Executive Summary

U.S. Energy Scenarios for the 21st Century

This study presents a set of scenarios describing three divergent paths for U.S. energy supply and use from 2000 through 2035. The scenarios presented here are not predictions; taken together however, these potential futures can be used to help identify key technologies, important energy policy decisions, and strategic investment choices that can enhance energy security, environmental protection, and economic development over a range of possible futures. To envision these scenarios and to draw policy-relevant conclusions from them, the Pew Center on Global Climate Change, working with the Global Business Network, convened two workshops with experts from the corporate, academic, and NGO sectors. The Pew Center also commissioned a set of technology assessments and joined with the Global Business Network to analyze the scenarios. 

The trajectory of future U.S. economic growth, energy use, and carbon emissions will be a product of dynamic interactions among a complex set of driving forces, including technological advances, international events, energy and environmental policy, private investment, and consumer behavior. The interactions among these forces and their interplay with other social, economic, environmental, and cultural forces that stimulate change are not completely understood today. However, if the past thirty years are useful as a guide, it is likely that major surprises will occur between now and 2035.

The scenarios developed in this study reflect divergent trends in all of these driving forces. In brief, the three base case scenarios are:

• Awash in Oil and Gas, a scenario in which abundant supplies of oil and natural gas remain available to U.S. consumers at low prices. Energy consumption rises considerably, and conventional technologies dominate the energy sector. In this low energy price scenario, there are few incentives to improve energy efficiency and little concern for energy issues. Carbon emissions rise 50 percent above the year 2000 level by 2035; 
  
  
• Technology Triumphs, a scenario in which an array of driving forces converge to accelerate the successful commercialization in the U.S. market of many technologies that improve energy efficiency and produce lower carbon emissions, and in which U.S. companies play a key role in the subsequent development of an international market for these technologies. Despite sustained economic growth and an increase in energy consumption, carbon emissions rise 15 percent above the year 2000 level by 2035; and
  
  
• Turbulent World, a scenario in which U.S. energy markets are repeatedly buffeted by developments both at home and abroad, with unsettling effects on energy prices and mounting threats to U.S. energy security. High energy prices and uncertainty about energy supplies slow economic growth, and the country moves from one technological “solution” to another, finding serious flaws with each, until finally settling on a program to accelerate the commercialization of hydrogen and fuel cells. Despite slower economic growth in Turbulent World, carbon emissions rise 20 percent above the year 2000 level by 2035.

Climate change policy was deliberately excluded from these three base case scenarios; rather, the participants in the scenario development process formulated a hypothetical climate policy overlay. The policy overlay postulated a freeze of U.S. carbon dioxide (CO₂) emissions in 2010 and subsequent 2 percent per year decreases from 2010 to 2025, followed by 3 percent per year decreases to 2035. Like the base case scenarios, the policy overlay is neither a prediction nor a recommendation. To achieve the targeted emissions reductions trajectory and create the policy overlay cases, the same portfolio of primarily market-oriented policies and programs was imposed on each base case scenario. 

Carbon dioxide emissions reductions achieved in other countries, carbon sequestration in plants and soils, and reductions in emissions of other greenhouse gases were beyond the scope of this analysis. Other analyses indicate that to minimize the cost of emissions reductions for the energy and energy-intensive industries, it is important to have flexibility in offsetting energy-related CO₂ emissions through international emissions trading, non-CO₂ greenhouse gas reductions, and carbon sequestration. 

When the postulated policy overlay is applied to each of the base case scenarios, it modifies the pattern of energy technology development. For example, in the base case of the Turbulent World scenario, concerns about energy security stimulate a major national commitment to expanding production of hydrogen from coal and to accelerating the development of hydrogen fuel cells, both for transportation and in stationary power applications. In the policy overlay case for the Turbulent World scenario, the carbon constraint combines with growing public and private concerns about the security of energy facilities to stimulate demand for distributed generation (DG) and for combined heat and power (CHP) systems.

In the Technology Triumphs base case, new technologies already contribute to a slowing in the growth of carbon emissions. In the policy overlay case for Technology Triumphs, the carbon emissions limit forces faster reductions in oil demand, especially in the transportation sector, compared to the Technology Triumphs base case, resulting in accelerated market penetration by hybrid gasoline-electric and diesel-electric vehicles. Imposition of the carbon constraint in the policy overlay case expedites efforts to lower the barriers that typically hold back distributed generation, end-use efficiency improvements, and renewable energy technologies from large-scale commercialization in the United States.

In Awash in Oil and Gas, imposing carbon policies is more complex and more challenging. The base case scenario, built around cheap and abundant resources of oil and gas, includes little private investment in the technologies that improve end-use efficiency or reduce carbon emissions. Thus, meeting the carbon emissions target of the policy overlay introduces tremendous tension into this scenario. Major federal programs are needed to mandate carbon reductions and educate individual and industrial consumers about the climate consequences of their energy use. Yet cheap fuel encourages consumers to drive inefficient vehicles and stimulates air travel. Facing an exceedingly tight constraint on emissions and with little time to upgrade capital stock, public and private decision-makers move aggressively (but late in the scenario period) to develop carbon capture and geological sequestration technology so as to keep combustion-derived carbon dioxide out of the atmosphere.

Taken together, this scenario analysis revealed three important conclusions: 

These principal conclusions are discussed below.

Absent a climate policy, U.S. carbon emissions will continue to increase

In the absence of a mandatory carbon cap, none of the base case scenarios examined in this study achieves a reduction in U.S. carbon dioxide emissions by 2035 relative to current levels. This is true even in the scenario with the most optimistic assumptions about the future cost and performance of energy technologies. Although the future is unlikely to unfold in precisely the manner described by any one of these scenarios, without climate policy U.S. carbon dioxide emissions in 2035 are unlikely to be less than the 1,800 to 2,400 million metric tons of carbon represented in the three base case scenarios. Thus, slowing the buildup of greenhouse gases in the atmosphere will require significant, systematic, and sustained policy intervention in the United States.

In the base case scenarios, while U.S. population grows steadily, GDP increases significantly and pushes the rate of growth in aggregate energy demand beyond the rate of improvement in energy efficiency.¹ Total primary energy demand grows at an average annual rate that varies from 0.5 percent per year in the Turbulent World scenario to approximately 1.2 percent per year in Awash in Oil and Gas. These annual increases in primary energy use lead to energy consumption levels in 2035 ranging across the three base case scenarios from approximately 120 to 150 Quads (quadrillion British thermal units), up from 100 Quads in 2000.² 

During the same period, U.S. carbon emissions increase from approximately 1560 million metric tons of carbon (MMTC) emitted as carbon dioxide³ in the year 2000, reaching 1800 to 2360 MMTC in 2035. This is equivalent to an increase in annual CO₂ emissions of 15 to 50 percent above the 2000 level, and largely parallels the increase in primary energy use. Despite declining carbon intensity of the U.S. economy at an average annual rate of 1.8 to 2.6 percent, carbon emissions rise in all base cases. In the three policy overlay cases, which include mandatory carbon constraints, the carbon intensity of the U.S. economy declines more rapidly than in the base case scenarios, at an average annual rate of 3.6 to 4.2 percent, and by 2035 annual CO₂ emissions fall to almost 40 percent below the year 2000 level. 

Choices made today will determine the difficulty of reducing carbon emissions 

Many climate policy analyses create one base case and then overlay various policy options; this scenario planning exercise takes three different base cases and analyzes the effect of imposing the same policy overlay on each of them. Because the conditions of each base case scenario are different, achieving carbon reductions through the policy overlay is not equally difficult for all three scenarios. Aggregate costs to the economy of meeting the carbon emissions constraint differ by more than a factor of two among the scenarios; they are lowest in Technology Triumphs and highest in Awash in Oil and Gas.

The conditions of each scenario influence energy consumption and investment in that scenario, which in turn affect the level of carbon emissions. Each scenario illustrates a unique pattern of public policies, technological choices, and external events that affect prices, investment, consumption, and economic growth. Implementing climate policies modifies the energy mix, the pattern of technological development, and the composition and level of economic activity. For example, low oil and gas prices stimulate high levels of energy consumption and produce high levels of carbon emissions; low prices also discourage investment in energy efficiency-improving measures and carbon emissions-reducing technologies. Thus, the consumption and investment patterns in a scenario can lead to high carbon emissions and put the United States in a poor position to develop future technological solutions. Base case conditions that discourage energy consumption and favor investment in technological advances better position society to reduce carbon emissions.

More specifically, in Technology Triumphs, early and consistent investment in clean and energy-efficient technologies strengthens the economy and leaves the United States better positioned to reduce GHG emissions in the future. By contrast, in Awash in Oil and Gas much more aggressive and stringent policies are required to achieve the targets of the policy overlay because the economy starts from a high emissions trajectory. In addition, although the overall level of economic activity increases substantially in Awash in Oil and Gas, this scenario’s growing reliance on imported oil significantly increases the likelihood that events in politically unstable regions of the world could lead to spikes in oil prices or temporary disruptions of supply. 

A smart investment path today provides a greater capacity to respond to unexpected developments affecting future energy demand and supply. The scenario analysis identified several technologies as critical to the successful evolution of U.S. energy markets, enabling those markets to respond more effectively to uncertain future conditions.

The most important technologies include fuel cells, energy efficiency, CHP, renewable energy, DG, high-efficiency natural gas combined cycle power plants, hybrid electric vehicles, hydrogen production technologies, geological carbon sequestration, and integrated gasification combined cycle (IGCC) coal plants. Many of the electric power technologies are modular, allowing improved matching of supply and demand over relatively short time intervals. Modular technologies may improve the speed with which the energy sector can respond to changes, help to control risk, and maintain profitability in the U.S. energy sector.

Several technologies prove to be wise investments across the scenarios; others play key roles only under certain conditions. Natural gas consumption along with investment in energy efficiency measures, renewable energy technologies, and distributed generation increase in each scenario, both with and without climate policy. In all three policy overlay cases, hybrid-electric vehicles offer multiple benefits and emerge as a key near- or mid-term bridge to a hydrogen economy, and hydrogen makes an important contribution in the out-years. Hydrogen offers the possibility of numerous production pathways, using a variety of feedstocks. It is derived primarily from coal in Turbulent World, from natural gas in Awash in Oil and Gas, and from a variety of sources in Technology Triumphs. Distributed generation increases in each scenario, but to an extent and for reasons that vary by scenario. In the Turbulent World base case, investment in IGCC strengthens the role of coal in the U.S. energy sector. This early investment facilitates the commercialization of IGCC coupled with geological sequestration of CO₂, which enables coal to maintain a major role in Turbulent World with Policy, even in a carbon-constrained future. Bio-fuels and nuclear power play modest roles across the scenarios, both with and without climate policy. 

A balanced portfolio of policies can help achieve multiple objectives

A balanced portfolio of market-oriented policies and performance standards—one that includes a carbon cap-and-trade program, incentives for technology development, strategies that remove barriers to new technologies, and efficiency standards—can help to achieve several objectives concurrently. These objectives include economic growth, energy security, and climate protection. These goals are often complementary: programs implemented for one of these reasons often contribute to the achievement of the other objectives as well. For example, in the Turbulent World base case, tough fuel economy standards designed to address energy security have the secondary effect of reducing GHG emissions. In Turbulent World with Policy, the carbon constraint incidentally but significantly reduces oil imports. 

Many key technologies achieve multiple objectives. For example, distributed generation has energy security, environmental, and economic benefits. In both the Turbulent World base and policy cases, DG’s increased market penetration is driven, in part, by its ability to reduce security risks for energy facilities. Many analysts believe that the small, often modular facilities used to provide distributed generation are less likely to be targets for terrorists than would be, for example, large, centralized nuclear power complexes or liquefied natural gas facilities. In Technology Triumphs with and without climate policy, engineering advances, state policy leadership, and sustained interest among private investors converge, contributing to nationwide efforts aimed at breaking the barriers to commercialization for “disruptive” new energy technologies. In Awash in Oil and Gas, the drivers include electric grid congestion caused by rapid electricity demand growth as well as interest in power quality⁴ for specialized industrial applications and new consumer gadgets. In each of the policy overlay cases, relative to the respective base case, the efficiency benefits as well as the low-carbon characteristics of some DG and renewable energy technologies accelerate their penetration. Several of the most important energy efficiency and low-carbon technologies are cost-competitive today in specific applications. These include many energy efficiency measures in the buildings and transportation sectors, wind power plants, CHP, and combined-cycle turbines. Other important technologies are not yet cost-competitive in the U.S. energy market, including carbon capture and geological sequestration, photovoltaic power systems, and fuel cell vehicles. Full-scale commercialization of these critical technologies requires public policy to sustain investment in technology and market development.

Commercialization and market penetration of key technologies in the policy overlay cases are facilitated by various policies, strategies, and investments. Federal and state initiatives include renewable portfolio standards, fuel economy and air quality requirements, national electric grid interconnection standards, and aggressive R&D investment in hydrogen and fuel cell technologies. Private investment in emerging energy technologies also plays a critical role in all scenarios. This is especially true in the case of a major transition to use of hydrogen as a fuel, which requires sustained and coordinated investment in hydrogen production, transportation, and distribution infrastructure, as well as in fuel cell vehicles. Rapid commercialization of renewable and distributed electric generation also depends on new investment, but is greatly facilitated by removing institutional barriers to their use and by recognizing the full value contributed by these technologies to the operation of integrated electric grids. Because the time lag from technological breakthrough to commercialization is long, it is essential to initiate these investments early on and sustain them over time. 

The hypothetical policy overlay emphasizes “barrier busting” policies and programs to remove institutional obstacles and lower the barriers to commercialization of new technologies. For example, expenditures on informational and educational programs can increase awareness of emerging technological opportunities and increase the ability of U.S. society to respond to unexpected changes in energy markets. Institutional reforms, such as uniform electric grid interconnection standards, facilitate the market penetration of disruptive technologies such as distributed generation and building-integrated photovoltaic power systems. By putting investment in energy-efficiency measures and carbon emissions-reducing technologies on a more equal footing with conventional energy supply technologies, such programs and policies help to ensure fair competition and increase the likelihood that investment moves toward the technologies that have the best long-run return for U.S. society.

In sum, this scenario exercise suggests that in the absence of a mandatory climate policy, U.S. carbon emissions will continue to increase. Policy is needed to encourage investment in climate-friendly technologies and to pull these technologies into the marketplace. Policy and investment choices made today will determine the difficulty of reducing carbon emissions in the future. A smart investment path today provides a greater capacity to respond to surprises tomorrow. A portfolio of technology performance standards and market-oriented policies can stimulate investment, accelerate capital stock turnover, reduce carbon emissions, and enhance energy security across a wide range of possible energy futures.