and stiffer pavements. (A recent study found that the use of stiffer, better maintained pavements could save 1 billion gallons of fuel in California over a five-year period.) Further, attention should be paid to the impact of transportation materials, such as cool pavements, on the urban heat island effect.

Importantly, as the automotive fleet electrifies, Congress will need to identify alternative resources for the highway trust fund, which is now supported by a federal tax on gasoline sales.

Driving Alternative Mobility Solutions

Local conditions factor heavily into both mobility needs and the relevance of particular technologies or policy solutions in meeting those needs. Local governments should develop integrated transportation and land use plans to expand non-automotive transportation options that make it easier to get around while reducing congestion, air pollution, and carbon emissions. These efforts should engage community-based organizations to ensure that historically marginalized communities benefit. Already, more than 1,300 cities across the country have adopted Complete Streets policies incorporating walkable, bikeable, transit-friendly principles. Seattle, for instance, has significantly increased bus ridership, designated arterial streets to serve freight transportation, dedicated spaces for alternative modes of transportation, and undertaken safety measures that have increased public willingness to walk and bike.

The federal government should support local governments in implementing their low-carbon mobility plans. As one example, a $40 million grant from the U.S. Department of Transportation’s smart cities program to Columbus, Ohio, has helped leverage $700 million in investment for EV infrastructure and procurement, as well as a variety of ride-sharing, carpooling, and commuter services. Congress should increase funding to expand the smart cities program to other cities, while requiring continued private-sector and local cost share. Wherever possible, this support should focus on outcomes rather than prescribed approaches.

To increase the use of public transit, Congress should allow tax-advantaged public transit accounts for individuals. These accounts should provide access to a variety of multi-modal public transportation options—including individual, last-mile service—that reflect the evolving set of available offerings and consumer needs that vary widely by location.

Addressing Freight, Aviation, and Maritime Emissions

Measures are needed to decarbonize the other major modes of transportation (air, water, and rail) and to facilitate intermodal connections that can allow for greater efficiencies in the movement of freight, which accounts for nearly a quarter of transportation emissions.

The electrification of freight and passenger rail should be a priority for local and state development agencies, and public-private partnerships such as the Norfolk Southern Heartland Corridor can serve as a template for such efforts. To help decarbonize the movement of freight, state and local governments should support the development of high-density, multi-modal freight projects that can leverage electrified rail for longer hauls. The Federal Highway Administration should also study and provide recommendations to Congress on federal actions that can support the electrification of freight infrastructure and its integration into connected, multi-modal transportation systems.

Electrification appears to offer limited potential, at least as of now, for aviation, which accounts for 9 percent of transportation emissions. To address rising aviation emissions, Congress should establish a performance standard that freezes emissions at 2020 levels, allowing for the use of biofuels and offsets, modeled on the Carbon Offsetting and Reduction Scheme for International Aviation, established by the International Civil Aviation Organization. To reduce emissions over the long term, research on low-carbon aviation fuels should be a priority for the White House-led low-carbon innovation agenda.

Roughly 5 percent of U.S. freight is transported via inland waterways, generally by diesel-powered barge. Electric barges offer a promising zero-emission alternative. Congress should increase funding to the Maritime Administration’s Marine Highway Program to support the electrification of barges, tug-boats, and ferries, as well as to the U.S. Department of Transportation’s Port Infrastructure Development Program to support low-carbon maritime infrastructure, including steps to reduce emissions from ships, trucks, trains, cargo-handling equipment, and harbor craft.

A Vision: Transportation in 2050

Rapid changes in technology and business models, coupled with the decarbonization imperative, have led to a radically transformed transportation sector with a much smaller carbon footprint. Autonomous passenger cars running primarily on electricity—from either grid-fed batteries or onboard fuel cells—are available on demand through competing mobility-service companies. In densely populated areas, improved planning has produced a wider array of public transit and other personal mobility options that avoid congestion, local air pollution, and carbon emissions. All forms of passenger and freight transportation—from light- to heavy-duty road vehicles, along with trains, aircraft, and watercraft— are as fuel-efficient as technology allows. Modes that are difficult to electrify, such as aviation, rely on other low-carbon fuels, such as biofuels. These low-carbon fuels are also used to supplement electricity in other subsectors, including passenger vehicles.

Transportation: Emissions at a Glance

• Since 2016, transportation has been the largest direct source of U.S. greenhouse gas emissions, accounting for 29 percent of the total. Roughly three-quarters of the emissions come from road transport, with passenger vehicles the largest source.
• Although emissions fell by 5.6 percent from 2005 to 2017 as vehicle efficiency improved, they have been rising in recent years, largely as a result of increased use of passenger vehicles. Federal standards now being rolled back were expected to reduce auto emissions significantly through 2035, although even with the standards in place, increased driving was projected to outweigh vehicle efficiency gains in later years, pushing emissions back up.
• Emissions from other subsectors are projected to rise through 2050 under business as usual, with freight truck travel increasing by almost 50 percent, freight rail travel increasing by 27 percent, and domestically originating air travel projected to double.

Transportation emissions by mode, 2017

Recent and projected transportation emissions

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  Industry

Given its tremendous diversity, its heavy reliance on large quantities of heat, and the fundamental nature of many core manufacturing processes, the industrial sector is especially challenging to decarbonize. Economy-wide carbon pricing, as recommended above, can drive some emissions reductions across the sector, but a wide range of complementary policies are also needed. Priorities over the next decade include developing innovative lower-carbon manufacturing processes, setting standards to drive energy efficiency, electrification and other forms of fuel switching, and safeguarding the competitiveness of energy-intensive, trade-exposed sectors.

Key Recommendations

• Congress should increase funding to develop and commercialize alternative thermal heat technologies and to develop innovative industrial processes with much smaller greenhouse gas footprints.
• The federal government should under take a benchmarking process to establish intensity-based greenhouse gas objectives for major sub-industries.
• Congress should extend and increase the existing 45Q tax credit for carbon capture to support the capture of process and on-site energy-related emissions, and should provide tax credits for energy efficiency improvements.
• Federal, state, and local governments should support the deployment of combined heat and power systems.
• An economy-wide carbon pricing program should include provisions aimed at safeguarding competitiveness and minimizing carbon leakage risks.
• The United States should ratify the Kigali Amendment phasing down the use of hydrofluorocarbons and Congress should provide EPA with clear authority to take the steps necessary to implement it.

Advancing Low-Carbon Technologies

A critical aim of the White House-led low-carbon innovation strategy recommended above must be to rapidly advance a wide range of technologies to reduce or capture emissions from industrial processes and energy use. The federal government should support the research, development, and demonstration of critical technologies, stronger public-private partnerships, and fast-track commercialization efforts.

Just 10 of the 100-plus industrial sub-sectors account for two-thirds of the industrial sector’s energy-related CO₂ emissions: bulk chemicals, refining, iron and steel, food products, paper products, transportation equipment, fabricated metal products, plastics, cement and lime, and aluminum. The largest source is energy used to generate heat for industrial processes. Manufacturing processes for metal, glass, and cement, for instance, demand temperatures in excess of 2,000 degrees F. Generating this heat with sources other than conventional fossil fuel combustion is challenging, particularly at higher temperature ranges, although advanced nuclear designs, particularly molten salt reactors, offer a zero-carbon alternative for some high-temperature heating needs. Other promising renewable heat sources include renewable natural gas (such as from agriculture, wastewater treatment, and landfills), solar thermal, and geothermal. Congress should significantly increase funding to develop and commercialize alternative thermal heat technologies, including renewables and advanced nuclear, that can produce both heat and power.

In addition to emissions from energy use, significant levels of emissions result from industrial processes that chemically or physically transform materials, as is done in subsectors such as cement, steel, and bulk chemicals. Congress should increase funding to develop innovative industrial processes with smaller greenhouse gas footprints. For example, new breakthroughs in cement production could reduce the footprint of cement and concrete by up to 70 percent.

Even with such advances, and with reductions in energy-related emissions, significant levels of emissions will likely remain. Capturing those emissions for storage or utilization will be an essential strategy for decarbonizing the industrial sector. It is critical that Congress increase support for the development and deployment of carbon capture technologies (see the Carbon Capture chapter).

Setting Industrial Benchmarks

To orient companies toward decarbonization, the federal government should undertake a benchmarking process to establish intensity-based greenhouse gas objectives for the major sub-industries. The benchmarking process, informed by programs already implemented in Canada and Europe, will highlight best practices and promote industry-wide learning. The resulting objectives will provide ongoing incentive and flexibility for companies to pursue their most affordable decarbonization options. These intensity-based objectives could be used to determine how a company or facility is treated within the economy-wide carbon pricing system; in the absence of economy-wide pricing, the objectives could serve as the basis of mandatory performance standards that can be traded within and across sub-industries.

Providing Support for the Transition

To drive the deployment of emerging technologies and help companies meet performance standards, government should provide additional, targeted
support for efficiency, fuel switching, and carbon capture. In particular:

Federal, state, and local governments should support the deployment of conventional combined heat and power systems. Such systems can reduce by half the energy-related emissions produced by separate heat and power systems.

Congress should extend and increase the existing 45Q tax credit for carbon capture to support the capture of process emissions and on-site energy-related emissions, and it should provide tax credits for energy efficiency improvements.

To promote electrification and reduce dependence on fossil fuels, federal and state support should be offered for the adoption of electric boilers for industrial heat and other electrification measures (e.g., industrial heat pumps).

DOE has an important role in helping industry better understand the opportunities for clean energy and systems efficiency. Congress should, in addition to elevating the Advanced Manufacturing Office within DOE, expand funding for manufacturing initiatives. These should champion a circular economy approach (eliminating waste and reusing resources) and seek decarbonization opportunities in advanced manufacturing, digitization, and automation.

Federal, state, and local agencies procure large quantities of materials for infrastructure projects, their own operations, and other purposes, and this procurement can also be a lever for the decarbonization of industry. As a further incentive to industry to
produce lower-emission goods, all levels of government should institute “clean procurement” criteria that favor products with the lowest carbon intensity on a full lifecycle basis wherever possible. This requires establishing methodologies and criteria to evaluate a product’s embedded carbon from cradle to disposal, including supply chains, transportation, and various stages of production.

Phasing Out Hydrofluorocarbons

Hydrofluorocarbons (HFCs), unlike other greenhouse gases, are intentionally manufactured and used in a variety of applications such as refrigeration, air conditioning, aerosols, fire protection, and solvents. When released to the atmosphere, HFCs create hundreds to thousands of times more warming than an equivalent amount of CO₂. The Kigali Amendment to the Montreal Protocol calls for a global phasedown of HFCs, and American companies are leaders in the development of alternatives. To promote the rapid adoption of these safer alternatives in the United States, and to ensure U.S. firms a strong role in the global phasedown, the United States should ratify the Kigali Amendment and Congress should provide EPA with clear authority to take the steps necessary to implement it.

Safeguarding Industrial Competitiveness

For subsectors that are energy-intensive and trade-exposed—meaning that their products are traded globally—the costs of decarbonizing may pose a potential competitive disadvantage. There may also be a risk that production will move to countries where greenhouse gas standards are not yet as stringent, resulting in the “leakage” of emissions. All existing carbon pricing programs globally include specific provisions aimed at minimizing competitiveness and carbon leakage risks. An economy-wide carbon pricing program should include such provisions (e.g., preferential allocation of allowances in a cap-and-trade system, tax credits, rebates, border adjustments), and these should be reexamined every four years during the periodic review recommended above as part of the long-term policy framework.

A Vision: Industry in 2050

A modernized U.S. industrial sector continues to create jobs, growth, and exports with a substantially smaller carbon footprint. The sector is much more energy efficient, relies more heavily on electricity and other low-carbon energy sources, and has taken advantage of digital advances and data analytics to achieve system-level efficiencies. Companies employ new lower-carbon manufacturing processes, as well as technologies that capture carbon emissions and convert them into a wide range of commercial products. Industrial hubs have bolstered regional economic development, making greater use of waste heat and other by-products to consume less energy and add value across sectors. Industry has not fully decarbonized, so its remaining emissions are offset by “negative emissions” achieved through land-based sequestration and direct air capture.

Industry: Emissions at a Glance

• Counting both direct emissions and indirect emissions (from electricity generated off-site), industry accounts for nearly 30 percent of total U.S. greenhouse gas emissions. Its six largest sources are bulk chemicals, refining, iron and steel, food products, paper products, and cement and lime production.
• Energy-related CO₂ emissions (from both on-site fossil fuel use and off-site electricity) account for around two-thirds of the sector’s total greenhouse gas emissions. Fossil fuel combustion for heat and power is the largest source. Industry also accounts for 30 percent of U.S. non-CO₂ greenhouse gas emissions, including 42 percent of methane, 9 percent of nitrous oxide, and 26 percent of other greenhouse gases such as fluorinated gases (e.g., hydrofluorocarbons (HFCs) and perfluorocarbons).
• The sector’s energy-related CO₂ emissions have declined by about 21 percent since 1997, but are projected to increase by 12 percent by 2050 under business as usual, as energy prices decline and industrial production rises.

Energy-related CO₂ emissions from industry, 2017

Industry energy-related CO2 emissions, 1990-2050

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  Buildings

Decarbonizing the buildings sector (both residential and commercial) requires improving energy efficiency and switching to lower-carbon energy sources—in particular, to electricity. Over the long term, reducing the carbon embedded in building materials will also be critical. Key challenges include the tremendous diversity of buildings, the slow turnover of the building stock, and the competing financial interests of owners, occupants, and lenders. Priorities over the coming decade include establishing overarching goals for decarbonizing the building sector, implementing targeted measures to electrify buildings and to improve the energy efficiency of buildings and appliances, and helping building owners and occupants finance building upgrades.

Key Recommendations

• State and local governments should set overarching goals for the decarbonization of commercial and residential buildings, and should regularly update their building codes to require the use of available and affordable energy efficiency measures and other carbon-reducing practices.
• Federal, state, and local governments should provide incentives for building owners and homeowners to switch from fossil fuel-powered to electric appliances such as electric space and water heating systems.
• All states should authorize Property Assessed Clean Energy (PACE) programs to help finance energy-related improvements in both residential and commercial buildings.
• States and localities should encourage the use of energy savings performance contracts in public buildings to improve energy efficiency, reduce emissions, and save taxpayer money.

Setting Decarbonization Goals

As a means of driving action across the sector, state and local governments should set overarching goals for the decarbonization of commercial and residential buildings. Goals should be tailored to regional or local circumstances and can take multiple forms. For instance, several major U.S. cities have signed onto the World Green Building Council’s Net Zero Carbon Building Commitment, which includes a goal of achieving net-zero operating emissions in both residential and commercial buildings by 2030. The goal encompasses both emissions generated on site and those from off-site power production. As another example, California has set a goal for all new residential buildings to be zero net energy (consuming no more energy than they produce on site from sources such as rooftop solar) by 2020, and all new commercial buildings by 2030.

To ensure progress toward these goals, state and local governments should regularly update their building codes to require the use of available and affordable carbon-reducing practices in new construction and major renovations, as elaborated below. Local jurisdictions should further incentivize decarbonization through practices such as benchmarking the carbon performance of commercial buildings.

In addition, all levels of government should set goals and institute standards and practices to decarbonize their own building stock, including leveraging procurement to stimulate market demand for low-carbon building materials. The federal government alone
owns or leases 361,000 buildings, which presents a significant opportunity to achieve carbon reductions across the country.

Switching to Electricity

A key strategy for decarbonizing the buildings sector is switching space and water heating systems, along with appliances, to electric units. Coupled with a decarbonized power sector, the electrification of buildings could reduce economy-wide emissions from fossil fuel combustion emissions by more than 22 percent. Electrification is already cost-effective for buildings using oil and propane (which represent more than 20 percent of residential fossil fuel use) and, with additional support, would become more economical for existing natural gas customers. State and local governments should provide incentives to switch to electric space and water heating systems as well as appliances. Maine, for example, is issuing rebates for electric heat pumps for residential and commercial customers in order to help reach its target of installing 100,000 of the units by 2025. To support state and local electrification efforts, Congress should provide a tax credit for switching from fossil fuel-powered to electric appliances, such as electric heat pumps and electric water heaters.

State and local governments should also establish electrification “reach codes”—enhanced codes that provide developers with a clear template for constructing fully electrified buildings. These codes can also provide guidance on facilitating electric vehicle charging and solar panel installation.

Public utility commissions should support the electrification of buildings by encouraging utilities to educate consumers, help developers meet reach codes, and provide incentives and rate structures that maximize cost and emissions benefits while ensuring that electrification programs and energy efficiency programs do not work at cross-purposes.

Increasing Energy Efficiency

Stronger standards will be essential in achieving greater energy efficiency in both buildings and appliances.

To maximize efficiency, all state and local governments should enact building codes ensuring state-of-the-art energy efficiency performance, and they should periodically update the codes to incorporate advances in materials and best practices. Building codes should take into account the building envelope, efficient end-use appliances, and increasingly digitization and smart sensors. Governments should draw on model building codes developed by the federal government, the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE), and the International Codes Council (ICC). As these model codes are updated, they should incorporate practices to promote the integration of advanced digital technologies to achieve systems-level efficiencies. Congress should increase funding to DOE to assist state and local governments in adopting up-to-date codes.

To ensure equitable access to efficiency opportunities, Congress should increase funding to improve building efficiency in low-income communities. DOE’s Weatherization Assistance Program supports weatherization improvements and upgrades, helping low-income families reduce their energy costs by an average of $283 every year and reducing emissions by 7.38 million metric tons. Congress should increase funding for the Weatherization Assistance Program and, for homes that require significant renovation before they can be weatherized, should establish a new program to help make them weatherization-ready.

To reduce energy use by improving the efficiency of lighting, heating, cooling, and other end uses, DOE should continue to strengthen energy efficiency standards for residential and commercial appliances and lighting under the Energy Policy and Conservation Act. This federal law governs procedures, labeling, and energy targets for appliances and equipment representing 90 percent of home energy use and 60 percent of commercial buildings’ energy use. Standards implemented under the Energy Policy and Conservation Act since 1987 have avoided 2.3 billion tons of CO₂ emissions.

Financing Building Upgrades

In some states, Property Assessed Clean Energy (PACE) programs help property owners cover the upfront costs of energy-related improvements by adding them to property tax assessments; these are tied to the property rather than the owner, enabling a longer payback period. PACE programs have mobilized more than $5 billion in energy efficiency improvements in the residential sector. In California alone, these programs have reduced greenhouse gas emissions by 1.15 million metric tons.  All states should authorize PACE programs for both residential and commercial buildings, including new construction and major redevelopments. One impediment to the use of PACE financing is a 2017 decision by the Federal Housing Administration to no longer insure mortgages with PACE liens attached. To ensure broader access to this innovative form of finance, the Federal Housing Administration should resume insuring such mortgages while safeguarding both consumer and taxpayer interests.

Energy savings performance contracts are another tool to unlock significant private investment in efficiency upgrades. In such a contract, a government agency (or other entity) partners with an energy service company, which finances and undertakes efficiency improvements that pay for themselves over time through energy and operational savings. A typical project reduces a building’s energy consumption by 13 to 31 percent per year. States and localities should authorize the use of these contracts in publicly owned buildings, including municipal offices, universities, schools, and hospitals.

In the case of rental properties, energy efficiency investments face the challenge of split incentives—the owner bears the cost of the improvements, while the tenant reaps the benefits through lower energy bills. To overcome this barrier to investment, state and local governments should offer property tax abatements to building owners who invest in qualifying efficiency improvements. States would set performance standards and share costs with local governments, which would implement the program and receive tax reimbursement from states. State and local governments should also look for opportunities to work with utilities on these programs. Public utility commissions have the ability to authorize innovative funding mechanisms for decarbonization, efficiency, and electrification upgrades, for example, through utility on-bill financing.

With the expansion of rooftop solar, both property owners and the power system as a whole can benefit by enabling the sale of any surplus power generated to the grid. This practice can help decarbonize the power system and bolster its reliability, while generating revenue that can help building owners and homeowners finance their solar investments. To maximize these benefits, all states should enact policies setting equitable terms for the sale of self-generated renewable power to electric utilities. These policies should fairly compensate property owners for the benefits they provide the power system and utilities for the cost of maintaining a reliable grid, while striving to maintain low-cost electricity for
all consumers.

A Vision: Buildings in 2050

Residential and commercial buildings have sophisticated, automated control systems that dynamically adapt to meet occupants’ needs while maximizing energy efficiency. Buildings are more closely integrated with the electricity grid, relying on decarbonized electricity in place of the direct combustion of fossil fuels, and in many cases serving themselves as sources of self-generation and energy storage. The increased availability of renewable natural gas has also helped to reduce the use of fossil natural gas in buildings. Better real-time and lifetime data on building performance, energy use, and energy costs enable improved decision-making for long-term financial investment in—and construction, renovation, and operation of—buildings of all types.

Buildings: Emissions at a glance

• Counting both direct emissions and indirect emissions (from electricity generated off-site), the buildings sector accounts for 31 percent of total U.S. greenhouse gas emissions. Commercial buildings generate 8 percent more emissions than residential buildings. The primary sources are heating and cooling, water heating, lighting, and appliances.
• Energy efficiency improvements have reduced CO2 emissions from residential and commercial buildings by 19 percent and 17 percent, respectively, since a 2005 peak.
• Even with projected increases in population, electronics use, and air-conditioner use, further efficiency gains are expected to reduce growth in energy use by around 0.3 percent a year through 2050. Under business as usual, energy-related CO2 emissions are expected to decline by 15 percent in the residential sector and 6 percent in the commercial sector.

Energy-related CO₂ emissions from buildings, 1990-2050

CO₂ emissions from buildings by end use, 2017

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  Land Use

U.S. agricultural activities produce a variety of greenhouse gas emissions, but the land sector as a whole is a net greenhouse gas sink, with soils and vegetation absorbing significant quantities of CO₂ from the atmosphere. Increasing this land-based sequestration to help offset remaining emissions from other sectors will be essential to achieving carbon neutrality. Priorities over the coming decade include strengthening incentives and capacity for carbon sequestration on farms and in forests, reducing on-farm emissions from fertilizers and livestock, bringing lower-carbon food products to market, and reducing food waste throughout the system, from farmer to consumer.

Key Recommendations

• Congress should provide the U.S. Forest Service stronger funding to restore forests, increase forests’ resilience to wildfires, and provide support for private forest owners in areas at risk.
• Congress should strengthen incentives for farmers to adopt carbon-sequestering growing practices by authorizing them as emission offsets in an economy-wide carbon pricing program, and through lower interest rates for farm loans, lower crop insurance premiums, and other changes to the federal crop insurance program.
• Congress should fund the U.S. Department of Agriculture to develop improved soil carbon measurement methods and equipment, and to develop food, fiber, and biomass crops that require fewer inputs and can better sequester carbon.
• Local governments should implement and support composting programs that use post-consumer food waste to produce fertilizer or use biodigesters to generate biogas.

Enhancing Natural Carbon Storage

The land use sector will play a vital role in achieving carbon neutrality across the economy by producing “negative emissions” to offset the remaining emissions of sectors, such as industry, that are especially challenging to decarbonize.

An economy-wide carbon pricing program could steer significant resources toward enhanced farm and forest sequestration if it allows for the trading of—or invests some of the revenues in—these emission offsets. Whether in advance of or in parallel with carbon pricing, other measures are also needed to conserve and expand lands with sequestration potential and to actively promote sequestration on farms as well as in forests.

Growth in population can drive the conversion of forest and agricultural lands to other uses that diminish their potential for carbon storage. From 1992 to 2012, almost 31 million acres of agricultural land in the United States was converted to other uses, the equivalent of New York State. The U.S. population is projected to reach 400 million by 2050, triggering an estimated 15 million to 45 million more acres of development, at the same time that global demand for agricultural products is expected to increase by 50 to 70 percent.

All levels of government should take steps to conserve and expand lands with strong sequestration potential.

Local and state governments should employ smart growth policies to steer development to areas already developed or to marginal lands, avoiding the conversion of agricultural and forest lands. States should also expand cost-share and tax incentives for private forest owners to avoid conversion. Local, county, and state governments should partner with nonprofits to conserve forested lands through public ownership or conservation easements. Urban and suburban communities should expand tree populations through urban tree planting programs. The U.S. Forest Service should meet its goal of reforesting 5,000 acres of post-disturbance land by 2025 and continue to increase that goal and extend those efforts through 2050. Afforestation (the addition of forests) could yield up to 225 teragrams of forest carbon uptake per year if widely implemented.

Additional carbon sinks like wetlands should also be valued and enhanced. Congress should increase support for research by the National Oceanic and Atmospheric Administration quantifying the value of restoring and establishing wetlands, including carbon sequestration, so that wetland restoration can qualify as an offset in an economy-wide carbon pricing system, as it now can in California. In addition, EPA should maintain its protection of wetlands through the Clean Water Act, and states should pass their own wetland safeguards to reduce the conversion to other uses.

Stronger efforts are needed to improve the health of existing forests, too, both to enhance their sequestration potential and to avoid carbon emissions resulting from wildfires. Forests are increasingly threatened by extreme climate conditions such as heat and drought that make sequestration less predictable and expose forests to greater risk of wildfire, wind damage, and infestation. In 2018, Congress adopted legislation to strengthen funding for wildfire suppression through 2027. Congress should further boost funding for the U.S. Forest Service’s efforts to restore forests, increase resilience to wildfires, and provide technical and financial support for private forest owners in areas at risk.

On agricultural lands, practices that enhance carbon storage in soil, such as rotational grazing or the use of cover or perennial crops, can also reduce erosion, retain water, and enhance nutrient cycling, thus improving yield and crop resilience. Despite these practices’ long-term benefits, upfront costs and other challenges often deter farmers from adopting these practices, also known as regenerative agriculture. To ease these barriers, the federal government should strengthen federal incentives and support for soil conservation practices that increase carbon sequestration. Congress should direct the U.S. Department of Agriculture to designate carbon sequestration as an objective in select voluntary conservation programs and should significantly increase funding for them. The Farm Service Agency, which administers the programs, should be expanded to support the enrollment of additional farmers and acreage.

Congress also should provide additional incentives for farmers to adopt carbon-sequestering growing practices by authorizing them as emission offsets in an economy-wide carbon pricing program, and through lower federal farm loan interest rates, lower federal crop insurance premiums, and changes in the structure of the federal crop insurance program. Additionally, Congress should increase funding for agricultural extension services and the Natural Resources Conservation Service in order to educate farmers about carbon sequestration practices, their benefits, available incentive programs, and ways farmers can cope with climate impacts. States should coordinate and support improvements in soil carbon storage and health, as Nebraska has modeled with its Healthy Soils Task Force. These state and federal programs should include support for producers who farm rented land and small family farms.

More reliable and affordable means of measuring, monitoring, and verifying carbon storage are essential to scaling up carbon sequestration across working lands. The U.S. Department of Agriculture should expand research and development in the soil carbon measurement methods and equipment needed to simplify and lower the cost of monitoring and verification. Precision agriculture relies on technology to inform farm management, including global positioning systems, soil sampling, and remote sensing that can contribute to soil carbon monitoring. Federal cost-sharing, support for agricultural equipment cooperatives, and equipment subsidies should be provided to expand the use of these technologies.

Reducing Farm Emissions

Much of the agricultural sector’s greenhouse gas emissions result from soil management practices, especially the use of synthetic fertilizers that emit nitrous oxide. Many of the soil conservation practices recommended above can lower emissions by enhancing soil health and reducing the need for fertilizer applications. Strengthened agricultural extension services should advise farmers on optimal timing and quantities of fertilizer application for achieving emissions reductions. Precision agriculture can further reduce these emissions by allowing farmers to fine-tune nitrogen fertilizer application. U.S. Department of Agriculture research programs, in partnership with universities, extension services, and private-sector partners, should research and refine precision agriculture equipment and technology that can monitor moisture, weeds, and pests to better inform application of water, pesticides, and fertilizer. The Natural Resources Conservation Service’s Precision Farming Incentive should be expanded and better funded to make precision agriculture technology more affordable for producers.

Livestock production is also a significant source of agricultural emissions. Indeed, enteric fermentation and manure management represented nearly half of the sector’s emissions in 2017. Congress should support stronger research, incentives, and public-private partnerships to improve manure management, develop feed additives that can reduce enteric emissions from animals, and increase animal productivity through genetic selection, yielding higher output per feed input. This should include incentives through the Environmental Quality Incentives Program and Rural Energy for America Program to help farmers manage manure by, for instance, installing anaerobic digesters or capturing methane and using it for energy generation.

Reducing Food Waste

A key strategy to limit food-related emissions and to alleviate the need for new agricultural lands to satisfy rising demand is to minimize food loss (i.e., food lost in the supply chain) and waste (i.e., the disposal of edible food products). In 2010, according to the U.S. Department of Agriculture’s Economic Research Service, 31 percent of the food supply was lost. Efforts to reduce food waste should include consumer education programs, but there is far greater waste-reduction potential along the food production chain. Congress should provide funding for research and public-private partnerships to develop new technologies to reduce
food spoilage, extend shelf life, and utilize food residues to create other products, helping the United States
reach its goal of reducing food waste and loss 50 percent by 2030.

To reduce methane emissions from the food waste that remains, local governments should implement and support composting programs that use post-consumer food waste to produce fertilizer, which can displace
fossil fuel-based fertilizers, or use biodigesters to generate biogas.

Offering Lower-Carbon Foods

Food producers have begun to offer consumers vegetable-based proteins and other alternative foods with smaller carbon footprints. In addition to their climate benefits, the production of many of these products uses less water, less land, and fewer agricultural inputs. Stronger federal and private R&D efforts can provide consumers with a wider range of sustainable options. Federal research should support assessments of the carbon footprint claims made by food companies and establish a better understanding of impacts on the farm industry, landscapes, and health.

In addition, Congress should increase funding for the U.S. Department of Agriculture to continue research, development, and field testing of food, fiber, and biomass crops that require fewer inputs and can better sequester carbon. Research on perennial grains provides particular opportunities to meet these multiple objectives while storing carbon in deeper soils and roots.

A Vision: Land Use in 2050

Farms, forests, and wetlands have become even larger carbon sinks, absorbing half of the residual emissions in the United States. Standardized, low-cost technology allows the accurate measurement of carbon storage, and farmers and forest owners and managers are encouraged by both policy and markets to optimally manage their lands to sequester carbon. Precision agriculture, soil conservation, and other innovations have significantly boosted farm productivity, meeting the food and fiber needs of growing U.S. and global populations while simultaneously reducing agriculture’s reliance on fossil fuel-intensive pesticides, fertilizers, and energy. Well-informed consumers choose from a wide array of low-carbon foods, and food waste has been minimized throughout the food system.

Land Use: Emissions at a Glance

• U.S. lands—primarily forests—serve at present as a net greenhouse gas sink, absorbing the equivalent of about 11 percent of U.S. emissions each year. Under business as usual, forest sequestration is projected to fall by between 50 percent and 92 percent by 2050 (from 2005 levels) due to the conversion of forests to other uses, natural forest aging, and disturbances like wildfires, insects, and disease, which are likely to be exacerbated by climate change.
• Agriculture is responsible for 9 percent of U.S. greenhouse gas emissions. The largest component is nitrous oxide emissions from soil management practices, primarily the use of fertilizers. The next largest components are methane emissions from livestock-related sources, including enteric fermentation and manure management.
• Agricultural emissions have risen about 9 percent since 1990 and, under business as usual, are projected to increase by 3 percent to 9 percent above 2005 levels by 2050, depending on population and economic growth.

Sources of agricultural emissions, 2017

Carbon emissions and sequestration from land use, land use change, and forestry, 2017

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  Oil and Gas

Emissions associated with the combustion of oil and natural gas currently account for more than half of U.S. greenhouse emissions. Many of the policies recommended elsewhere in this report will dramatically reduce these emissions by transitioning other sectors away from fossil fuels. Economy-wide carbon pricing, for instance, will provide an incentive to all sectors to improve energy efficiency and switch to lower-carbon fuels. Federal standards driving the deployment of net-zero emission vehicles will dramatically reduce oil demand in transportation. Policies to decarbonize buildings through efficiency and electrification will reduce demand for natural gas. Emissions-free hydrogen produced with surplus zero-carbon electricity could substitute for fossil fuels in the transportation, power, industrial, and buildings sectors.

Other recommended policies would enable the oil and gas sector to continue serving U.S. energy needs as the economy decarbonizes. Performance standards in the power and industry sectors will allow continued, and possibly growing, use of natural gas, provided the associated emissions are captured. The White House-led innovation agenda and a range of fiscal incentives will drive technologies and practices such as direct air capture, land-based sequestration, and carbon capture, utilization, and storage, which can be used to further reduce, or offset, fossil fuel emissions.

The oil and gas industry, as a longtime technological innovator with deep expertise in related fields and technologies as well as robust experience with executing large and complex engineering projects, is well positioned to partner with government and other
sectors to develop new technologies and shift investment toward low-carbon energy production, distribution, and storage solutions.

Below we discuss policies that reduce the overall greenhouse gas intensity of U.S. oil and gas supply. Top priorities over the coming decade include implementing measures to greatly reduce methane emissions, establishing incentives for renewable natural gas, conducting a comprehensive review of energy subsidies, and closely analyzing the long-term greenhouse gas impact of any new oil and gas infrastructure.

Key Recommendations

• EPA should establish standards under the Clean Air Act regulating methane emissions across the oil and gas value chain, including emissions from natural gas flaring, venting, and unintentional leaks during production, processing, transmission, and distribution.
• State policy-makers should implement renewable natural gas programs including tax and other financial incentives, such as capital investment or project rebate programs. Drawing on the success of renewable portfolio standards in electricity markets, states should expand or create clean energy standards programs for renewable thermal energy, including renewable natural gas.
• Congress should amend the tax code and other provisions to phase federal subsidies away from higher-carbon energy sources and toward lower-carbon energy sources, including fossil fuels with carbon capture.
• Federal agencies should assess the climate-related impacts of new oil and natural gas infrastructure projects, and conduct similar assessments on proposals at the programmatic level that expand oil and natural gas leasing on federal lands.

Reducing Operational and Pipeline Emissions

Intentional and unintentional releases of methane account for a majority of the oil and gas industry’s direct greenhouse gas emissions. Methane is over 80 times more potent than CO₂ over a 20-year time frame (and 28 to 36 times more potent over a 100-year time frame) and has a much shorter atmospheric lifespan, so rapidly reducing methane emissions provides significant near-term climate benefits.

EPA should establish standards under the Clean Air Act regulating methane emissions across the oil and gas value chain, including emissions from natural gas flaring, venting, and unintentional leaks during production, processing, transmission, and distribution. Revisions to existing EPA standards now underway would remove their applicability to transmission and storage and eliminate direct regulation of methane from oil and gas sources. EPA should instead adopt new standards to address methane leakage from both new and existing oil and gas infrastructure as well as emissions from flaring.

Flaring is a practice used by oil and gas operators to limit the direct release of methane emissions while drilling and completing a well. Flares burn methane and convert it to CO₂, but some methane leakage occurs. Most flares are assumed to be about 98 percent efficient, but some studies suggest rates that are lower. Flares are typically used for a short period, until an operator is able to connect the gas stream to appropriate gathering and processing systems. However, U.S. pipeline infrastructure has not kept pace with the growth in oil and gas production. According to one study of the Permian Basin in Texas, 4.4 percent of gas produced was combusted, equal to about 104 billion cubic feet of natural gas.

New EPA standards should build on best practices adopted by existing industry initiatives and seek to achieve similar performance industry-wide. For example, the Our Nation’s Energy Future (ONE Future) Coalition, a voluntary collaborative of natural gas companies, has set a collective goal of reducing methane emissions associated with the production, processing, transmission, and distribution of U.S. onshore natural gas to 1 percent or less by 2025. In addition, the World Bank’s Zero Routine Flaring initiative seeks to eliminate routine flaring by 2030 and has received voluntary commitments from over 30 oil and gas companies and other stakeholders. EPA’s new standards should implement best practices and allow for an expedited on-ramp for approving new technologies and methods proven to be environmentally effective. EPA should review and revise the methane standards at least every four years so that they align with industry best practice.

On private lands, state regulators have significant responsibility for regulating oil and gas production’s impacts on emissions and air quality, including flaring. States should implement stringent rules on long-term flaring practices, such as by setting capture targets or flaring limits or by requiring gas capture plans prior to drilling. State regulators should take care to define “unavoidable” venting and flaring in order to reduce uncertainty about how rules are enforced. State regulators should also subject flared gas that exceeds flaring limits to royalty payments.

Although more than 70 percent of methane emissions from the oil and gas supply chain are generated by upstream operations, opportunities exist to monitor and reduce emissions from the extensive U.S. pipeline system. DOE, the Federal Energy Regulatory Commission, and state public utility commissions should all explore cost recovery mechanisms, grants, and technical assistance to modernize, repair, and replace pipelines at the interstate, state, and local levels. For example, cities can implement accelerated pipeline replacement and modernization programs to help repair and replace aging cast iron and steel pipelines with plastic pipelines and add digital monitoring and leak detection systems.

Supporting Renewable Natural Gas

One potential avenue for reducing the carbon intensity of oil and gas supply is the substitution of renewable natural gas and hydrogen for fossil resources across the economy. (See the Hydrogen chapter later in this report for related policy recommendations.) Renewable natural gas refers to both methane collected from anerobic digesters—often sited at dairies, farms, and landfills—and biogas produced through thermochemical means that is converted into pipeline-ready gas. The primary policies driving the deployment of renewable natural gas today are the federal renewable fuels standard, California’s Low Carbon Fuel Standard, and some state renewable portfolio standards. However, these mechanisms currently support only the transportation and power sectors and are not sufficient to enable wide-scale deployment, particularly in the residential, commercial, and industrial sectors. Since renewable natural gas is currently a higher-cost resource than fossil natural gas, a suite of policies and incentives is needed to enable greater investment in this energy source.

Policy-makers should develop programs that reduce the costs of bringing renewable natural gas to market, including high upfront infrastructure costs. State policy-makers should implement programs that include establishing clear injection standards and providing tax and other financial incentives, such as capital investment or project rebate programs. Public utility commissions should explore cost recovery programs that incentivize local distribution investments in renewable natural gas. Some states with renewable portfolio standards requiring electric utilities to deliver a certain amount of electricity from renewable or other clean energy sources allow renewable resources that produce thermal energy, such as renewable natural gas, to generate tradeable renewable energy credits. Renewable energy credits provide a monetary value to delivered renewable natural gas in those markets, making projects more economically viable. However, only 14 state renewable portfolio standard programs currently allow for thermal energy that is generated by renewable sources to be counted as an eligible resource. State regulators should allow for renewable thermal energy to contribute to existing renewable portfolio standard carve-outs or create separate alternative energy portfolio standards that provide additional monetary value to resources such as renewable natural gas.

Reforming Federal Practices

Apart from the regulation of emissions, a wide range of federal policies shape investment and information flows that influence the carbon intensity of the nation’s energy supply. Many of these policies, including those relating to oil and gas, need to be updated to better align with a mid-century carbon-neutrality goal.

Several federal tax provisions directly or indirectly subsidize oil and gas production. Congress should mandate a comprehensive review of federal energy subsidies to ensure that they favor lower-carbon energy sources and contribute to carbon neutrality. This should include a review of tax provisions, such as deferred tax payments for capital expenses related to fossil fuel development and drilling. Based on the results of this review, Congress should amend the tax code and other provisions to phase federal subsidies away from higher-carbon energy sources and toward lower-carbon energy sources, including fossil fuels with carbon capture.

Under the National Environmental Policy Act (NEPA), federal agencies must analyze the potential environmental impacts of all major federal actions to ensure they are considered by decision-makers. Accordingly, federal agencies should assess the lifecycle emissions and other climate-related impacts of new oil and natural gas infrastructure projects. Similar assessments should be conducted at the programmatic level on proposals that expand oil and natural gas leasing on federal lands.

A Vision: Oil and Gas in 2050

The oil and gas industry has undergone a fundamental transformation as the economy has decarbonized. While the conversion of automotive fleets to zero-emission vehicles has dramatically reduced demand for oil, the oil and gas sector has employed a range of new technologies to provide alternative lower-carbon energy sources such as biofuels, renewable natural gas, and hydrogen. Natural gas coupled with carbon capture, utilization, and storage helps meet the rising demand for zero-carbon power from the transportation, buildings, and industrial sectors. Advanced control technologies have nearly eliminated operational emissions from flaring and methane leakage throughout the natural gas value chain. Beyond the extensive use of carbon capture, utilization, and storage technologies, the use of direct air capture and land-based sequestration for “negative emissions” helps offset the sector’s remaining greenhouse gas emissions.

Oil and Gas: Emissions at a Glance

• The use of oil and natural gas across the economy accounts for more than half of total U.S. greenhouse gas emissions. Direct emissions from the production, processing, and distribution of these resources represent about 4 percent of the U.S. total.
• U.S. oil and gas production are projected to rise by 8 percent and 43 percent, respectively, by 2050. U.S. oil consumption is projected to decline slightly as fuel efficiency gains counterbalance rising demand, but natural gas consumption is expected to rise significantly, driven by demand in the industrial and power sectors. U.S. consumption of petrochemical feedstocks is expected to double.
• More than 80 percent of the sector’s direct emissions are associated with the leaking and venting of methane, a greenhouse gas much more potent than CO2. The sector accounts for nearly one-third of U.S. methane emissions.

Emissions from oil and natural gas sector, 2017

Energy consumption by fuel, 1990-2050

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