Decomposition analysis for assessing the United States 2025 emissions target: How big is the challenge?

Abstract

The United States (US) - the second largest greenhouse gases (GHGs) emitter in the world – has recently pledged a reduction of net GHGs emissions by 26–28% below its 2005 level by 2025. How big is the challenge for the country to achieve this target in terms of its present emissions profile, recent historical trends and the contributions to those trends from key proximate factors contributing to emissions? In this paper we make quantitative judgement of the challenge by using decomposition analysis. Based on the analysis and the contributions of the key drivers of energy-related CO₂ emissions in the recent past, it appears that it will be quite a challenging task for the government to achieve the recently announced 2025 target. More specifically, to achieve it, the combined average annual mitigating contribution from energy efficiency, carbon intensity of energy improvements and continued structural change in the US economy away from emissions-intensive activities will need to be at least 33% higher, and depending on the extent of continued structural change in the US economy in the future, may even need to be as much as 42% higher than was apparently the case during the 2000 – 12 period.

Introduction

On November 12, 2014, in Beijing, the United States (US) President, Barack Obama, made a landmark declaration that the US would reduce net aggregate greenhouse gas emissions (GHGs) by 26–28% below the 2005 level by 2025 [38]. The new pledge subsumes the Obama administration’s previous commitment of reducing emission 17% below the 2005 level by 2020. In this paper, by analysing recent historical data on GHGs and CO₂ emissions to bring into relief the impact which anthropogenic drivers and mitigating factors have had on emissions, we shed some light on the size of the challenge facing the US government in delivering this modified promise.

Several studies have examined the trajectory of US carbon dioxide emissions (CO₂) (e.g., [4], [32]) in recent years. Baldwin and Wing [4] use state-level data and the Arithmetic Mean Divisia Index (AMDI) decomposition method to identify driving forces of US CO₂ emissions over the period 1963–2008. Using a vector autoregresive model of these decomposition factors the study then forecast US CO₂ emissions until 2035. The forecasting exercise in the study produced a projection some 14% above the 2035 emissions projection made in the 2010 Annual Energy Outlook reference case. The authors argued the difference could be due to their not capturing the declines “in output and energy use associated with the severe recession in 2009–10″ ([4], p. 684). Overall, Baldwin and Wing [4] find the emissions implications of per capita income and population have outstripped the contribution from declining energy intensity and changing composition of output during the period in question.

We argue that the relative contribution from the underlying drivers varies across different periods. Indeed, the combined contribution from the mitigation factors (i.e., fossil fuel mix, structural change, carbon intensity of energy and energy intensity of output) outstripped the combined contribution from per capita income and population in 2000–2014; as was the case during the 1973–1975 and 1981–85 periods. Moreover, we use the Logarithimic Mean Divisia Index (LMDI) method of decomposition as compared to AMDI used by Baldwin and Wing. The LMDI decomposition method has been shown to have more desirable properties of decomposition compared with the AMDI method [2], [31].

Because Baldwin and Wing [4] use data only through until 2008, as new data has become available, this may have had significant implications for the results, especially in the context of the severe recession in the US economy in 2008–2009.¹ Indeed, Shahiduzzaman and Layton [32] argue that this most recent US recession caused by the Global Financial Crisis (GFC) might have some ongoing impact on US emissions well beyond the end of the recession. In fact, in support of this, using global level data, Burke et al. [7] find evidence that emissions not only grow slowly in periods of recession but also in subsequent years.

Some other earlier studies have also examined US CO₂ emissions and the roles of decomposition factors [33], [39], [40], [8]. Wing and Eckaus [40] project energy use and carbon emissions to the year 2050, reporting that “US emissions may well grow faster in the future than in the recent past” (p. 5267) - a conclusion not supported by our analysis. Xu and Ang [41] provide a comprehensive review of index decomposition analysis used in CO₂ emissions studies.

This study complements previous related studies in various ways. Firstly, we use more recent data on emissions, GDP, sectoral value added, energy use and population, thereby providing new insights on the recent trends. Secondly, whilst ultimately necessarily analysing the target in terms of the level of CO₂ emissions implied by the target – CO₂ being by far the dominant GHG gas - unlike previous studies, we nonetheless explicitly anchor the discussion of the challenge in terms of aggregate net GHGs emissions. Thirdly, we especially focus on the recently announced 2025 pledge, which, to the best of our knowledge, has not been highlighted in any existing study as yet. Finally, the decomposition analysis is performed using the LMDI method, which has been shown to have better methodological properties as compared to the alternative methods (for example, only the LMDI satisfies the Fisher [18] factor reversal test [3], [30].

The organization of the paper is as follows. Section 2 discusses the composition of US GHGs emissions and changes therein over time. Section 3 outlines methods and data. Section 4 presents the results and discussion. Conclusions and policy implications follow in the last section.