#Energy Prices and Expenditures

Figure 18 and Table 2 summarize national average delivered fuel prices for key fuels in each end-use sector across scenarios. These delivered prices reflect the full cost of supply and delivery of fuels, including the embedded effect of the carbon price implied by the emissions target in the net-zero scenarios. As discussed in the Overview and Emissions section, the model calculates an economy-wide carbon price, which reflects the marginal cost of emissions reductions (or atmospheric removals) needed to achieve the net-zero target. The carbon price is implicitly embedded in delivered fuel prices, which also reflect the incremental cost of changes on the supply side to lower the carbon intensity of the pathway (e.g., shifting to low-carbon generation sources or increasing the share of bioenergy in the fuel mix).

In the Reference scenario, fuel prices remain mostly flat in real terms, with slight declines in the electricity price due to sustained low gas prices and shifts to lower-cost resources. Liquid fuel prices also decline somewhat as demand falls and advanced biofuels using low-cost cellulosic feedstocks from agriculture and forestry waste streams become competitive with conventional petroleum. In the net-zero scenarios, fuel prices are higher than in the reference scenario, although the increases are relatively modest in the Net-Zero All Options scenario because the available CDR options allow the target to be met with a relatively low incremental cost. Moreover, the shift to more expensive low-carbon technologies generally takes place at the point of production in wholesale energy markets, which reflect only a portion of delivered fuel costs (e.g., wholesale electricity prices comprise less than half of retail prices in the case of electricity). In the Net-Zero Limited Options scenario, price increases are much higher, particularly in the non-electric fuel markets, as these fuels must be supplied using more expensive low-carbon fuel pathways. The price of electricity is also higher in this case, but the increase is not as steep because there are more cost-effective options for zero-carbon electric generation than for non-electric fuels.

Combining fuel prices with the quantities of delivered fuels yields an aggregate metric for total expenditure on energy, shown in Figure 19. This metric includes all expenditure on end-use energy across the economy, including the residential, commercial, transportation, and industry sectors. For the Reference scenario, there is a roughly 30% decline in real economy-wide energy costs in 2050 relative to today, which with assumed growth in population and GDP implies a 45% reduction in total energy costs per capita and a 60% reduction in total energy costs as a share of GDP. In the net-zero scenarios, total energy costs increase significantly, ranging from a roughly 33% increase relative to the Reference case in the Net-Zero All Options scenario to more than double the Reference case level in the Net-Zero Limited Options. As a share of projected GDP in 2050, these increases translate to 0.7% and 3.3%, respectively. For comparison with the Net-Zero Higher Fuel Cost scenario, Figure 19 also shows energy expenditures for a Reference scenario that includes the Higher Fuel Cost assumptions. These scenarios have higher total expenditures, but the incremental cost of the Net-Zero target is similar. Although direct energy expenditures are higher in the Net-Zero scenarios, they generally remain lower than today on a normalized basis. Increased total expenditures are offset by economic growth, structural change, and technological change in the form of efficiency, electrification, and fuel-switching, which combine to reduce the relative energy burden on households and the economy.

Figure 20 shows annual energy expenditures on a per-household basis, broken out by fuel and by direct vs. indirect expenditures. Direct expenditure on energy by households includes purchases of electricity and non-electric fuels for residential buildings and personal vehicles. Currently, the average direct expenditure on energy is around $4,400 per household, more than half of which is on petroleum liquid fuels for personal vehicles. Note that this is an average metric; the distribution of energy costs varies significantly across households and household types. In the Reference scenario, average direct expenditure on energy per household declines to around $2,100 (in real terms) by 2050, reflecting savings from efficiency and electrification. In the Net-Zero scenarios, direct household energy expenditures range from $2,800 in the All Options scenario to $4,800 in the Limited Options scenario.

Indirect energy expenditures elsewhere in the economy—including commercial buildings, transportation, and industrial sectors—are embedded in household purchases of goods and services. These indirect energy expenditures (shown in gray in Figure 20 as non-household energy aggregated across fuels) amount to around $5,200 per household currently, declining to around $3,200 by 2050 in the Reference scenario. In the Net-Zero scenarios, indirect energy expenditures in 2050 range from $4,100 to $8,400 per household.

The analysis also measures non-energy expenditures associated with energy services, which include the purchase of vehicles, appliances, and other energy-using equipment and non-fuel operating and maintenance costs. These costs are larger than expenditures on delivered fuels: current annual expenditure on energy is around $1.2T (as shown in Figure 19), while total expenditure on energy services is around $3.5T. On a per household basis, this amounts to around $19,000 of non-energy expenditures (shown in green in Figure 20). Roughly $12,000 of this total is incurred directly by households, the majority for the purchase and maintenance of personal vehicles. In the Reference scenario, non-energy expenditures on energy services increase in absolute terms but remain roughly constant on a per-household basis. While increases in efficiency and electrification generally translate to higher initial capital costs, electric transportation technologies potentially entail significantly lower maintenance costs. The net effect is a reduction in the normalized total cost of energy services, although not as significant in percentage terms as the decline in energy costs. In the Net-Zero scenarios, there are relatively small incremental costs in the non-energy categories, as most of the added costs associated with meeting the decarbonization target are on the supply side of the energy system. The most significant increase occurs in the Net-Zero Limited Options case, in which non-energy costs for commercial and industrial firms increase by roughly 38% relative to the Reference scenario, reflecting increased investments in energy efficiency and energy-using equipment for hydrogen applications.