From the editor: EIA versus the future

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It’s that time of year again. The U.S. Department of Energy’s Energy Information Administration (EIA) has released its Annual Energy Outlook (AEO), providing a projection for the future of energy to 2050.

Before I get started on the deep problems with this year’s forecast and EIA’s projections in general, I want to note that like any serious energy journalist I rely heavily on the agency’s data collection and analysis in my work.

EIA is the official source for information on the current state of electricity in the United States, including the portion of electricity we are getting from different sources at the national and state level and even what projects are online.

Furthermore, EIA’s short-term forecasts have been generally thoughtful and informative. But when we start to look beyond a few years, EIA’s projections start to lose their credibility, and the assumptions that they make become increasingly problematic.

 

Getting the numbers right

Energy researchers have identified many problems with EIA’s analysis over the years. Last year when I covered AEO2018, I cited Rice University Professor Daniel Cohan, who noted that the system costs that EIA was using were not in line with those being reported by national laboratories. It was later revealed that EIA was using 2015 data. The agency gave reasons for this, but it still affects their projections.

And while Alex Gilbert of the Vermont Law School describes AEO2019 as “much improved” regarding the data underlying its projections for solar, there are assumptions that remain highly problematic. AEO2019’s estimates for solar deployment are much higher than in previous years, but EIA continues to project that very little wind will be built after the expiration of the production tax credit – only 50 GW in total over the next three decades in its reference case.

The net result of this is that AEO projects that renewable energy will represent only 31% of the U.S. electricity supply in 2050.

I take less of an issue with the assumption that electricity demand will rise 1% annually to 2050. It appears that EIA is ignoring the flat electricity demand that we have seen over the last decade; and while increased electrification of transportation and heating is expected to boost demand substantially, EIA’s projections do not show substantial electrification of transportation.

But even with electrification of transportation driving increased demand, this will not happen evenly over the study period. EIA’s unreasonably optimistic view of near-term electricity growth – which it shares with the nation’s utilities – likely masks much more competitive wholesale market dynamics for the next few years, and this would unravel many of its assumptions.

 

Fossils forever

Along with this, EIA is projecting that the level of electricity generation from coal will soon stabilize, and the reference case shows our nation continuing to get 10-15% of electricity from coal each year through 2050, while exporting coal the whole time.

The first – projecting that coal will hold on – is in direct contrast to market trends, and ignores the terminal tailspin that the industry is in. No new coal plants are being built, and existing coal plants cannot compete with gas or renewables on price. Furthermore, the Trump Administration has been unable to back up its rhetoric that coal plants are essential for reliability with any real evidence.

EIA also projects that crude oil production will continue to set annual records through the mid-2020s and remain above 14 billion barrels per day through 2040. This is despite the growing market share of electric vehicles (EVs), which is already threatening to halt growth in global oil demand. But as it did with renewables in the past, EIA is assuming that EVs will not become a disruptive technology. (For an analysis of vehicle electrification and oil demand dynamics, see the Oil Fall series by Gregor MacDonald)

Along with this, EIA is also projecting ongoing growth in gas extraction in almost all cases, an increase in LNG exports, and the continued construction of large volumes of gas-fired power plants through 2050. The agency projects that natural gas will still represent 39% of electricity generation in 2050 at roughly 2,000 terawatt-hours annually, or 50% higher than 2018 levels.

 

No escaping climate realities

Unlike the coal predictions, the agency’s projections around gas could be reasonable, but only if man-made climate change were not a factor. Given the IPCC’s statement that we have until 2030 to dramatically reduce emissions or face potentially catastrophic changes, there is simply no way that we can burn the volume of gas that EIA is expecting.

EIA has repeatedly stated that their work is only a projection, not a prediction, and the agency assumes no new policies for climate or anything else. However, EIA also states that AEO2019 represents the agency’s “best assessment of how U.S. and world energy markets will operate through 2050”. And regardless of how EIA attempts to play both sides of this, the agency’s projections are used as predictions, including by many in government agencies and finance.

Beyond the problems already outlined, there are two larger problems with these projections: First, governments and corporations are taking action on greenhouse gas emissions. Second, energy demand is a feature of our civilization, and our civilization itself is threatened by climate change.

While the EIA puts out its projections, climate policies which will affect our energy mix are being implemented. Since last year’s AEO, California mandated a move to 100% zero-carbon generation by 2045, and five new governors were elected who are proposing 100% renewable energy mandates for their states. Meanwhile, a group of 9 governors on the East Coast have agreed to pass carbon taxes to pay for the decarbonization of transportation.

If these moves end up being inconclusive, cynics may say that we could still burn all this coal, gas and oil and simply doom our species. But given the accelerating number of climate-related disasters, our civilization may not even make it to 2050 without a major breakdown, which will reduce electricity usage and undermine the economic basis for building new plants in the first place.

We have already begun to see the first suggestions of this with an increase in blackouts due to severe weather events on the East Coast.

EIA is far from the only body that is putting out forecasts/projections which ignore climate change, persistently underestimate the growth of renewables and/or give an unrealistically long lifetime for the fossil fuel industries. The International Energy Agency has shown the same tendencies, and even DNV GL’s Energy Transition Outlook – while providing a highly sophisticated analysis of decarbonization technologies and pathways – gives an unreasonably large role for fossil fuels to 2050.

In the era of climate change such forecasts are absurd, but they have real-world effects in that they provide an undue degree of certainty for investors in fossil fuel industries, and undermine investment in cleaner alternatives. As such, EIA’s projections can be seen as part of the coal, oil and gas industries’ organized denial that their products must and will be phased out in order for our civilization to survive.

The larger point is that any forecast or projection that does not take climate change into account is divorced from reality, and there is a question as to the value of a “baseline” that ignores this central feature of our world. As such EIA’s Annual Energy Outlook has become at best more an exercise in econometrics than a meaningful look at the future of energy.

 

Correction: This article previously referred to AEO2019 as a “forecast”, but EIA prefers the term “projections”. We have changed the language in this op-ed to reflect EIA’s preferred term.