Can the U.S. grow the economy while also reducing CO2 emissions? EIA report suggests it can.

By Andrew Shaw

Yesterday the U.S. Energy Information Administration (EIA) released its report on U.S. energy-related carbon dioxide (CO₂) emissions for 2012. The report found that energy-related CO₂ emissions decreased by 3.8% in 2012, and that emissions are now at their lowest level since 1994. According to EIA, energy-related CO₂ emissions have now decreased five out of the last seven years.

What separates 2012 from some of the previous years in which energy-related CO₂ emissions also decreased is that the economy grew at a relatively healthy rate last year as compared to those other years. In 2012, the U.S. Gross Domestic Product (GDP) rose by 2.8% yet CO₂ emissions decreased by 3.8%; for comparison, in 2008 and 2009, CO₂ emissions decreased by 3% and 7.1%, respectively, but U.S. GDP also contracted 0.4% in 2008 and 4.0% in 2009. In 2010, the U.S. GDP increased by 2.4%, but this year also saw energy-related CO₂ emissions rise by 3.7%.  2012, however, represents the second straight year in which energy-related CO₂ emissions decreased but U.S. GDP increased.

The decrease in energy-related CO₂ emissions is being caused in large part by the transition from coal to natural gas in the power sector. The report states that natural gas generation increased by 211.8 billion kilowatt hours (kWh) in 2012, while coal-fired generation decreased by 215.2 kWh. Moreover, EIA notes that the carbon intensity of CO₂ emissions associated with the electricity sector declined significantly even with a decrease in renewable generation last year.

As described in the report, there are other factors contributing to the considerable CO₂ emission reductions, including a mild winter last year and fuel efficiency standards in the transportation sector. A colder winter this year would likely increase electricity demand and could slow the rate of emission reductions for 2013.

Nonetheless, EIA’s report suggests that economic growth and reductions in CO₂ emissions are not inherently incompatible with one another. There are several potential policy implications of this report. First, the report may bolster the U.S.’ efforts to reach a binding international agreement to reduce greenhouse gas (“GHG”) emissions by demonstrating that the U.S. is making progress in meeting its obligations under the Copenhagen Accord. Second, while the report is unlikely to dampen the political and ideological debate over EPA’s efforts to promulgate Clean Air Act standards for CO₂ emissions from power plants, the report provides backing to those who argue that reductions in CO₂ emissions will not undercut economic growth in the U.S. Lastly, this report is another sign of the importance to the U.S. of natural gas in helping the country meet its near-term GHG emissions reduction goals.