Because EOR is already widely practiced, it is not considered by this report. Instead, the focus is on non-EOR utilization of captured carbon, which offers the potential to significantly contribute to greenhouse gas emissions reduction. Pathways include the production of construction materials, fuels, plastics, chemicals, and algae-based products (e.g., fuels, animal feed, and fertilizers). Each of these sectors, along with their potential for market growth is explored herein.

While non-EOR carbon utilization does not, at present, greatly contribute to greenhouse gas reduction it offers significant potential to do so in the coming decades, given advances in technology, wider commercialization, and supportive government policies. CCU may be an especially useful tool for decarbonizing certain industrial sectors and providing an option in locations where either social issues or land constraints do not allow for other types of carbon disposition. Also, the continued development of CCU technologies may help drive carbon capture innovation generally, making broader greenhouse gas reductions possible.

Numerous government agencies, non-governmental entities, and academic institutions have recently considered the potential development of carbon utilization and how government polices might encourage it. Rather than duplicate that body of research, this report seeks to provide an overview of options, growth and greenhouse gas reduction potential summarized by use category.

This report discusses carbon utilization products and processes and focuses on policy actions that can foster growth in carbon utilization by 2030, in part because markets beyond that timeframe are difficult to predict, but mostly because deliberate near-term action is needed if CCU is to expand significantly. However, more general climate policies, such as carbon pricing or the inclusion of fossil-based carbon capture in clean energy standards, are also necessary to lay the foundation for a low-carbon economy that includes new demand for CCU-based products and processes.

The post Carbon Utilization: A Vital and Effective Pathway for Decarbonization appeared first on Center for Climate and Energy Solutions.

Introduction

Last year was a remarkable year for offshore wind development in the United States, with lease sales and projects announced in Massachusetts, Rhode Island, Connecticut, and Virginia, continued progress on offshore wind projects in New York and Maryland, regulatory developments underway in New Jersey, and initial steps taken towards offshore wind development in California.  Globally, the largest markets for offshore wind energy are, in order, the United Kingdom, Germany, China, Denmark, and the Netherlands; there is also potential for offshore wind development in South Korea, Japan, and India.  U.S. Department of Energy (DOE), 2017 Offshore Wind Technologies Market Update (DOE, 2018).  There is still a lot of work to be done to take advantage of the opportunities presented by offshore wind development in the United States, such as reducing carbon emissions, improving energy security by expanding fuel diversity and increasing local energy production, and creating jobs and boosting economic growth in coastal communities.  Federal and state governments must work together to create a strong foundation for offshore wind energy to achieve large-scale deployment in the United States.

2018 Milestones

States create a market for offshore wind energy by establishing goals and targets for deployment and incentivizing or requiring utilities to develop offshore wind energy.  Nearly 30 U.S. states have renewable portfolio standards (RPS) and several have focused more closely on offshore wind.  There were notable state policy milestones in 2018.  New Jersey Governor Phil Murphy expanded the state’s commitment to offshore wind energy from 1,100 MW to 3,500 MW and directed the state’s Board of Public Utilities (BPU) to implement the Offshore Renewable Energy Certificate (OREC) program.  State of New Jersey, Office of Governor Phil Murphy, Executive Order No. 8 (2018).  In September 2018, the state opened a competitive solicitation for bids for the first 1,100 MW of capacity towards that goal and in December 2018, the BPU adopted a final rule to establish the OREC Funding Mechanism, which is an important step towards implementing the OREC program.

There has also been a lot of offshore wind development activity in New England.  Under the 2016 Act to Promote Energy Diversity, Massachusetts requires procurement of 1,600 MW of offshore wind by 2027.  In 2017, the state issued its first request for proposals.  In 2018, the state announced that the 800 MW Vineyard Wind Project had the winning bid.  Massachusetts Governor Charlie Baker also directed the state Department of Energy Resources to study whether an additional 1,600 MW of offshore wind should be legislatively required.

In 2017, Rhode Island Governor Gina Raimondo established a target of 1,000 MW of renewable energy by 2020. It also has a binding requirement of obtaining 38.5 percent renewable energy by 2035. In 2018, Connecticut increased its RPS, requiring 40 percent renewable energy by 2030.  To help Rhode Island and Connecticut meet their goals, the offshore wind project developer Deepwater Wind will develop a 700 MW project known as Revolution Wind, with 400 MW to be delivered to Rhode Island and 300 MW to be delivered to Connecticut.  The corporate ownership of the project has recently changed.  In the fall of 2018, the Danish company Orsted acquired Deepwater Wind.  In early 2019, Orsted entered into a partnership with the New England energy company Eversource, under which Eversource acquired a 50 percent interest in Orsted’s offshore wind assets, which include the Revolution Wind project.

Moving to New York, under its clean energy standard, the state must obtain 50 percent of its electricity from renewable energy by 2030.  Governor Andrew Cuomo previously set a goal of developing 2,400 MW of offshore wind energy.  Progress on the 130 MW South Fork project in development by Orsted and Eversource off of the coast of Long Island continues.  In November 2018, the New York State Research and Development Authority issued a solicitation for 800 MW of new offshore wind capacity and received four bids.  In January 2019, Governor Cuomo proposed raising the ambition of the clean energy standard to 70 percent renewable energy by 2030 and 100 percent carbon-free energy by 2040. He also proposed increasing the offshore wind target to 9,000 MW by 2035.

Further south, Virginia Governor Ralph Northam announced in August 2018 that Dominion Energy and Orsted plan to build a 12 MW offshore wind demonstration project off the coast of Virginia Beach.

Other states continue to make progress on previously announced projects.  Maryland has a target of generating 25 percent of its electricity from renewable energy by 2020.  In 2013, Maryland enacted the Offshore Wind Energy Act, which updated the RPS to include a 2.5 percent carve out for offshore wind energy.  In 2018, the Maryland Energy Administration issued offshore wind business and workforce development grants to local emerging and minority-owned businesses to help them prepare for the development of two offshore wind projects that are being developed by US Wind, Inc. (a 250 MW project) and Skipjack Offshore Energy, LLC (Orsted) (a 120 MW project).  In April 2019, the legislature passed a bill to increase the state’s targets for renewable energy to 50 percent by 2030, including 1,200 MW of offshore wind development.

Complementing state leadership, the federal government can also help set the stage for the scale up of offshore wind in three ways:  1) by leasing more of the Outer Continental Shelf (OCS) to project developers; 2) by supporting research, development, demonstration, and deployment (RDD&D) of offshore wind technologies; and 3) by providing financial incentives for deployment.

First, while America’s first offshore wind project, the 30 MW Block Island Wind Farm, was developed in Rhode Island state waters, most U.S. offshore wind projects will be developed further offshore in Federal waters.  The political leadership of the U.S. Department of the Interior (DOI) has expressed support for developing offshore energy resources, including both oil and gas as well as offshore wind.  The U.S. Bureau of Ocean Energy Management (BOEM) conducts community outreach and takes public comment before it designates Wind Energy Areas where the OCS may be leased for offshore wind project development.  BOEM has 15 active commercial leases for the Atlantic OCS from its eight competitive lease sales that generated over $473 million in revenue, most of which is from the most recent lease sale.  In December 2018, three project developers bid a total of $405 million to obtain OCS leases:  Equinor Wind US, LLC; Mayflower Wind Energy, LLC, which is a joint venture between EDP Renewables and Shell; and Vineyard Wind, LLC, which is a joint venture between Avangrid Renewables and Copenhagen Infrastructure Partners.  Justin Gerdes, Record-breaking Massachusetts Offshore Wind Auction Reaps $405 Million in Winning Bids (Greentech Media, Dec. 17, 2018).

On the Pacific Coast, however, things have been moving more slowly for offshore wind development.  Many West Coast states have shown leadership on climate policy generally by setting ambitious goals to reduce carbon emissions, establishing market-based mechanisms for the power and transportation sectors, and providing grants and financial incentives for deployment of clean technologies.  At the same time, the OCS is narrower on the West Coast than on the East Coast, which makes offshore wind development more difficult because it will likely require the use of floating foundations.  To date, floating foundations have been used in demonstration projects and in one commercial offshore wind project, which is Equinor’s 30 MW Hywind project in Scotland.  In October 2018, BOEM issued a Call for Information and Nominations to gather data on the number of developers that might be interested in offshore wind projects off the coast of northern and central California.  This is an initial step towards leasing the OCS for offshore wind projects.  There may be some siting complexities related to U.S. Department of Defense military installations in California, but the agencies are working together to resolve any conflicts.

More broadly, the DOI Royalty Policy Committee recommended that BOEM lease land to develop a total of 20 GW of offshore wind, 2 GW of offshore wind each year beginning in 2024, so that a strong domestic supply chain to support the industry could be created in the United States.

Second, with respect to offshore wind RDD&D, two projects under the DOE Advanced Demonstration Project program are continuing, one in the Great Lakes – the Lake Erie Energy Development Corporation Icebreaker project, and one in Maine – the University of Maine Aqua Ventus I.  In February 2019, DOE also announced the availability of $28 million for a new Advanced Research Projects Agency – Energy (ARPA-E) program on floating foundations for offshore wind – it will be called the Aerodynamic Turbines, Lighter and Afloat, with Nautical Technologies and Integrated Servo-control (ATLANTIS) program.  DOE, Department of Energy Announces $28 Million for Offshore Wind Energy (Feb. 1, 2019).  The states are also supporting offshore wind research. In Massachusetts, research project developers are looking at pairing energy storage technology with offshore wind energy.  New York is also partnering with DOE on an Offshore Wind Research Consortium.

Third, one of the strongest drivers of the development of land-based wind energy has been the Production Tax Credit (PTC), which is a federal income tax credit that is based on the number of kilowatt-hours of electricity generated by renewable energy and can be claimed for 10 years.  26 U.S.C. § 45.  Over the last few decades, the PTC has occasionally lapsed prior to renewal, creating boom-and-bust development cycles.  In 2015, Congress established a five-year schedule that phases down the PTC until it expires in 2020.  For the offshore wind industry, the Business Energy Investment Tax Credit (ITC) has been an even more powerful tool.  The ITC is a federal income tax credit for 30 percent of the capital costs to construct a renewable energy project.  26 U.S.C. § 48.  Like the PTC, the ITC for large wind farms is set to phase down and out by 2020, although some small wind turbines that are less than 100 kilowatts may continue to claim the ITC through 2022.  In 2017, Senators Tom Carper (D-DE) and Susan Collins (R-ME) introduced the Incentivizing Offshore Wind Power Act, which would create a dedicated tax credit for offshore wind energy that would be permanent for the first 3,000 MW of new offshore wind energy.  S. 1672, 115th Cong. (2017).  The certainty provided by this type of permanent tax credit would encourage greater investment in offshore wind projects.

Opportunities and Challenges

While the offshore wind resource along the coasts of the United States is substantial, the costs of developing offshore wind facilities present a challenge.  As we have seen with the deployment of land-based wind and solar energy, increasing deployment often leads to learning-by-doing, performance improvements, supply chain efficiencies, and cost reductions.  In the case of offshore wind, original equipment manufacturers like Siemens Gamesa, Senvion, and General Electric are now developing larger turbines with a capacity of 10 MW and greater.  DOE, 2017 Offshore Wind Technologies Market Update (DOE, 2018).  Developers like EDF Renewables, Vatenfall, and Equinor also continue to innovate with new foundations, including both fixed-bottom and floating foundations.  Id.  In countries that have experienced greater deployment of offshore wind energy, such as the United Kingdom, offshore wind costs have decreased; in fact, in some jurisdictions, such as Germany and the Netherlands, offshore wind energy is able to compete on a non-subsidized basis with other forms of energy.  Id.  In March 2019, Bloomberg New Energy Finance (BNEF) concluded that the Levelized Cost of Energy per megawatt-hour for offshore wind fell 56 percent since 2010.  BNEF, Battery Power’s Latest Plunge in Costs Threatens Coal, Gas (Mar. 26, 2019).

In 2016, DOE and DOI published the National Offshore Wind Strategy, which highlights three priority areas of focus:  1) reducing costs and risks, including through improved site characterization, technology development, and supply chain improvements; 2) focusing on effective stewardship to manage environmental concerns; and 3) expanding public understanding of the costs and benefits of offshore wind, including of offshore transmission infrastructure.  DOE and DOI, National Offshore Wind Strategy: Facilitating the Development of the Offshore Wind Industry in the United States (DOE, 2016).

On the first point, it would be easier for private sector developers to obtain financing for offshore wind projects if there were more publicly available data about the physical conditions at a given site that could provide greater certainty about the wind resource and the characteristics of the seafloor.  In addition, larger and more efficient turbines with improved subsea foundations could reduce overall capital costs.  So, too, could specialized infrastructure for offshore wind such as fabrication facilities for the foundations as well as expanded port facilities.  In October 2018, Congress enacted America’s Water Infrastructure Act, which directs the Secretary of the Army to conduct a study to identify at least three ports and harbors that could be innovative ports for offshore wind development.  Pub. L. No. 115-270 (2018).  The Secretary’s report will also identify Federal and state actions that could help overcome any existing barriers to the use of these ports and harbors for offshore wind development.

There is also a need for vessels that are compliant with the Merchant Marine Act of 1920 (the “Jones Act”) for offshore wind facility installation, operation, and maintenance.  Under the Jones Act, passengers and goods may not be transported between points in the United States except in vessels built in, owned, and operated by U.S. citizens.  46 U.S.C. § 861.  To a certain extent, there is a “chicken-and-egg” problem, because the U.S. offshore wind industry must reach a certain scale in order to support specialized domestic infrastructure such as fabrication facilities, ports, and vessels.

On the second point, it would improve the efficiency of the regulatory process if federal agency review, such as from the U.S. Army Corps of Engineers, BOEM, the U.S. Coast Guard, the U.S. Department of Defense, the U.S. National Oceanic and Atmospheric Administration (NOAA), and the National Park Service, followed more predictable timelines.  It would also be helpful if there were better data on the impact of offshore wind development on other human activities, such as fishing and radar systems, as well as on local wildlife, including marine mammals, migratory birds, and other sensitive species.  To that end, in March 2019, NOAA Fisheries, BOEM, and the Responsible Offshore Development Alliance entered into a Memorandum of Understanding to collaborate on siting and development of offshore wind projects in the Atlantic Ocean, including developing a regional research and monitoring framework.  Field data on environmental impacts from the first generation of offshore wind projects in the United States will help inform the environmental analysis of future offshore wind project proposals.  There is also a role for offshore wind project developers to play in sharing and adhering to best practices regarding sensitive species and habitats, such as the March 2019 Best Management Practices for North Atlantic Right Whales During Offshore Energy Construction and Operations Along the U.S. East Coast developed by the Conservation Law Foundation, the National Wildlife Federation, and the Natural Resources Defense Council.

Finally, electricity generated by offshore wind energy will need to be integrated into local electricity grids.  One option would be to develop offshore High Voltage Direct Current (HVDC) transmission lines that could better connect offshore wind farms to population load centers.  Since the upfront capital cost of offshore wind projects remains higher than some other resources, greater public understanding of the benefits of offshore wind will likely be required to expand deployment of this resource.

Conclusion

Offshore wind energy development has made great strides since the first 30 MW demonstration project, Block Island Wind Farm, came online in Rhode Island state waters in 2016.  This is because despite partisan gridlock in many areas, there is bipartisan support for addressing legal, regulatory and policy challenges that could slow deployment of offshore wind energy.  Policymakers are willing to work across the aisle because of the multiple benefits provided by offshore wind projects, including carbon-free electricity generation, increased energy security through expanded fuel diversity and local electricity generation, and economic growth and jobs in coastal communities.  In the near-term, Congress and the Administration should continue to work together to facilitate the development of additional offshore wind projects and offshore HVDC transmission lines.

The post From Coast to Coast: Offshore Wind Energy Expands in the United States appeared first on Center for Climate and Energy Solutions.

Experience demonstrates that two critical factors in advancing CCUS technologies are adequate policy drivers and incentives and the availability of finance. Although the relevant decision-making rests primarily with national governments and the private sector, international collaboration can help to strengthen both of these critical factors. The 2019 G20 summit in Osaka and the energy and environment ministerial meeting in Karuizawa, Japan, present important opportunities to strengthen international collaboration on CCUS by building on existing initiatives and focusing on future efforts.

Toward that end, this paper reviews projected global, regional, and sectoral CCUS needs; policy examples and options at the national level; financing challenges and opportunities; and identifies a range of options for strengthening international collaboration on CCUS at the G20 meetings in Japan.

Roundtable Recommendations

The post Strengthening International Collaboration on Carbon Capture Use and Storage appeared first on Center for Climate and Energy Solutions.

The Paris Agreement was specifically designed to provide sovereign nations with the flexibility they need to craft their own greenhouse gas reduction plans. The cyclical and transparent review of progress toward those goals is established to allow and encourage increasing ambition over time – a global race to the top.

The withdrawal announced by the Trump Administration in June of 2017 has begun to motivate sub-national and non-state actors in the U.S. to strengthen their own commitments. This combined effort, which is building off the tremendous technology advances underway, has the potential to keep the U.S. in a global leadership position in the near-term. States and cities are continuing to craft legal frameworks to enable these transitions and the cost of clean power has evolved to make most public service commissions in the U.S. comfortable with decarbonization plans.

To achieve a very low carbon economy, federal policy to further unleash market forces will be needed in the longer-term. In light of the flexibility of the Paris Agreement regarding domestic policy, the likely continuation of technological advancement in key areas, and the momentum demonstrated by sub-national and non-state actors, the Administration is presented with an opportunity to take a new approach and claim a “better deal” on the Paris Agreement. Looking at this groundswell of non-state and sub-national action and the opportunity for market-based approaches that have bipartisan support, there is no reason the Administration could not reformulate the U.S. NDC in a way that contributes to resolving the climate problem.

I. Start with the Facts

U.S. media and government have labored under a fog of misunderstanding over the nature of and responsibilities under the international accord adopted at the 2015 United Nations Framework Convention on Climate Change (UNFCCC) climate conference in Paris, France. From President Obama’s signing in September 2016 to President Trump’s inauguration in January, confusion has fertilized a number of myths about the Paris Agreement. The President’s June 1 announcement of the intended withdrawal of the United States from the agreement was preceded by officials in the Administration, Congressional and other opponents asserting that the Paris Agreement was not in the interest of the U.S.

Critics often cited “draconian financial and economic burdens,” intrusions into U.S. sovereignty, and “massive legal liability” as pressing reasons for exiting the agreement. In fact, the Paris Agreement represents a carefully negotiated mix of approaches: the “top-down,” differentiated and enforcement-oriented approach of the 1997 Kyoto Protocol and the parallel, “bottom-up” voluntary framework established by the 2009 Copenhagen Accord and 2010 Cancun Agreements. The end result is a common framework that commits all parties to put forward their best efforts and strengthen them over time.

The Paris Agreement commits parties to several procedural obligations. Namely, to “prepare, communicate and maintain” successive nationally determined contributions (NDCs), or national targets; to “pursue domestic mitigation measures” aimed at achieving their NDCs; and to regularly report on their emissions and progress on implementing their NDC.

None of these binding commitments mandate financial contributions from the United States. Contributions made to the Green Climate Fund are voluntary. Some critics of the Paris Agreement read the obligation for parties to report on progress towards their NDC as a legal requirement to achieve the U.S. target of reducing greenhouse gas emissions 26 to 28 percent below 2005 levels. The concern expressed was that this would hinder efforts to dismantle the Clean Power Plan, which the Obama administration touted as integral to the achievement of the U.S. target.

The achievement by a party of its NDC is not a legally binding obligation, nor is a country bound to particular policies by which to achieve its target. It can, at any time, revise those targets and policies without legal ramifications. A key principle of the Paris Agreement, evidenced by the term “nationally determined contribution,” is national determinedness, or respect for national sovereignty. Unlike the Kyoto Protocol, which negotiated targets for individual countries, parties are free to choose their NDCs and how they will achieve them.

Rather than rely on punitive legal enforcement measures, the Paris Agreement provides a framework that creates a continuous cycle to take advantage of peer and public pressure to motivate countries to raise their ambition over time through several linked processes. Embedded in the agreement is the expectation that each party’s NDC will “represent a progression” beyond its previous one, and “reflect its highest possible ambition,” a non-binding aspiration that parties will increase action over time. Two important processes are on five-year cycles: the global stocktake, a periodic moment to assess collective progress towards meeting the Paris Agreement’s long-term goals, and the submission of new or updated NDCs, “informed by the outcomes of the global stocktake.”

The Paris Agreement rests heavily on enhanced transparency, or reporting and review, processes as a means of holding countries accountable. In addition, the facilitative, non-punitive implementation and compliance mechanism and voluntary long-term emissions reductions strategies also contribute to an agreement that is more than just a moment in time to cheer climate action. The agreement creates a durable cycle that provides the signal to the international community to increase ambition, incentivize technological innovation, and invite collaboration. It tacitly recognizes that as our technology and efficiency improve, ambition grows – perhaps not uniformly, but globally.

Opponents of the Paris Agreement often portray other major emitting countries as being able to “do whatever they want for 13 years” (China) or “double its coal production by 2020” (India) unless they receive “billions and billions and billions of dollars in foreign aid from developed countries.” Often opponents imply other countries are increasing reliance on fossil fuels and ignore the relevance of transparency while failing to acknowledge already shifting international energy market forces.

The reporting and review processes under the UNFCCC already address this concern regarding the actions of other countries. Far from doing nothing, China is likely to achieve its nationally determined target of peaking its greenhouse gas emissions by 2025 – five years earlier than its commitment. India boasts an impressive array of ambitious solar and other renewable energy targets and policies aimed at reducing poverty and expanding access to electricity while slowing greenhouse gas emissions. China and India have been relaying this information to the UNFCCC, as well as investors. Moreover, under the Paris Agreement, the new transparency framework ends the strict differentiation between developed and developing countries. All countries are required to submit emissions inventories and the “information necessary to track progress made in implementing and achieving” their NDCs.

The agreement also reflects and provides a major signal to the international market, which is already in the process of shifting away from relying on coal and oil to natural gas and renewable energy sources. Such a shift is encouraging investment in new and innovative technology that promotes energy efficiency, lowers the cost of renewable energy, and decreases greenhouse gas emissions. In fact, climate diplomacy provides a fertile ground for collaboration between governments on a host of related issues: energy, trade, and technology. In the lead-up to the adoption of the Paris Agreement, the United States entered into and enhanced bilateral agreements with China and India that focus on clean energy research and clean energy finance.

The Administration has also discounted the fact that businesses and U.S. cities saw the Agreement as serving their interests. A groundswell of pledges and initiatives to support the Paris Agreement mushroomed from being showcased on an ad hoc web portal to an entire non-party process that has since been formally linked to the climate negotiations. The Paris “package” consists of three parts: the Paris Agreement, the nationally determined contributions, and thousands of voluntary contributions and initiatives offered by companies, states, cities, and civil society organizations.

Unprecedented, global non-state climate action is now addressed by the Marrakech Partnership for Global Climate Action. The Partnership establishes two High-Level Climate Champions to manage the initiatives of the Global Climate Action Agenda, support the Non-State Actor Zone for Climate Action (NAZCA) web portal showcasing non-state action projects, highlight successful and impactful initiatives, and to connect those initiatives and coalitions with national action plans. These efforts are discussed later in this paper.

With the federal government in the U.S. moving away from action on climate change a wave of support for the Paris Agreement throughout the U.S. that shows that businesses, cities, states, universities along with other organizations continue the push for climate action. Federal policy will be needed and is a necessary element to achieve the deeper decarbonization goals of the agreement, but in the near-term business, cities, and other sub-national actors can support select policies and continue to take action themselves.

II. Flexibility for Domestic Policy

Policymakers in the Trump Administration have an opportunity to outline a new strategy to reduce U.S. emissions if they are persuaded that the Clean Power Plan would have imposed excessive costs on U.S. industry. Certainly, there are several domestic policy options to achieve the U.S. NDC, including market-based approaches that have some bipartisan support.

Tax reform has been mentioned by both the President and Congressional leadership as a priority. In this context, there are many ways to create a price on carbon. In February 2017, James A. Baker III and George P. Schulz (both former U.S. Secretaries of State) and Henry M. Paulson, Jr. (a former U.S. Treasury Secretary) announced a proposal based on free market and small government principles. The proposed carbon tax would be established at $40/ton, replacing the Clean Power Plan and yielding an estimated $200 billion to $300 billion per year to be returned to consumers as a “carbon dividend.” More companies are publicly expressing their support for a carbon tax, including this particular proposal; in June 2017, BP, Exxon, Royal Dutch Shell, and Total S.A. announced that they supported the Baker-Schulz proposal. It should be noted that there are several other published concepts for using tax structures to place a price on carbon to facilitate market solutions.

Alternatively, there is a supply-side proposal for “clean tax cuts,” which would reduce marginal tax rates on decarbonizing investments, products, and practices. The proposal does not involve tax credit subsidies but instead would reduce the marginal tax rate on capital gains, corporate, dividend, individual, and interest income for qualifying investments. Using auditable metrics related to efficiency and emissions reductions, the hope is that a marginal tax rate reduction would encourage profitable companies to invest more capital into clean energy innovation and growth. This proposal is supported by libertarians because it would encourage emissions reductions with limited government intervention.

Policymakers should carefully consider these proposals and others as market-based alternatives to regulations that would help achieve the U.S. NDC (or an adjusted version).

III. Technology and Innovation

In addition to flexibility for overarching domestic policy, a signature strength of the Paris Agreement is its long-term trajectory towards greater emissions reductions. Article 3 of the Paris Agreement states that the “efforts of all Parties will represent a progression over time” which can be read to reflect an understanding that technology will continue to improve, enabling higher ambition.

In the U.S., there has been remarkable innovation in wind and solar energy. The cost of wind energy has declined by 66 percent since 2009 and average nameplate capacity of newly installed wind turbines in 2015 increased 180 percent since 1998-99. These improvements have led to an installed wind capacity of 84,405 MW in the U.S. These wind energy milestones in cost reduction, performance improvements, and scale of deployment were supported by the Production Tax Credit (PTC), a federal deployment incentive. It is reasonable to assume that the PTC would have been even more successful if it had been maintained consistently instead of experiencing periods of uncertainty regarding its fate, leading to boom-and-bust wind power development cycles.

Solar photovoltaic (PV) technologies experienced similar dramatic cost declines due to economies of scale and improved manufacturing and performance. The cost of utility-scale solar has fallen 85 percent since 2009. The efficiency of all PV cells steadily improved between 1975 and 2010, supported by multi-decade research and development programs.

These cost declines and performance improvements were facilitated by the Investment Tax Credit and the Section 1603 Treasury program, a federal loan guarantee mechanism to support project financing. Strong state policies like the California Renewables Portfolio Standard enabled developers to enter into above-market power purchase agreements.

U.S. domestic policies that supported technological advancements in wind and solar energy were an essential first step. The Paris Agreement sent a critical market signal to global investors that the nations of the world will continue to transition to a lower-carbon future. A long-term market signal is important because there are often shifts in domestic politics that result in short-term variations in policy. In the U.S., even though overall there is strong support for Federal and state incentives, some tax credits have lapsed in the past and some states have repealed Renewable Portfolio Standards. The Paris Agreement enables nations to adjust their domestic strategy in response to short-term concerns while remaining committed to climate action.

Looking ahead, it is clear that with domestic policy leadership on investment incentives, we can continue to see technological advancements in many areas of clean energy even in the absence of a more comprehensive global federal policy on climate change. For example, analysis suggests that carbon capture use and storage technology (CCUS) could provide between 12 – 13 percent of global emissions reductions needed by 2050. CCUS technology is the only practical way to achieve deep decarbonization in the industrial sector, such as at steel, cement, and fertilizer plants, natural gas processing plants, and refineries because many carbon dioxide emissions from this sector are process emissions.

Certainly, in the process of commercially deploying new technologies like CCUS, complications may arise that industry can learn from while policymakers continue to focus on multiplying project successes. This year, for example, Southern Company suspended gasification at the Kemper County project. At the same time, NRG Energy began operation of the Petra Nova project, which was on-time, on-budget, and is now the largest post-combustion retrofit of a commercial-scale coal-fired power plant in the world. This year also witnessed a second industry milestone: the agricultural processing company ADM began operation of the world’s first commercial-scale ethanol plant with carbon capture technology.

Currently, the cost of most CCUS technologies inhibits investment in projects. However, with domestic policy leadership, financial investment could accelerate deployment and help achieve the cost reductions and performance improvements similar to those that the wind and solar energy industries experienced. The National Enhanced Oil Recovery Initiative (NEORI) is a coalition of environmental groups, labor unions, and industry focused on accelerating deployment of carbon dioxide enhanced oil recovery (CO2-EOR) using manmade CO2 to offset the costs of investment in CCUS technologies. The NEORI coalition supports an extended and expanded Section 45Q tax credit and the use of Private Activity Bonds for carbon capture projects. Like with wind and solar energy, multiple overlapping policies will be essential to drive the scale of deployment needed to reduce costs and improve performance. Expanded tax credits and reducing the costs of carbon capture will also help galvanize the nascent carbon dioxide utilization industry.

There are numerous opportunities for energy efficiency improvements across all economic sectors. Since the 1990s, the growth rate of electricity consumption has steadily declined and decoupled from overall economic growth, demonstrating that investments in energy efficiency in buildings, industry, commercial and residential equipment, and other applications have been effective.  Options to further accelerate deployment of energy efficiency include: 1) improving standards for vehicle fuel efficiency and other sector equipment; 2) advancements in “the smart grid” (applying digital technologies to the electric power grid) which would allow measurement of end user activity; and 3) improved rate structures using decoupling policies to better align utility incentives with emissions reductions goals.

Domestic policy can also help drive similar cost reductions and performance improvements in energy storage technologies and in the transportation sector. In 2016, Senators Dean Heller (R-NV) and Martin Heinrich (D-N.M.) introduced a bill to create an Investment Tax Credit for energy storage systems. Wholesale electricity markets can also better integrate battery storage. In November 2016, the U.S. Federal Energy Regulatory Commission issued a Notice of Proposed Rulemaking to remove barriers to the integration of electric storage resources and distributed energy resource aggregations in organized wholesale electric markets. If finalized, the rule would require regional transmission organizations and independent system operators to revise their tariffs. Tariffs that are modernized in this way would facilitate greater investment in energy storage systems, which could ultimately help to achieve cost reduction and performance improvements. This would also be beneficial for electric vehicles. Wholesale

electricity markets can also better integrate electric storage resources with bidirectional power flow, such as from electric vehicles. With respect to conventional vehicles, maintaining Corporate Average Fuel Economy (CAFE) standards developed under section 202(a) of the Clean Air Act44 would provide certainty for additional product planning and technology development in advanced aerodynamics, engines, transmissions, light-weighting, improved accessories and air conditioning systems, and low rolling resistance tires to increase the fuel efficiency of light duty vehicles. In August 2017, the Administration announced a public comment period to reconsider the greenhouse gas emissions standards for light duty vehicles of model years 2022-2025. The Administration also announced that it will revisit Phase 2 greenhouse gas emissions and fuel efficiency standards for medium- and heavy-duty engines because of concerns raised by the trailer and glider industry. It is worth highlighting that the key to sustaining technological advancement is establishing stable policy signals and modernized wholesale electricity market rules.

In all of these areas, investment by the U.S. Department of Energy in research and development will be critical. In November 2015, over 20 nations launched Mission Innovation committing to double each country’s investment in clean energy research over five years. Leading global investors like Bill Gates created the Breakthrough Energy Coalition to match these efforts with private capital. In 2016, leading oil and gas companies launched the Oil and Gas Climate Initiative with a goal of investing $1 billion over the next decade in developing technologies to reduce emissions. Public-private partnerships and international collaboration can accelerate the gains from government-funded research. Maintaining a meaningful federal commitment to innovation through stable funding of research can also be a building block for a U.S. NDC. This year, there was a debate between the Administration and Congress on U.S. Department of Energy funding levels for research and development. The focus of the debate between these co-equal branches of government should be on how much to increase the research and development budget rather than on potential decreases.

In light of the potential for technological innovation in so many important areas, the Paris Agreement was wisely structured to anticipate greater ambition over the long-term. It builds on the fact that our domestic environmental laws have been structured to anticipate and benefit from continued technological advancements. For example, under the Clean Air Act New Source Review (NSR) Program, in non-attainment areas, existing sources must use Reasonably Available Control Technology (RACT) and major new or modified sources must achieve Lowest Achievable Emission Rate (LAER), while in clean areas, major new or modified sources must use Best Available Control Technology (BACT). On a case by case basis, state and local permitting agencies determine which technologies constitute RACT and BACT and which rate constitutes LAER. The U.S. Environmental Protection Agency (EPA) created a central database known as the RACT/BACT/LAER Clearinghouse of past RACT, BACT, and LAER decisions in NSR permits to help permitting agencies with these decisions. This structure ensures that as technology changes, new facilities adopt the latest technology. In this way, the law enables environmental protection ambition to keep pace with technological change and the gains are passed on to American citizens.

Another example is the regulation of hazardous air pollutants under Section 112 of the Clean Air Act, which requires that EPA establish Maximum Achievable Control Technology standards, which are technology-based emissions standards for certain stationary sources. Like with the NSR program, this structure ensures that as technology changes, new facilities must adopt the latest technology.

The Paris Agreement builds on the experience of U.S. domestic environmental law and enables national ambition to keep pace with technological innovation. This, and the Paris Agreement’s structured flexibility for domestic policy, will help ensure that it will remain resilient to short-term disruptions in national political climates.

In the current absence of overall federal policy leadership on climate change, progress is still being made on many of these technological fronts. With some Congressional support in the budget and strong advocacy by stakeholders, a very modest amount of attention in the national budget for research and innovation along with simply staying out of the way can allow the trends to continue. When the time is right, that in turn could be a foundation for a U.S. NDC if the Administration re-engages.

Earlier in this paper we described, in general, the growing efforts of sub-national and non-state actors in the U.S. These efforts also can, and most likely will gain the attention of the international community. The Administration could build on these efforts to formulate a revised NDC that could be characterized as a “better deal,” on the basis that it would take a bottom-up approach to emissions reduction.

IV. Notes on Sub-National and Non-State Action

Broadly speaking, the sub-national actors in the U.S. are the states, cities and other local governments. Non-state actors are predominately businesses, but also include institutions such as universities and medical centers. Businesses in particular have been acting on the fuels market, the advances in technologies, incentives, corporate commitments to sustainability and consumer expectations.

In the last 10 years, changes in the electric power industry are responsible for a substantial portion of U.S. reductions in greenhouse gas emissions. As an industrial sector, their emissions have declined by over 20 percent since 2005. Key factors have been retirement of several of the aging fleet of coal fired plants that would require large capital investments if they were to remain open and using coal, the dramatic change in the availability of natural gas and the flexibility of gas turbines, and the rapidly declining cost (along with tax incentives) of wind and solar generation. There is every indication that these trends will continue. Some examples of recent public announcements:

• In May of 2017, DTE Energy announced plans to reduce greenhouse gas emissions from their entire power operations by 80 percent by 2050 (from 2005 levels). The company set interim goals of 30 percent by the early 2020s, 45 percent by 2030, and 75 percent by 2040. The goal includes the transformation to over 70 percent of the electricity from renewable sources, commitments for nuclear and efficient natural gas generation as well as overall efficiency.
• Xcel Energy has established a near term goal of reducing greenhouse gas emissions 45 percent from the 2005 levels by 2021. A large commitment to wind energy is making this possible.
• First Energy has expressed publicly an even stronger target, a 90 percent reduction from 2005 levels by 2045. The combination of wind, nuclear, and gas makes this pledge economical and technically doable.

What these commitments represent is a strong recognition that despite the current inability to act at the federal level, the business community sees the future as being low carbon. Their planning horizon to stay sustainable extends beyond the next election and the broader science and global political economic signals coupled with growing consumer expectations continue to drive innovation.

Large consumers, including tech companies and their growing demand for clean energy, have also been motivating action. Companies like Apple, Google, Amazon and Microsoft have made significant investments in renewable and clean energy across their operations. They are moving toward 100 percent or in some cases they are already there. These corporate commitments to renewable energy have extended beyond the tech sector to include companies such as Wal-Mart, Target, IKEA, and recently financial institutions such as JPMorgan Chase & Company.

At the state level, the continued commitment to clean energy is strong. In July 2017, California renewed its cap and trade efforts through 2030 and the nine states in the Northeast Regional Greenhouse Gas Initiative (RGGI) are reviewing the current cap for extension. At the same time, other states like Virginia are beginning to consider joining RGGI. States that are not part of these efforts are directly capitalizing on the economic opportunities of clean energy. States like Iowa, Texas and Wyoming are among the top wind energy producers and all 50 states now either have wind energy or businesses that supply the industry.

Individual consumers are also making a difference. The Energy Information Administration data shows that residential electricity use in the U.S. is down since 2010 and the per-capita electricity use is down 7 percent in that time period.

In the industrial sector, the ongoing trend towards electrification will reduce emissions going forward. Furthermore, there is a long list of examples of U.S. projects with carbon capture technology already deployed, primarily for commercial reasons as captured CO2 can be compressed and transported to nearby oil fields for enhanced oil recovery. These examples are found in the natural gas processing sector (Terrell plant in Texas operating since 1972 and Core Energy/South Chester plant in Michigan operating since 2003), in fertilizer production (Koch Nitrogen Company Enid Fertilizer Plant in Oklahoma operating since 1982 and Chaparral/CVR Energy Coffeyville Gasification plant in Kansas operating since 2013), at refineries (Air Products Port Arthur Steam Methane Reformer project in Texas operating since 2012), and in ethanol production (Chaparral/Conestoga Energy Partners’ Arkalon plant in Kansas operating since 2009).

Auto manufacturers are innovating with increasingly affordable competitive electric vehicles. Tesla introduced the Model 3 in July of 2017 while GM is rolling out the all-electric Bolt. These vehicles are getting cost competitive and are clearing 200 miles on a full charge. Demand has been slowly picking up but has a way to go. As that begins to happen and as the power sector makes themselves cleaner, the benefits from a greenhouse gas perspective increase. Globally, we are seeing Volvo publicly announce that they will be phasing out of internal combustion engines only vehicles, while Norway, France and the U.K. and some federal states in Germany are looking to prohibit petrol and diesel cars by 2040.

Cities are also on the move. There are over 100 cities that have pledged to a goal of 100 percent renewable energy by 2035 and over 300 cities that have publicly supported the Paris Agreement goals.

Taken together, these examples of non-state and sub-national action reflect a high degree of momentum on emissions reduction and climate action. We expect that this momentum will result in lower emissions of greenhouse gasses in the U.S. through 2025. When non-state and sub-national government actions are combined with expected mitigation cost reductions through advancements and learning in technology, there is an opportunity for even greater momentum. There continues to be bipartisan support for market-based approaches but no clarity that tax reform negotiations will provide a forum for that debate. The Congress and Administration should take note of these developments and the domestic desire for action and consider a solutions-oriented path. As we have discussed, in our view, the Paris Agreement allows ample flexibility for policymakers to adopt any number of approaches to achieve emissions reduction goals.

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Global air traffic is on pace for tremendous growth. The world needs to prepare for a doubling of air passenger travel from four billion to eight billion passengers in the next twenty years, according to the International Air Transport Association (IATA). If trade liberalization occurs, the forecast is for the number of passengers to triple, with all regions worldwide poised for significant growth. Air freight similarly is predicted to follow a growth trend to meet the strong demand in international trade, particularly for delivering time-sensitive goods to online shoppers and temperature-sensitive goods, such as pharmaceuticals and perishable produce, flowers, and seafood, to global markets. The growth in air passengers and cargo will see expanded aircraft fleets, new airports, and higher capacity in existing airports. Consistent with global goals for sustainability, governments and the aviation industry already are planning for eco-friendly strategies to address future physical and environmental impacts from ground operations and in the skies.

Among the main public health and environmental concerns is how to reduce the amount of greenhouse gas emissions from the anticipated increased aircraft traffic. The aviation industry contributes roughly 2 percent of global fossil fuel emissions of carbon dioxide (CO₂), which equates to roughly 815 million tons of CO₂ globally, according to the IATA. This could double if air traffic trends meet the forecasted growth. To address emissions from international flights and to help foster harmonization across domestic laws and regulations, governments and industry have negotiated the first-ever global certification for limits on CO₂ emissions of new aircraft and are negotiating a new global market-based carbon offsetting and reduction scheme to address any annual increase above 2020 levels. These measures, negotiated through the International Civil Aviation Organization (ICAO), complement countries’ voluntary commitments to specific domestic reductions under the Paris Agreement and their general commitments to reduce greenhouse gases pursuant to the United Nations Framework Convention on Climate Change.

International Air Travel

ICAO is the United Nations agency responsible for facilitating agreement on international standards and policies under the Convention on International Civil Aviation (Chicago Convention). It works with the Convention’s 192 member states, as well as other international organizations and the aviation sector. One of its strategic objectives is environmental protection, with a focus on local air quality and noise impacts, as well as on aviation greenhouse gas emissions.

New Global CO₂ Emissions Certification Standard for Aircraft

A new global emissions standard adopted under the auspices of the ICAO aims to reduce the CO₂ emissions of aircraft. The standard becomes effective in 2020 for new aircraft designs and 2023 for aircraft designs in production. All new commercial aircraft seeking a certificate of airworthiness must comply by 2028, with exemptions requiring public disclosure of the impact on the environment. The standard has been added as a new Volume III on CO₂ Certification Requirement to Annex 16 of the Convention on International Civil Aviation (Chicago Convention).

Global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)

This year, ICAO, its member states, and airlines are preparing for the implementation of a new Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). In 2016, the ICAO member states adopted Assembly Resolution A39-3, which established CORSIA as a complement to the broader package of measures. The scheme will enter into a voluntary pilot phase in 2021.

CORSIA is significant because it is the first international sector-based approach to carbon emissions reduction and offsetting. CORSIA is a complement to the Paris Agreement because while emissions from domestic aviation are included in nationally determined contributions (NDCs) for countries with economy-wide targets, emissions from international aviation were not included in NDCs. Therefore, plans to reduce and offset these emissions supplement the Paris Agreement. They can help close the gap between the Paris Agreement pledges and the goal of limiting climate change to 2 degrees Celsius. It is encouraging that ICAO aims to harmonize CORSIA with the market-based mechanisms developed under Article 6 of the Paris Agreement because doing so will allow for greater efficiency and may lead to greater emissions reductions.

CORSIA will be used to address increases in total CO₂ emissions from international civil aviation above 2020 levels. Section 5 requires “taking into account special circumstances and respective capabilities.” Section 8 explains that this language was intended to address equity between developed and developing nations. The carbon offsets will come from sources other than international aviation, and could include offsets developed under United Nations Framework Convention on Climate Change (UNFCCC) processes, such as forestry offsets developed under REDD+, which is the scheme for reducing emissions from deforestation and forest degradation and promoting forest conservation in developing countries. It also could leverage carbon offsets developed through the Kyoto Protocol clean development mechanism (CDM) and offsets developed under the Paris Agreement’s Article 6 market-based mechanisms.

The amount of CO₂ emissions to be offset is calculated by reviewing an airline’s annual emissions covered by CORSIA and a growth factor representing the increase in emissions from the 2019–2020 baseline. ICAO will calculate the growth factor. Many airlines from developing countries are growing faster than large airlines from developed countries. To promote equity between developed and developing countries, there will be a ramp-up to the use of an individual growth factor. Initially, between 2021–2029, the growth factor will be 100 percent sectoral. Between 2030–2032, at least 20 percent of the growth factor must be the individual growth factor. Between 2033–2035, at least 70 percent of the growth factor must be individual. Finally, from 2036 onwards, the growth factor must be 100 percent individual. The offset requirements will also be adjusted based on an airline’s use of sustainable aviation fuels. An airline may purchase and cancel eligible emissions units to meet its offsetting requirements.

Emissions Monitoring, Reporting, and Verification

Monitoring, reporting, and verification (MRV) of emissions will be an important part of CORSIA. Beginning in 2019, airlines from ICAO member states must monitor, report, and verify CO₂ emissions from all international flights, even if the carbon emissions from the international flights will not be offset through CORSIA. Every three years beginning in 2022, ICAO member states must ensure that their airlines are complying with CORSIA offsetting requirements where applicable.

The measuring of emissions will help provide data to be used to assess progress towards ICAO’s aspirational goals to achieve carbon-neutral growth of the international aviation sector beginning in 2020 and an annual 2 percent improvement in fuel efficiency through 2050.

CORSIA Timeline

In 2018, the ICAO Council will undertake several actions to prepare for the pilot phase. First, the ICAO Council will adopt guidance to implement the MRV system. Resolution A39-3, Section 20(a). The guidance will include the appropriate standards and recommended practices (SARPs) developed under ICAO processes. ICAO member states will then make arrangements to prepare to implement the guidance and SARPs for a Jan. 1, 2019, implementation date. Second, the ICAO Council will adopt guidance on emissions unit criteria to support purchase of emissions units for offset purposes under CORSIA. Resolution A39-3, Section 20(c). The emissions unit criteria guidance will take into account how Article 6 of the Paris Agreement will be implemented. The goal is for internationally transferred mitigation outcomes under Article 6 and credits from the successor to the CDM to be eligible under CORSIA as well. This will require review by the ICAO Council to ensure that there is no double counting. Finally, the ICAO Council will also develop policies and guidance to guide the establishment of CORSIA registries. Resolution A39-3, Section 20(f).

ICAO agreed upon phased implementation for CORSIA:

• 2021–2023: Pilot phase. Only member states that volunteer will participate.
• 2024–2026: First phase. Only member states that volunteer will participate.
• 2027–2035: Second phase. All member states whose individual share represents 0.5 percent of international aviation activity or whose cumulative share exceeds 90 percent of international aviation activity will participate, with exceptions for least developed countries, small island developing states, and landlocked developing countries.

Only flights departing from and arriving in member states that are participating in CORSIA are subject to offsetting requirements. During the pilot phase and first phase, both the departure and arrival countries must have volunteered to participate. More than 70 nations have expressed their intention to participate in CORSIA’s voluntary pilot phase and first phase. Any additional states that would like to participate in the pilot phase must notify ICAO by June 30, 2018.

CORSIA Outlook: Clean Skies Ahead?

Continued progress on implementation of ICAO CORSIA suggests that during 2018, the public and private sectors will continue to work together on reducing carbon emissions, at least in international aviation. Market-based mechanisms are an important way to achieve efficiencies given the limited capital that is available. For this reason, CORSIA is an encouraging example of a sector-specific and market-based approach. Further, the global aviation industry prefers a single global carbon offsetting mechanism to a patchwork of regional and state market-based measures. These factors and the positive example of ICAO may also contribute to additional action on reducing carbon emissions in global shipping. In April 2018, the International Maritime Organization announced a goal of reducing carbon emissions by 50 percent from 2008 levels by 2050. The details of this new strategy continue to be developed.

Looking ahead, ICAO continues to explore establishing a long-term global aspirational goal for reducing emissions pollution from international aviation. ICAO encourages a “basket of measures” to help achieve its goals of carbon neutral growth from 2020 onwards and improved fuel efficiency. The measures include improvements to aircraft related technology and standards, improved air traffic management and operational improvements, development of sustainable aviation fuel, and global market-based measures mechanisms, such as CORSIA.

CORSIA, however, has been criticized as lacking in ambition. Certainly, as ICAO member states develop experience with CORSIA, it may lay the groundwork for more ambitious goals. Financial incentives from ICAO member states will also be needed to promote investment in and accelerate deployment of new aircraft technology and sustainable fuels that could help make more ambitious goals possible.

There are also open questions about whether it is appropriate for member states to develop additional measures to reduce carbon emissions from international aviation. The debate on the appropriateness of additional carbon emissions reduction measures will likely continue as the internal politics of ICAO member states will differ on how aggressively to act on climate change.

The European Union (EU) Emissions Trading System is set up to exclude emissions from international aviation beyond the European Economic Area until 2024. At that point, the EU will review the implementation of CORSIA and determine whether to include emissions from international aviation. Some nations are not waiting. In October 2017, the Netherlands announced a proposal to impose an environmental tax on aviation. The Netherlands previously enacted an aviation tax in 2008, but the tax was removed after a year because air traffic to the Netherlands declined. Trade associations representing airlines have suggested that a new Dutch tax on aviation would be at odds with CORSIA. In April 2018, Sweden announced a new aviation tax on all flights departing from airports in Sweden of between 60 to 400 kronor to reduce carbon emissions. A similar legislative proposal was introduced in 2017, but the proposal was withdrawn. Sweden will have elections in September 2018, and, depending on the outcome, the new aviation tax may be repealed.

In the United States, one reason U.S. airlines support CORSIA is that they prefer one global regime to the challenge of multiple, overlapping regimes applicable to emissions from their operations. As such, U.S. airlines are generally supportive of CORSIA and would like to see the United States continue to participate. Thus far, the U.S. government has not expressed an intention to withdraw from CORSIA’s voluntary phase, which begins in 2021. Industry support may prove to be instrumental in keeping the U.S. engaged with CORSIA in the same way that industry support for the Kigali Amendment to phase out the use of hydrofluorocarbons appears to have been helpful in encouraging the United States to honor it.

Certainly, increasing ambition and momentum on carbon emissions reduction will require mobilizing large sums of both public and private capital to invest in the transition to a lower-carbon economy. This will require political leadership. In 2018, civil society has an important role to play in communicating to policymakers that there remains an opportunity for the U.S. federal government to engage in international efforts on climate change in a way that both achieves domestic political objectives related to energy dominance and economic growth while also continuing to reduce carbon emissions. Corporate leadership, in particular, will be critical to help make the business case for programs like CORSIA, which achieve efficiencies for the private sector through the use of market-based mechanisms.

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This is one in a series of briefs prepared as part of C2ES’s Climate Innovation 2050 initiative, which brings together leading companies to examine potential pathways toward substantially decarbonizing the U.S. economy. Other briefs focus on Agriculture & Forestry, Buildings, Oil & Gas, Manufacturing, and Power Generation. (Note: Full citations to supporting materials can be found in the pdf version of this brief.)

This brief provides an overview of emissions trends and projections, and of decarbonization challenges and opportunities, in the U.S. transportation sector. Key points include:

• Since 2016, transportation has been the biggest direct source of U.S. greenhouse gas emissions. Most of the sector’s emissions come from road transport, which derives over 90 percent of its energy from petroleum.
• Transportation emissions have edged up in recent years but are projected to decline until 2035 as improved vehicle efficiency more than offsets rising air travel. Emissions are then projected to rise through 2050 as increases in vehicle miles traveled outpace efficiency gains.
• Major decarbonization pathways for transportation include switching to lower-carbon fuels, improving vehicle efficiency, and improving system-wide efficiency, including through the use of autonomous vehicles and vehicle sharing. Other opportunities include mode switching and new modes like high-speed rail.
• Major challenges in scaling up non-petroleum-based fuels such as natural gas, biofuels, hydrogen, and electricity are ensuring that their production does not indirectly increase emissions, and creating the necessary infrastructure. Additional challenges include the higher cost and lower energy density of non-petroleum-based fuels. Electric vehicles are currently projected to grow from 4 percent to 19 percent of market share by 2050, and a number of major automakers plan to electrify their entire offerings by the mid-2020s.

Overview

The transportation sector moves goods and people across the United States via road, rail, ship, and airplane. It employs nearly 10 million people, and accounted for 8.9 percent of U.S. GDP in 2015. Petroleum supplies more than 90 percent of the sector’s energy, and essentially all of its greenhouse gas emissions come from the combustion of gasoline, diesel, jet fuel, or other petroleum liquids. Other energy sources like natural gas, ethanol, biofuels, hydrogen, and electricity comprise small fractions of today’s transportation energy supply.

The subsector producing, by far, the greatest emissions is on-road transportation, which includes passenger cars, light-duty trucks (e.g., vans and SUVs), medium- and heavy-duty trucks, buses, and motorcycles (Figure 1). However, emissions from aviation grew more rapidly in 2017 than any other subsector, offsetting roughly 40 percent of the decline in emissions from coal use in electric power generation for the year.

Transportation “output” tends to be measured in usage: vehicle miles traveled (VMT) for cars and trucks, passenger miles travelled for transit, airplanes, and other passenger vehicles, and ton miles for freight. This metric reflects total activity in the transportation sector and directly relates to sector emissions.

Emissions Trends and Projections

As of 2016, transportation is the United States’ largest direct source of greenhouse gases (industry ranks higher when counting both its direct and indirect emissions). Most transportation emissions are carbon dioxide (CO₂) produced by the combustion of fossil fuels. Methane and nitrous oxide are also emitted as by-products of combustion. Cooling systems, which are commonly used for both air conditioning and refrigerated transport of goods, also emit hydrofluorocarbons (HFCs).

Total transportation sector emissions rose 29 percent from 1990 to 2005, driven largely by VMT increases in road transport. With continued improvements in vehicle efficiency, sector emissions fell 9.7 percent from their 2005 peak by 2015. In recent years, sector emissions have been increasing, due largely to increased passenger-vehicle VMT. Having averaged 2.3 percent a year from 1990 to 2005, and then slowing to less than 1 percent a year, VMT growth rebounded to 2.3 percent in 2015 and grew to 3.6 percent in 2016. Another key driver of emissions trends is the increased market share of less fuel-efficient light trucks, up from 20 percent in model years 1975–1982 to 45 percent in 2016.

Other subsectors have shown mixed trends. Medium- and heavy-duty trucks experienced a 95 percent increase in VMT between 1990 and 2015, leading to a 78 percent increase in CO₂ emissions. CO₂ emissions from domestic aviation increased by 8 percent over the same period, while emissions from international flights leaving the U.S. increased by 88.8 percent. By contrast, CO₂ emissions from international shipping from the U.S. have decreased 40.6 percent since 1990.

The Energy Information Agency’s 2018 Annual Energy Outlook (AEO) projects a 13.6 percent reduction in total transportation sector CO₂ emissions, including indirect emissions from electricity used in transportation, between 2015 and 2035. Steadily rising usage in all modes is outweighed by the improving efficiency of on-road vehicles, resulting in net emission reductions. (EIA’s analysis assumes that current federal and state vehicle emissions standards will remain in place; however, the U.S. Environmental Protection Agency has begun steps to relax these standards.) After 2030, the sector’s CO₂ emissions are projected to rebound, rising 8.2 percent by 2050, as increasing usage across modes outpaces increasing fuel efficiency of vehicles. Sales of electrified vehicles (including all-electric, plug-in hybrid, and hybrid) are projected to increase from 4 percent of market share in 2017 to 19 percent in 2050.

VMT associated with freight transportation by trucks is expected to increase almost 50 percent from 2017 to 2050 because of increased economic activity. Ton miles for freight transportation via rail are projected to increase 27 percent from 2017 to 2050 as industrial output increases.

Domestically originating air travel (domestic and international flights) is projected to double by 2050, increasing consumption of jet fuel by 64 percent despite advances in energy efficiency for aircraft. The International Civil Aviation Organization has established a global market-based-mechanism – the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA – to achieve carbon-neutral growth in international aviation after 2020. The International Maritime Organization recently set a goal of reducing carbon emissions from international shipping 50% below 2008 levels by 2050.

Decarbonization Opportunities and Challenges

Potential decarbonization pathways in the transportation sector include the use of lower-carbon fuels, improved vehicle efficiency, improved system-wide efficiency, and mode switching (e.g., from passenger vehicles to mass transit or from air to high-speed rail).  While each of these strategies applies to some degree across all transportation modes, the primary focus here is on-road transportation, which accounts for three-quarters of the sector’s emissions

Zero-Carbon Fuels

Since essentially all transportation sector emissions come from the combustion of petroleum, substitute fuels could, in theory, bring sector emissions to zero. A variety of substitutes are in use today, including ethanol, natural gas, biofuels, hydrogen, and electricity. With some exceptions, current petroleum substitutes have direct or indirect emissions, so alternate production methodologies or primary energy sources will need to be developed at scale to achieve deep reductions. The carbon benefits of alternative fuels will depend on whether they can be derived from non-emitting sources.

Electricity can potentially be used to fuel any class of road vehicle and, when coupled with decarbonization of the power sector, has the potential to deliver deep sector reductions. Electric vehicles could, in turn, contribute to decarbonization of the power sector by providing mobile storage to help integrate intermittent electricity sources like wind and solar. Challenges to full electrification include upfront costs of batteries and lack of charging infrastructure. Several countries, including the United Kingdom, China, and France, have announced bans on sales of cars and trucks that use petroleum, beginning in 2040. At the same time, major automakers like GM, Toyota, and Volvo have announced plans to electrify their entire offerings by the mid-2020s.

Hydrogen (or other) fuel cells also use electricity to drive a motor, but the electricity is generated on-board in the fuel cell, instead of being stored in a battery. Hydrogen can be generated by electrolysis of water, potentially providing a renewable fuel source, but most hydrogen used in fuel cells today is derived from natural gas. Future pathways could take advantage of surplus electricity from renewables to generate hydrogen (or ammonia, which can be more easily transported and readily converted back to hydrogen for use in fuel cells). Finding such uses for surplus renewable energy also could improve the economics of power sector decarbonization.

A critical challenge to switching to electricity (including fuel cells) is the modification, or outright replacement, of existing transportation infrastructure like gas stations. This transition could be eased by new technologies such as faster charging devices, cheaper batteries with longer range, or fuel cells that could operate on a broader variety of fuels.

Some modes, like air transportation, have unique constraints on energy density and transportability that may limit the use of electricity as an alternative. Biofuels have great potential in these cases, though only if their production does not result in deforestation or displacing crops, both of which would increase emissions from land use. Currently, most aviation biofuel is produced from used cooking oils; an alternative fuel at-scale would likely require some sort of grass- or wood-derived production. An attractive feature of many biofuels, for aviation and road transport, is their chemical similarity to petroleum refined products, which allows them to be “dropped in” to existing infrastructure.

Improved Efficiency

Energy efficiency in the transportation sector takes several forms. The first is improved efficiency of conventional vehicles, aircraft, and ships through lighter materials, more efficient motors, and other design changes. These efficiency improvements can take advantage of existing infrastructure (e.g., roads, fueling stations, and ports). Indeed, most reductions that have taken place in the sector to date have relied upon these sorts of efficiencies. Electrification (including fuel cell vehicles) improves vehicle efficiency in a different way. Because electric motors are more efficient than internal-combustion engines, less overall energy is required for the same VMT.

Emissions also could be reduced through system-wide efficiency gains. Autonomous vehicles (AVs), for instance, could potentially allow higher throughput, faster speeds, fewer start-stops, and reduced congestion, dramatically reducing fuel consumption. Legal and policy frameworks to support and direct AV development are being discussed but are still in early stages.

Other Decarbonization Opportunities

Many other strategies could help reduce the sector’s emissions. Passenger vehicle VMT could be reduced through a number of methods. These include increased sharing of electric vehicles including AVs, land use planning that encourages compact development, and congestion pricing, which encourages car-pooling and mode switching (to walking, biking or mass transit). New, efficient modes of transport such as high-speed rail, and new technologies like magnetic levitation (e.g., Hyperloop One), could offer faster ground transportation of goods and people, potentially using non-emitting sources of electricity. Using alternative refrigerants for cooling applications, as encouraged by the Kigali Amendment to the Montreal Protocol, also could virtually eliminate HFC emissions.

References

Rhodium Group, Final US Emissions Numbers for 2017. https://rhg.com/research/final-us-emissions-numbers-for-2017/

U.S. Bureau of Labor Statistics, (BLS), Occupational Employment and Wages, May 2017, https://www.bls.gov/oes/current/oes530000.htm

U.S. Bureau of Transportation Statistics(BTS), Freight Facts & Figures 2017 – Chapter 5: Economic Characteristics of the Freight Transportation Industry, https://www.bts.gov/bts-publications/freight-facts-and-figures/freight-facts-figures-2017-chapter-5-economic

U.S. Department of Energy (DOE), Alternative Aviation Fuels: Overview of Challenges, Opportunities, and   Next Steps, https://www.energy.gov/sites/prod/files/2017/03/f34/alternative_aviation_fuels_report.pdf

U.S. Energy Information Administration, 2018 Annual Energy Outlook with Projections to 2050, https://www.eia.gov/outlooks/aeo/

U.S. Environmental Protection Agency (EPA), DRAFT Inventory of U.S. Greenhouse Gas Emissions and Sinks 1990 – 2016, https://www.epa.gov/sites/production/files/2018-01/documents/2018_complete_report.pdf

U.S. Environmental Protection Agency, 2017, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2015, https://www.epa.gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinks-1990-2015

U.S. Environmental Protection Agency, 2018, Light-Duty Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy Trends: 1975 through 2017, https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100TGDW.pdf

U.S. Environmental Protection Agency, Mid-Term Evaluation of Greenhouse Gas Emissions Standards for Model Year 2022-2025 Light-Duty Vehicles, https://www.epa.gov/regulations-emissions-vehicles-and-engines/midterm-evaluation-light-duty-vehicle-greenhouse-gas

U.S. Federal Highway Administration (FHWA), Highway Statistics 2016 Table 4.2.1 “Public Road Mileage and VMT, 1920 – 2016, https://www.fhwa.dot.gov/policyinformation/statistics/2016/

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Leaders of both parties agree that we need to invest in American infrastructure, in part to create opportunities for new American jobs. In energy policy, there is also bipartisan consensus on the multiple benefits of carbon capture, use and storage technology, in particular for using manmade carbon dioxide for enhanced oil recovery (CO2-EOR). As Congress and the Administration consider making infrastructure investments, they should consider the perspective of state leaders, who have outlined opportunities for the federal government to invest in carbon capture projects and CO2 pipelines to improve U.S. infrastructure and create jobs.

Over the past few years, the Western Governors Association, Southern States Energy Board  and National Association of Regulatory Utility Commissioners have all adopted resolutions supporting CO2-EOR and federal incentives for carbon capture. Under the leadership of Wyoming Governor Matt Mead and Montana Governor Steve Bullock, a State CO2-EOR Deployment Work Group was formed with officials from 13 states: Arkansas, Colorado, Illinois, Indiana, Kansas, Louisiana, Mississippi, Montana, Ohio, Pennsylvania, Texas, Utah and Wyoming. This work group has issued four notable reports in the past year or so.

First, the work group published a report highlighting federal and state policies that could accelerate carbon capture deployment. On the federal level, these policy drivers include the Section 45Q tax credit to incentivize CO2-EOR, which promotes energy independence, economic growth, and reduces greenhouse gas emissions. Last July, Senators Heidi Heitkamp (D-ND), Shelley Moore Capito (R-WV), Sheldon Whitehouse (D-RI), and John Barrasso (R-WY) introduced the FUTURE Act to extend and expand 45Q. Last September, House Agriculture Committee Chairman Mike Conaway (R-TX-11) introduced a companion bill. Both bills have substantial bipartisan support, with 25 total co-sponsors of the FUTURE Act and 47 total co-sponsors of the House bill.

Another important federal policy driver would be to allow carbon capture project developers to use Private Activity Bonds. These bonds, which are often used for infrastructure such as airports and water and sewer projects, can spur private development because they are exempt from federal tax and often have longer repayment periods than commercial debt. Last April, Senators Rob Portman (R-OH) and Michael Bennet (D-CO) and Representatives Carlos Curbelo (R-FL) and Marc Veasey (D-TX) introduced the Carbon Capture Improvement Act, which would allow state and local governments to issue PABs for carbon capture projects.

A February 2017 state work group white paper on CO2 pipelines recommends that federal policymakers facilitate the development of long-distance, large-volume trunk pipelines to connect sources of manmade CO2 with EOR fields. The white paper recommends that the federal government help with up-front financing of increased capacity for priority CO2 pipelines. “Super-sizing” the pipelines would help achieve economies of scale and lower overall costs per shipper when later sources of CO2 connect to the pipeline. Ultimately, all CO2 shippers would be better off and the federal government would be repaid through pipeline tariffs. An example of this hub and cluster approach to CO2 transportation can be found north of the border. In Canada, the province of Alberta is paying for the upfront additional capacity of the Alberta Carbon Trunk Line, a 240 km pipeline that will connect multiple industrial sources of CO2 to EOR fields, storing an estimated 14.6 million tonnes of CO2 annually.

Two other state work group reports were published focusing on carbon capture technology and wholesale electric power market design and on carbon capture applications for the ethanol industry.

As the robust analysis conducted by state officials demonstrates, we may be in the middle of a turning point for carbon capture. The NRG Petra Nova project is the first U.S. retrofit of a coal-fired power plant with carbon capture technology and it started operations at the end of 2016. Petra Nova, which is the largest project of its kind in the world, captures CO2 from a 240 MW slipstream from the existing W.A. Parish plant near Houston, Texas. The captured CO2 is used to produce oil from a nearby oil field. Approximately 1.6 million tons of CO2 will be captured annually. Environmental groups support the use of manmade CO2 for EOR because lifecycle analysis demonstrates that there is a net storage of CO2 and a net benefit for the climate.

In April 2017, Archer Daniels Midland began operating its Illinois Industrial Carbon Capture and Storage project – the world’s first commercial-scale carbon capture project on ethanol. More than 1 million tons of CO2 will be captured and stored in Mount Simon sandstone. Carbon capture on biofuels could one day lead to negative emissions as the bioenergy crops absorb greenhouse gases as they grow.

In light of these U.S. project milestones and the strong expressions of state support for carbon capture projects and CO2 pipelines, there is a clear opportunity for federal policymakers to invest in carbon capture infrastructure to maintain American leadership in this important area of energy innovation.

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Looking toward the second half of this century, innovative ways to achieve net zero carbon emissions will be needed to stave off the worst impacts of climate change. Recent analysis suggests we will continue to use fossil fuels to meet our energy needs for several decades. If the collaborative efforts to meet the Paris Agreement are to address that reality, then while we continue to expand deployment of wind, solar and battery storage technologies, we will also need to explore other opportunities to keep these carbon emissions out of the atmosphere. Focused research, development, demonstration and deployment (RDD&D) aimed at converting carbon emissions into useful products poses a practical solution to lower carbon emissions toward that goal.

Capture milestones

It’s encouraging that in the last 12 months, there have been three major milestones in capturing carbon emissions.

First, in November 2016, the Emirates Steel Industries Abu Dhabi CCS project came online. It is the world’s first steel plant retrofitted with carbon capture technology. The 800,000 metric tons of carbon dioxide the project captures each year will be transported by pipeline to nearby oil reservoirs for enhanced oil recovery (EOR). The International Energy Agency (IEA) has confirmed that CO₂-EOR using manmade CO₂ results in a net storage benefit of 0.19 metric tons of CO₂ per barrel of oil produced, or a 37 percent reduction in the lifecycle emissions from the oil.

Then, in January 2017, NRG Energy announced that their Petra Nova project was completed on time and on budget. Petra Nova is America’s first coal-fired power plant retrofitted with post-combustion carbon capture technology, and is the largest of its kind in the world. The project captures roughly 1.6 million tons of carbon dioxide per year from a 240 MW slipstream of flue gas from the W.A. Parish Plant near Houston. The CO₂ is transported by pipeline to a nearby oil field where it is used for EOR.

Finally, in April 2017, the Archer Daniels Midland Company announced that the Illinois Industrial Carbon Capture and Storage project in Decatur came online. It is the world’s first commercial-scale retrofit of an ethanol production plant with carbon capture technology. The project captures more than a million tons of CO₂ annually and stores the captured emissions in a nearby saline formation.

These three capture milestones are very promising, but the IEA has warned that there are not enough carbon capture projects in development to meet global carbon emissions reductions goals. The problem is that first-of-a-kind projects are expensive; however, future builds tend to become less expensive as experiential learning and deployment at scale bring down technology costs—we have seen this with wind and solar energy technologies.

To bridge the gap, leadership from federal and state policymakers will be necessary, such as federal tax credits and state portfolio standards that were successful in scaling up wind and solar energy. For carbon capture, extending and expanding the Section 45Q tax credit would likely add more capture projects to the development pipeline. In July 2017, Senators Heidi Heitkamp (D-N.D.), Shelley Moore Capito (R-W.Va.), Sheldon Whitehouse (D-R.I.), and John Barrasso (R-Wyo.) introduced the bipartisan FUTURE Act, which would extend and expand the tax credit for projects capturing emissions from power plants and industrial sources and also for projects that capture carbon emissions directly from the atmosphere, a process known as direct air capture. The FUTURE Act is supported by 25 senators from both parties and from many regions of the country. In September 2017, a companion bill was introduced in the House by Agriculture Committee Chairman Mike Conaway (R-Texas) and is supported by a bipartisan group of 45 representatives.

Another powerful way to offset capture costs is to find a source of revenue for the captured carbon. That is why two of the three capture project milestones described above involve CO₂-EOR. In the near-term, CO₂-EOR is the largest source of revenue that can be used to offset capture costs. Looking into the future it will be important to scale up new sources of revenue from alternative uses of captured carbon.

Carbon utilization

There are a number of innovative efforts focused on scaling up utilization of captured carbon. The $20 million NRG COSIA Carbon XPRIZE was created to challenge inventors to find commercial uses for captured carbon. In October 2016, the NRG COSIA Carbon XPRIZE announced 27 semifinalist teams who are working on technologies as diverse as fish food, fertilizer, biofuels, and concrete. By next summer up to ten finalist teams will test their technologies at the Wyoming Integrated Test Center.

The Global CO₂ Initiative was launched in January 2016 with a goal of capturing 10 percent of global annual carbon emissions and converting them into useful products. Last year, the initiative released A Roadmap for the Global Implementation of Carbon Utilization Technologies. The roadmap highlighted leading options for carbon utilization, such as building materials, chemical intermediates, fuels, and polymers that could use 7 billion metric tons of carbon dioxide per year by 2030 and lead to annual revenue of more than $800 billion. The roadmap answers questions many have asked about the potential cumulative scale in terms of carbon dioxide used and in terms of revenue; both are clearly significant.

In November 2017, at COP23 in Bonn, Germany, a follow up report was released by the Innovation for Cool Earth Forum (ICEF), the Carbon Dioxide Utilization ICEF Roadmap 2.0. It focuses on pathways for conversion of carbon dioxide that do not involve photosynthesis by algae or plants, since a lot of work has already been done in this area. It highlights that concrete (including both cement and aggregates) are near-term opportunities over the next three to 10 years because the basic physics and chemistry in these technologies are well understood. Commodity chemicals like ethylene, propylene, and methanol represent a medium-term opportunity over the next five to 20 years. Durable carbon materials like carbon fiber, graphene, diamonds, and carbon nanotubes are long-term opportunities.

The roadmap also reviews considerations related to lifecycle analysis. There is a lot of variety in how much carbon each utilization option will incorporate, how much energy will be used to convert the carbon to a useful product, what the market impacts will be on competitor products, how long the products will last and how they will be disposed. Reviewing all of these factors together helps determine the climate benefit of any given option to utilize captured carbon emissions.

Research priorities and next steps

To keep carbon emissions out of the atmosphere, we need to make progress on two tracks simultaneously: improved financing policies to help commercialize innovative technologies and robust support for RDD&D. On the first track, passing the FUTURE Act would provide a tax credit to projects that convert captured carbon into useful products, which would go a long way toward moving private capital into innovative projects.

On the second track of supporting RDD&D, maintaining federal support for research will be critically important. When Mission Innovation was launched, 22 nations and the European Union pledged to double their support for clean energy RDD&D. In the United States, the Trump administration proposed dramatic cuts to the Department of Energy budget for Fiscal Year 2018, but appropriations bills from the House and Senate were closer to previously-enacted levels.

Federal support for research on carbon utilization should focus on three areas: reducing technology costs and increasing the number of technology options; conducting lifecycle analysis to ensure that over time the focus is on permanently storing more of the carbon; and identifying how to scale up these options to meet climate goals.

Carbon utilization could open the door to new jobs and new industries in many regions of the United States. It also offers a path forward on the climate challenge by creating economic incentives for capturing carbon and keeping it out of the atmosphere. Even in a polarized political environment, the strong bipartisan support for the FUTURE Act and its companion bill in the House suggest that it is still possible to find areas of consensus. Policymakers should take advantage of the opportunity to make progress on reducing carbon emissions in a way that creates new economic opportunities.

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