Reference Scenario
The Reference scenario provides a baseline to assess the impacts of projected structural and technological change over time distinct from explicit efforts to achieve a specific decarbonization target. Although this scenario does not include a net-zero target or any new carbon policies,[1] there is a significant change in the energy system driven by other factors, including state emissions and renewable policies (which are reflected in the Reference scenario), growth and structural change in the economy, technological change (such as efficiency improvements and cost declines), and adoption of new technologies as capital stock turns over. These drivers result in lower final energy use, lower per capita expenditures on energy, and lower CO2 emissions.
On the supply side of the energy system, the most significant changes in the Reference Scenario relative to today are the reduced demand for petroleum due to the high penetration of electric vehicles and the continued rise in natural gas for electric generation. Renewable generation increases due to state-level policies and continued cost declines, while coal and nuclear generation decrease due to competition with natural gas, whose price is assumed to remain roughly flat over time (see Figure 5). Figure 10 shows projected energy system flows in 2050 in the Reference scenario. Final energy declines significantly in the transportation sector due to electrification, while final energy in the buildings and industry sector remains roughly constant. As a result of the electrification of transportation, there is a shift in primary energy from petroleum for liquid fuels to natural gas for power generation. However, because of the relative efficiency of natural gas combined cycle power plants, this shift results in a reduction of about 10% in total primary energy, as well as reduced CO2 emissions.
Assumptions about economic growth and structural change in the economy for all scenarios are based on the Energy Information Administration’s Annual Energy Outlook (AEO 2020) projections and are held fixed across all scenarios. The EIA projects an annual average real GDP growth of 1.9%, which translates to roughly a 75% increase in economic output in 2050 relative to today. Direct drivers of energy services grow more slowly: for example, population increases by only 20%, light-duty vehicle miles traveled by 22%, and residential floorspace by 36%. On the production side of the economy, more energy-intensive industries (such as steel production) are projected to grow more slowly than less energy-intensive commercial services (such as technology companies). And while medium- and heavy-duty transportation activity, especially in aviation, grows faster than personal light-duty vehicle use, service demand growth in these segments is nonetheless substantially slower than GDP growth. In aggregate, these structural changes imply that even with no technological change in the energy system, energy demand would increase by only 40%, even as GDP increases by 75%. Projected technological change around efficiency and electrification results in significantly lower projections of actual energy demand.
The US-REGEN analysis follows AEO 2020 assumptions about the drivers of growth but makes its own assumptions about efficiency improvements in individual technologies over time. These projections are based on technology-specific trends that reflect expected technological advances and are largely consistent with historical improvement rates (see us-regen-docs.epri.com for more details). In contrast to AEO, which generally assumes efficiency improvements extend only to the duration of current standards, the US-REGEN scenarios assume that standards will continue to tighten over time as technologies improve. The effect of these projected improvements is an average decrease of around 33% in energy per service unit by 2050 relative to today. Combined with a 40% increase in energy service demand, these trends by themselves would result in a slight decline in final energy use over time.[2] Thus end-use efficiency plays a significant role in limiting the scale of end-use (final) energy demand. Additionally, the model allows for efficiency improvements beyond the exogenously assumed rate via increased capital investments in response to higher delivered fuel prices driven by the net-zero target.
In addition to improved efficiency for individual end-use technologies, electrification and other forms of fuel switching can also reduce the scale of energy demand, particularly as measured by final energy delivered to customers. In terms of final energy use (energy consumed at the end-use, e.g., “tank to wheels”), an electric vehicle is 3-4 times more efficient than the same vehicle with an internal combustion engine. Similarly, heat pumps use 2-3 times less final energy to supply the same heating service as a conventional heating system. In part because of these efficiency advantages, as well as lower operating costs and declining capital costs, electrification technologies become cost-effective alternatives with significant adoption rates in the Reference Scenario. For example, battery electric vehicles in the on-road light-, medium-, and heavy-duty segments, account for roughly 80% of service demand by 2050 in the Reference scenario compared to less than 1% today (see Figure 25). The combined effect of efficiency, electrification, and fuel-switching at the end-use in the Reference scenario results in total economy-wide final energy use that is 25% below today’s levels by 2050, despite a 75% increase in GDP—a 57% decrease in the final energy intensity of the economy.[3] These effects are shown in Figure 11.
In all scenarios, existing tax credits for wind and solar are assumed to be phased out by 2030, and 45Q credits for CCS, as well as other incentives included in the Inflation Reduction Act, are not included. In the Net-Zero scenarios, the implication is that these incentives are supplanted by a hypothetical economy-wide carbon cap. ↩︎
Energy services are 140% of their base year level, but energy use per service unit is 67% of its base year level, thus total projected energy use is 140% * 67% = 94% of the base year level. ↩︎
Energy intensity refers to the ratio between energy use and real economic output, often expressed in terms of btu per $ of GDP. If GDP increases by 75% while final energy decreases by 25%, the corresponding decrease in final energy intensity is equal to 1 – 75% / 175% = 57%. ↩︎