EIA Publishes Annual Energy Outlook 2021
Latest EIA report forecasts strong long-term growth in renewables, but the US will play an increasingly large role in the fossil fuel economy.
By Asiyah Choudry
February 26, 2022
What is the EIA’s Annual Energy Outlook?
The Annual Energy Outlook (AEO) is a report published each year by the U.S. Energy Information Administration (EIA). The AEO 2021 provides a long-term forecast of energy market trends in the US until 2050. Projections are illustrated through the use of a reference case and side cases. The reference case is a baseline projection of energy market trends. It is based on a series of assumptions that you can read here. The report also uses side cases, which are based on alternate assumptions, serving to display a variety of potential outcomes in the energy market. This article refers to projections from the EIA reference case unless otherwise stated.
The energy sector is the largest carbon emitter globally, contributing 35% of all emissions. It is divided into three subsectors: oil, natural gas, and electricity. Energy sector activities include oil and gas extraction and refinement in addition to electricity generation, transmission, and distribution. Energy-related carbon emissions include the residential, commercial, industrial, and transportation end-use sectors. Since the majority of global economic activity is heavily reliant on energy, it's a crucial sector to target in the effort to “green” the global economy.
Let’s take a look at some of the most interesting findings from the AEO 2021.
Renewable generation will account for 60% of capacity additions
With nuclear and coal facility retirements, more than 1,000 gigawatts (GW), or 1 million megawatts (MW), of capacity additions are projected by 2050. Capacity refers to the maximum amount of electricity that a generating facility is able to produce. Capacity does not reflect the amount of energy that will be generated to meet demand. Solar facilities, for example, operate at 100% capacity only 24.2% of the time. An estimated 60% of capacity additions will include renewable generation (primarily solar), while the remaining 40% of capacity additions will consist of natural gas generation.
There is an economic basis for the dominance of renewables and natural gas. More than half of renewable generation is cheaper than the lowest-cost fossil fuel, and costs continue to fall. Similarly, natural gas combined-cycle power sources are economically attractive. These two technologies are expected to see the most growth until 2050.
Energy-related carbon emissions are projected to increase post-2035
The transition towards renewables and away from coal is anticipated to drive a decline in energy-related carbon emissions through 2035, at which point growth in GDP and population will reverse this trend. According to the report, we will see energy-related emissions rise from 2036 until 2050.
Growth in energy-related emissions after 2035 is also forecasted for all side cases. In the Corporate Goal Case, the EIA integrates utility carbon emission reduction targets into the model. In the US, 81% of utility customer accounts belong to utilities with emissions reduction targets. Given that utilities are responsible for substantial quantities of emissions, you might think that greenhouse gas reduction initiatives could significantly reduce energy-sector emissions in the long term. Unfortunately, the inclusion of utility targets reduces energy-related carbon emissions by a meager 3% and does not reverse the trend of emissions growth post-2035.
It is alarming that despite energy sector efforts to decrease emissions we will not be able to achieve a sector-wide drawdown by mid-century. While increased adoption of renewables is promising, the rate of adoption isn’t sufficiently high enough to curb the effects of fossil fuels. However, one promising finding is that economic activity in the US is becoming less energy intensive. In contrast to emissions, which relate to the quantity of greenhouse gases released into the atmosphere, energy intensity is the amount of energy required per unit of output. The AEO shows that energy intensity declines across all sectors over the projection period.
Growth in domestic fossil fuel development
AEO 2021 shows us that fossil fuels aren’t going anywhere anytime soon. In 2020, petroleum was the most used fuel source, and this trend continues into 2050. The US will continue to play an important role in the natural gas and oil sectors over the projection period. The coming decades will see substantial growth in domestic fossil fuel production. In the long-term crude oil production is expected to grow to record levels. Fossil fuels are produced for a range of end uses including electricity, industrial activity, transportation, or exported for international consumption.
Natural gas production and consumption are also forecasted to grow, driven by increased demand from the industrial sector. The report attributes industrial reliance on fossil fuels to price sensitivity, which limits their capacity for fuel-switching. In essence, natural gas is cost-effective and allows firms to keep their pricing low, whereas alternative sources of energy may not.
Natural gas demand in other sectors grows at a much lower rate. Interestingly, residential fossil fuel consumption nearly stabilizes. The report also shows low-medium growth in demand from the buildings sector. This is attributed to improvements in energy efficiency.
One area that experiences a decline is motor oil consumption. Twenty-twenty-two is forecasted to be the peak year for motor oil use, before use declines due to improved fuel efficiency and a greater share of electric vehicles on the road.
The US energy future
Given the results of AEO 2021, there is significant room for sustainability improvements in the energy sector. The report projects that renewables adoption will increase by mid-century, however, fossil fuels production and consumption will also increase. If the US continues to rely heavily on greenhouse gas emitting energy sources, it will be challenging to achieve Biden’s net-zero by 2050 target.
The US energy outlook is not static. Over the next year, technological advancements and regulatory developments have the potential to transform the energy sector and will influence the forecast for next year’s annual energy outlook. We hope to see reductions in forecasted energy-related carbon emissions and reduced reliance on fossil fuels!
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We look forward to AEO 2022!
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