In April 2021, the current federal administration announced a goal of reducing greenhouse gas emissions (GHG) by 50-52 percent by 2030. Part of this goal is the push to reach 100 percent carbon-free electricity by 2035.[1] While these aims are laudable and necessary to meet the country’s obligations under the Paris Climate Accord, they stand in stark contrast to how electricity is being generated in the US today.
Domestically, the trend of shifting generation toward renewables, including solar, wind, hydroelectric, and biomass, has been markedly different across states. Compared to the 10 percent increase in the share of renewable generation electricity sources from 2000 to 2020 for the US overall, roughly one-third of states exceeded this trend, while two-thirds fell below. In other words, the shift away from fossil fuel generation in the electricity sector has been far from uniform, with different states also adopting different policy regimes to alter the composition of the sector. It is likely that the war in Ukraine will also complicate this push as the US seeks to maintain and expand its energy independence.
Insights for What’s Ahead
- While the regulatory landscape has been uneven at times, we expect that a growing number of states may follow the same approaches to incentivize the adoption of renewables. The Environmental Protection Agency has identified policy tools that states can use to incentivize the adoption of renewable power sources. Among these tools are renewable portfolio standards (RPS), which create requirements for the use of renewable energy in the state grid by a certain future date. As of Spring 2022, 29 states have adopted a form of RPS for their utility sector.[2]
- Considering the strong demand for residential solar installations—fueled in part by the near tenfold decline in the levelized cost of energy—we anticipate the share of solar generation to continue to grow. Among the additional tool kits are net-metering agreements (systems by which customers can effectively sell back electricity generated locally to the utility) or feed-in-tariffs (agreements of higher than market prices for customers selling back locally generated power).[3] Companies will have opportunities to use such technologies and invest in energy solutions that provide a cost-effective use of their financial resources.
- States and municipalities will continue to alter the regulatory landscape in ways that directly affect businesses nationwide. For instance, the adoption of Local Law 97 by New York City creates a system that provides a framework for the building sector to reduce its carbon footprint. Roughly 70 percent of GHG emissions in New York City come from buildings, and many businesses, property owners, and residential and commercial landlords will have to comply with emission restrictions for the first compliance period starting in 2024.[4] While LL97 creates a relatively new regulatory structure, we consider it likely that other cities may choose a similar path requiring businesses to prepare for the necessity to identify cost-effective emission reduction technologies or pay penalties.
- We expect that in line with consumer and investor expectations, firms will feel increasing pressure to meet renewable energy use goals even if not specifically outlined in federal or state law. US corporations have led the trend by announcing their desire to become carbon neutral, or even exclusively run on carbon-free energy.[5] While these programs and goals may not yet cover the majority of business entities in the US, more companies will feel investor pressure to achieve similar objectives. In addition, carbon capture, while still early in its development, may ultimately provide a feasible additional technology to reduce the concentration of GHG in the atmosphere.
- The current run-up in oil and gas prices, fueled by the war in Ukraine and geopolitical uncertainties, may provide additional incentives for a shift into renewable energy sources in the long term. However, in the near term, governments around the world have announced the priority of achieving energy independence. That objective will likely provide increasing demand for fossil fuels regardless of the higher market prices, at least in the short term.
To get complimentary access to this publication click "Read more" to sign in or create an account.
