- The Biden Administration’s recently released 2030 emissions reduction target will rekindle a longstanding debate over how fast—and how best—to deliver on ambitious climate goals.
- As a large and relatively uniform emissions source, the power sector has provided the heavy lifting behind U.S. emissions reduction successes for the last 15 years. However, even under optimistic scenarios, it is unlikely to deliver even half of the additional reductions necessary to meet President Biden’s NDC target.
- With approximately 1/3 of economy-wide emissions coming from 60+ sectors and source categories that each emit less than 200 MMTCO2e per year, a sector-by-sector regulatory approach to achieve the NDC would be highly inefficient. But basic math tells us that as more sectors and sources are left unaddressed, the deeper the emissions reductions must be in the sectors that are addressed.
- In contrast, market-based mechanisms—while not a silver bullet—offer several advantages over regulatory approaches, including the ability to more efficiently address the numerous but small sources comprising the “Long Tail” of economy-wide emissions.
Immediately upon taking office in January, President Biden restored U.S. participation in the Paris Agreement on climate change. The Chamber applauded the President’s decision, and subsequently detailed our principles and priorities for development and implementation of the nationally determined contribution (NDC), the official Paris emissions pledge issued by the administration in April. Specifically, President Biden’s NDC formally commits the U.S. to reduce economy-wide net greenhouse gas emissions between 50 and 52 percent below 2005 levels by 2030.
A key element of the Chamber’s NDC priorities is the need to “enhance the credibility of the U.S. emissions pledge by ensuring that the regulatory, legislative, and technological pathways to implementation and achievability are transparent and realistic.” While the Administration has stated that additional details will be forthcoming, little is known about the sector-specific reductions that will be necessary to achieve the ambitious targets of the NDC.
Nonetheless, we do know broadly what achievement of the goal will require. As shown in the chart below, meeting the 2030 NDC will require net economy-wide reductions from 2005 levels of 3,317 million metric tons of carbon dioxide equivalent (MMTCO2e). This represents a decrease of nearly 43 percent (or 2,471 MMTCO2e) below 2019 levels.
With the baseline and end point of the NDC in hand, we can begin to examine possible pathways to achievement, and specifically what may be required of different sectors. Typically, economy-wide GHG emissions are presented in six sectoral source categories: transportation, electricity, industry, agriculture, commercial, and residential, as shown below and described here in further detail. This chart illustrates that the vast majority of U.S. emissions reductions since 2005 have occurred in the power sector—an important factor to keep in mind as we postulate how the Biden Administration may be planning to meet the NDC.
While the above format is appropriate for most purposes, it does not convey the true number and diversity of GHG emissions sources across the economy. In reality, these major source categories are typically not monolithic, but rather comprised of numerous subcomponents.
For example, according to EPA’s official inventory of greenhouse gas emissions, transportation is comprised of more than 10 source sub-categories, including passenger cars and trucks, medium- and heavy-duty trucks, motorcycles, buses, railroads, commercial ships, recreational boats, commercial, military, and private aircraft, and more. The industrial sector is even more diverse, with facilities across dozens of sectors often generating their own onsite energy, as well as emissions resulting from various and sundry manufacturing processes (for example, from the chemical reactions necessary to produce cement or fertilizer).
EPA also tracks an assortment of non-CO2 emissions that comprise about 80 percent of total economy-wide GHGs. These include methane (emitted from livestock and oil & gas systems), nitrous oxide (emitted from agriculture and wastewater management facilities), hydrofluorocarbons (HFCs, used for refrigeration, air conditioning, and many other products and applications), and perfluorocarbons (PFCs, emitted from the production of electronics and aluminum).
By our count there are 76 unique subcategories of emissions sources and gases that comprise EPA’s core inventory of greenhouse gases. While these could be furthered sliced and diced in certain areas, the point is that the U.S. economy—and the emissions associated with it—is incredibly diverse.
Together, this underappreciated diversity of sources and gases forms what we call the “Long Tail” of GHG emissions, displayed in chart form below at the bottom of this page (full-size chart available here).
More than just an interesting chart, the Long Tail helps to illuminate some important considerations for the climate policy debate. Consider the following:
- While the largest eight source categories comprise 2/3 of gross economy-wide GHG emissions (4,447 MMTCO2e in 2019), the remaining 33 percent of emissions are spread amongst 68 sources, none of which individually represent more than 3 percent (or ~200 MMTCO2e) of annual emissions.
- If we set the bar even lower at 1.5 percent of gross emissions per source (~100 MMTCO2e), there are still 61 different sources totaling 987 MMTCO2e, or 15 percent of gross economy-wide annual emissions.
This brings us back to the Biden Administration’s NDC and the debate over how best to reduce emissions. Basic math tells us that the more sectors and sources are left unaddressed by climate policy, the deeper the emissions reductions must be in the areas that are addressed. At the same time, however, we know that a piecemeal regulatory approach to 70+ emissions categories would be highly inefficient, especially when it comes to the dozens of minor sources that make up the Long Tail.
Put another way—while the power sector has delivered the overwhelming majority of emissions reductions the last 15 years, it simply cannot take on all the burden under an ambitious economy-wide approach. (In fact, by our math, reducing power sector emissions 80 percent below 2005 levels by 2030—an oft-cited target—would yield just 46 percent of the reductions necessary to achieve the President’s NDC.)
So how do we circle this square? Enter the markets. In January, the Chamber announced its support for accelerating GHG emissions reductions via a transparent market-based approach. It not only avoids the inherent inefficiencies that result from a patchwork quilt of distortive standards, regulations, and subsidies, it does so while also driving reductions from the otherwise neglected end of the Long Tail. This is why market-based mechanisms are a nearly unanimous preference among economists, and why the Chamber is building consensus among our members on what an approach might look like and working to ensure Congress takes this into account in upcoming climate policy debates.
This is not to say that a market-based approach is the only solution, or that it would make achieving the President’s ambitious NDC easy. In certain cases—particularly non-CO2 emissions such as HFCs or methane emissions from oil and gas operations—targeted regulations may make the most sense (in fact, the Chamber has endorsed legislation phasing out HFCs as well as direct regulation of methane). But overall, we know that market-based mechanisms are more efficient and effective, and that’s why they deserve serious consideration from Congress and the Administration.
