Call it a tale of America’s two energy transitions.
In one, utilities are rapidly closing coal plants, with consumption of the fossil fuel falling to levels not seen since the Eisenhower administration. In the other, American oil and gas drillers are on track to set new pumping records, driven by high demand at home and abroad.
Analysts say the dynamic highlights the challenges facing the Biden administration as it attempts to green the world’s largest economy. The Inflation Reduction Act is injecting a massive amount of cash into clean energy technology, but the transition is uneven. Electric cars and heat pumps are replacing gas cars and furnaces — but they also drive up electricity demand on America’s grid, requiring vast amounts of energy that can’t yet be provided by zero-carbon sources.
“The energy transition is going to occur at different paces in different sectors,” said Arne Olsen, a senior partner at the consulting firm Energy and Environmental Economics Inc..
The U.S. Energy Information Administration predicts coal will account for 17 percent of American power generation this year, compared to 24 percent for renewables and 37 percent for natural gas.
Such a result would have been nearly unthinkable 15 years ago, when coal accounted for almost half of U.S. power generation. But in 2023, American coal consumption will hit a low of 434 million tons, according to EIA. The last time Americans burned so little coal was 1957, when Dwight Eisenhower was president and the country’s population was less than half of what it is today.
More than a third of U.S. coal capacity has retired since 2012, according to EIA figures. The reasons for that plummet are numerous.
Many coal facilities are just plain old — the average coal plant in the U.S. was around 45 years old in 2021. When faced with the need to upgrade aging coal plants to meet environmental regulations, many power companies simply shut them down.
But the biggest reason for coal’s demise is the growth of cheaper — and often cleaner — alternatives. A wave of cheap gas initially knocked coal from its roost as the power sector’s fuel of choice. Recent years have seen utilities increasingly swapping coal for renewables.
The same is not yet true for oil and gas.
While electric vehicle sales have accelerated, sport utility vehicles and trucks remain the most popular cars in America. Four of the top five selling models in 2022 were trucks or SUVs, according to CNBC. Americans are also driving and flying more, helping oil demand recover from a low during the early days of the pandemic.
Natural gas demand is also on the rise, with higher consumption from power plants helping the country set a new record for gas use in 2022.
The result is a shift in America’s emissions profile.
In 2005, coal burning produced 2.1 billion metric tons of carbon dioxide, or more than a third of the country’s CO2 emissions associated with fossil fuel consumption, according to EPA figures. That same year, natural gas emissions accounted for 1.2 billion metric tons of CO2 emissions.
But by 2021, gas emissions had risen in coal’s place. Coal burning produced 957 million metric tons of CO2 emissions, while gas accounted for 1.6 billion metric tons.
Oil, meanwhile, remains the leading source of CO2 emissions in the U.S., reaching 2 billion metric tons in 2021.
The role of exports
Jesse Jenkins, a professor who studies the energy transition at Princeton University, thinks the U.S. is at an inflection point.
The Inflation Reduction Act’s tax credits offer an opportunity to drive down oil and gas demand in the U.S., putting the country on track to cut emissions 40 percent by the end of the decade, he said.
“We see we’re about to embark on the first sustained decline in oil and gas in U.S. history,” Jenkins said.
Yet several analysts cautioned that declining American oil and gas demand is not a foregone conclusion, even with the Inflation Reduction Act. While the law pours billions into clean energy subsidies, it does not address logistical issues like building new transmission lines or streamlining the process to plug wind and solar into the grid, said Elizabeth Kaiga, an analyst who tracks the energy sector in North America at DNV GL, a consultancy.
“There are practical elements that have to come together for this to move faster, to move quicker,” Kaiga said. “It is something we have to figure out, but I don’t see a clear solution from where I sit right now.”
Even if U.S. demand declines, supply may not. American oil and gas production has soared since Russia invaded Ukraine, with exports accounting for a bigger chunk of the U.S. industry’s bottom line.
EIA predicts U.S. oil production will reach 12.4 million barrels a day in 2023, eclipsing the record of 12.3 million barrels set in 2019. Gas production, meanwhile, is set to surpass 100 billion cubic feet this year — another record.
“What we’re going to see is a big acceleration in declining domestic consumption, and that raises questions about what it means for domestic production,” Jenkins said. “The U.S. is increasingly becoming a significant exporter of [liquefied natural gas] and crude oil products, and that may continue as domestic demand contracts.”