A carbon price would sustain emissions reductions.

A new report from the Rhodium group finds that after three straight years of decline, CO2 emissions from the U.S. power sector increased significantly in 2018. Based on preliminary power generation, natural gas, and oil consumption data, the report estimates that energy-related U.S. emissions increased by 3.4 percent last year–marking the second largest annual gain in more than two decades, and a departure from recent year-to-year trends.

Between 2007 and 2015, energy-related CO2 emissions from fossil fuel combustion fell at an average rate of 1.6 percent per year. This reduction in emissions was mostly driven by reduced power demand during the Great Recession and a shift from coal to cheaper natural gas, solar and wind power. Natural gas was, and still is, being hailed for its ability to act as a bridge between dirty fossil fuels and renewable energy sources. However, the pace of emissions reductions from energy combustion declined from 2.7 percent in 2015 to just 0.8 percent in 2017-and last year reversed. Increased power demand in 2018, and utilities burning more natural gas to meet this demand, caused the uptick in emissions.

Although the U.S. is on track for record coal plant retirements, natural gas capacity additions outpaced the closure of coal plants by a factor of 3. It is important to note that although natural gas has roughly half the CO2 to energy content than coal does, adding 3 times more natural gas than retired coal plants will increase overall emissions. This suggests that the potential for natural gas to continually replace coal and reduce emissions is not a given. Continued reliance on natural gas in the power industry will limit the ability to achieve deep reductions in CO2 emissions in this power sector, as well as the overall economy.

The Rhodium report also notes that new gas outpaced the addition of renewable energy to the grid by a factor of 4. This makes 2018 the first year since 2013 that renewables did not make up the majority of added capacity to the grid.

Decarbonization of the power sector is integral to reducing emissions in accompanying sectors such as transportation, buildings, and industry. Unfortunately, the Rhodium groups analysis also points out that emissions in all these sectors also went up in 2018.

The slowdown in emission reductions demonstrates the need for a more comprehensive approach to reducing emissions. For all of the progress that environmental groups have achieved in particular states with cap-and-trade schemes and clean energy standards, we are leaving emissions reductions on the table without an economy-wide approach based on carbon pricing.

Without a price on carbon, natural gas prices are artificially low compared to zero-carbon options, a contributing factor as to why natural gas has outpaced renewable power deployment to meet this increased demand by such a large margin. Pricing carbon would ensure that natural gas truly acts a bridge to a renewable energy-based power grid, rather than a road to wanton fossil fuel burning.  A carbon tax, for example, would enable more efficient deployments of renewable and natural gas power, and would likely lead to greater levels of coal plant retirements. The combination of these factors would certainly create the environment for a more sustained reduction in power sector CO2 emissions. Although the power sector offers the greatest potential for immediate change, the broad-based incentives created by a carbon price will encourage emissions reductions across sectors, as well innovation in clean-energy technology.