A Note on Decarbonization of the United States Energy Sector

Published: June 29, 2021

Contributors: Bob Yardley, Forrest Small, Marisa Ihara, and Julie Lieberman

The United States and Europe have made great progress in decarbonizing electric generation. However, to achieve the 2050 decarbonization goals set by many states and local communities, it will be necessary to decarbonize transportation and building heating and cooling as well as energy production.

There are several alternative pathways to decarbonize an economy, including:

These pathways have varying technical challenges, timelines, costs, and impacts on greenhouse gas emissions. Under all pathways, maintaining the security of the energy infrastructure is of paramount importance. However, as with any transformative change, there will be winners and losers throughout all segments of the economy. The potential for big “winners” will drive innovation in the technologies that make decarbonization possible. In contrast, the potential for big “losers” will bog down policymaking and potentially lead to stranded costs, if not offset by opportunities to generate new revenue sources. Policymakers will need to consider these competing interests while maintaining the financial integrity of regulated entities and serving the broader public interest.

Under all pathways, reducing energy usage and/or shifting energy usage from peak to off-peak hours will be key to achieving decarbonization goals, while also improving the efficiency of the overall energy system and mitigating cost impacts. Shifting the timing of energy production through the strategic use of energy storage will also mitigate cost impacts as storage technologies develop.

Under the first pathway, residential and business customers are likely to incur substantial costs to convert their preferred method of heating, cooling, cooking, and other end-uses to electricity. Policymakers must consider affordability for low- and moderate-income customers, equity issues related to the siting of electric transmission facilities and other new infrastructure. A substantial buildout of electric transmission to deliver wind and solar energy will be particularly challenging under the current approach to siting in the most populated regions of the United States.

Transitioning from pipeline gas to renewable natural gas and hydrogen-based fuels distinguish the second and third pathways. This will require improvements in natural gas pipeline infrastructure to accommodate hydrogen, for example, and new appliance technologies.

The United Kingdom is leading the way with respect to research in the production and use of hydrogen and other low-carbon fuels and has provided ₤659m of innovation funding over a five-year period to its regulated energy distribution companies to support the transition to Net Zero.1 The UK is able to make strategic decisions due to its model characterized by a single regulator (Ofgem) and general alignment on decarbonization goals. As the UK’s hydrogen production and decarbonization of building heating and cooling get underway, the United States can benefit from these efforts and the many practical lessons learned.

Communicating the strategies and tactics to customers and the public will be enormously challenging. It will require coordination among policymakers, utilities, and other organizations that will play a role in implementing decarbonization. There are many practical challenges to be addressed and communicated, including circumstances in which the gas company and electric company are distinct entities that must coordinate the overall program and each individual conversion.

In summary, the decarbonization of the energy sector is both incredibly challenging and infused with the public interest. At this early stage, it is essential to accelerate research and development to validate and improve the options that may be available. Policymakers will require information on cost and other customer impacts, public safety, contribution to emissions reductions, and a multitude of implementation issues to achieve decarbonization goals as efficiently and equitably as possible. Our team strives to bring solutions to regulators that will benefit customers and local economies and to help market participants implement these policies. We focus on the policy, financial, risk, pricing, market, affordability, resilience, and practical implementation issues at the intersection of utility planning, infrastructure development, and customer service delivery.

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All views expressed by the contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

1See RIIO-2 Final Determinations – Core Document (December 8, 2020) at 5.

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