How North America could achieve a fast transition to decarbonization

It's no secret that even the impressive achievements to reduce carbon emissions from the energy and power industries in North America in the last 15 years have left the US and Canada far from meeting the changes they will need to help keep global average temperatures within the target of the Paris Agreement of 2oC.

Meanwhile, interest on the part of governments and companies around the world—often under pressure from citizens and stockholders, respectively—is propelling the idea that more rapid decarbonization is not only desirable but also necessary to avoid even higher costs of inaction.

Given the shift, IHS Markit has developed an economic forecast dubbed "Fast Transition," to reflect one set of programs that would bring North America toward deep decarbonization by 2050, and the implications of that model show both the challenges and the opportunities that lie ahead.

"Fast Transition has been developed to help governments and businesses plan for the steps and the costs associated with deep decarbonization should a political imperative to take transformative action take hold," IHS Markit said in releasing Fast Transition in February 2020 (and several sectors have been updated since then).

"Fast Transition describes one of a nearly endless array of possible pathways that could achieve the dual goals of significant end-use electrification and power sector 90% decarbonization. It is meant to be illustrative and describes a 'plausible' pathway as opposed to being any form of an 'optimal' pathway," it added.

Fast Transition takes IHS Markit's "Planning Case" for the US and Canada, but then layers on top of it a much deeper and broader decarbonization to meet the Paris Agreement's goals. For comparison, the Planning Case would see US power sector emissions decrease 64% by 2050, whereas they would fall by 93% under Fast Transition. For Canada, the relative numbers are 57% and 92%. Complementary to the power sector's transformation under Fast Transition would be an electrification strategy to completely decarbonize surface transportation as well as a significant portion of residential, commercial, and industrial activity by 2050.

Transformed power industry

At its core, Fast Transition envisions widespread deployment of carbon-free power resources. These include nuclear and large-scale hydroelectric, as well as natural gas and coal utilizing carbon capture and storage (CCS)—all of which combine to meet on-grid power demand that would increase by about 35% between 2018 and 2050 in the United States and 50% in Canada by 2050.

Fast Transition also forecasts two other areas of significant divergence from the Planning Case. First, total primary energy demand declines by 10% in the US and 5% in Canada, due to greater investment in end-use energy efficiency and reduced use of energy by the oil and gas production and refining sector as demand for fossil fuels declines. Second, off-grid power production would emerge as a major new factor, with much of it dedicated to producing "green hydrogen" for fuel cells for vehicles. "This off-grid hydrogen-related demand amounts to 1,328 TWh in the United States and 159 TWh in Canada," IHS Markit said.

Getting there

The rapid transition described above will be driven by new policy initiatives, such as carbon pricing programs and mandates for cleaner transportation. The policy drivers would create economies with the following characteristics:

• road transportation is electrified through batteries and hydrogen fuel cells

• residential-commercial heating and water heating reach 65% in the US and 45% in Canada

• industrial sector decarbonization reaches 36% in the US and 63% in Canada

• aviation fuels are 50-50 blends of biofuels and fossil fuels.

With so much dependence on more electrification, IHS Markit forecasts a more than doubling of the capital expenditure on generation and transmission, and a small increase in power distribution, compared with its Planning Cast.

The cost of electricity at the retail level will rise from 10.9 cents/kWh today to about 12.1 cents/kWh in 2050 in real terms, about 10% more than the 2050 average in the Planning Case. And this is somewhat optimistic because it assumes continued technological advancements. Otherwise, the retail electricity cost could be 13.7 cents/kWh in 2020 dollars.

"Retail price impacts will vary greatly by geography and customer class. In addition to higher retail prices, most consumers will experience higher total electric bills and, in at least some cases, a higher total cost of energy," IHS Markit said.

Posted 22 November 2020 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit