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The US will keep its emissions level over the next two decades, thanks in part to an abundance of short-term, cost-effective energy efficiency opportunities, Bloomberg New Energy Finance concludes in a new report. But once the “lowest hanging fruit” have been picked, the cost of making further cuts in carbon emissions starts to increase, the global clean energy research firm says. To address climate change effectively, the US will need new, more aggressive policies that spur faster energy technology improvements and result in lower long-term abatement costs.

Despite expected population and economic growth over the next two decades, the US will actually see its emissions drop slightly by 2030, as households and industry make use of a wide range of cost effective energy saving opportunities. But after the easiest abatement opportunities are exploited, the cost of making further cuts in emissions rises quickly, Bloomberg New Energy Finance finds in its new study.

In its new report, Bloomberg New Energy Finance combines its unique knowledge of clean energy and low-carbon technologies with sophisticated economic modeling to assess the costs of achieving ever greater levels of emission reductions in the US in 2020 and 2030, and under a range of different scenarios. Taking all these into account, the study concludes that US emissions will be 0.4% below 2005 levels by 2020, and 2.0% below 2005 levels by 2030, even if the US fails to enact any new carbon reduction policies. However, a major step-change in clean energy technology, along with new, more aggressive policies will be needed for the US to hit President Obama’s goal of cutting US emissions by 17% by 2020.

In contrast to previous studies, the Bloomberg New Energy Finance report finds not all the “low hanging fruit” associated with new policies is as close to the ground as had been assumed. “Some other studies of abatement costs have probably been too optimistic,” said Milo Sjardin, Bloomberg New Energy Finance head of US carbon markets. “Many energy efficiency improvements will happen as a result of trends already in place. Others will require consumers to reconsider how they use energy and there are genuine costs associated with convincing them to rethink their ways.”

The report also examines the implications of the US attempting to shrink its carbon footprint with and without cooperating with other countries. Achieving the 17% reduction on 2005 levels by 2020 entirely within US borders would require some “early wins” in energy efficiency and land-based measures, but would then require more fundamental changes to the power and transport sectors. The use of so-called international “offsets” – carbon emission reductions made in countries overseas -- could reduce these costs significantly, potentially by up to 80%.

These challenges however are hardly insurmountable, according to the report. While the negative cost abatement potential of energy efficiency is not as large as had been suggested, the cost of realizing a 17% reduction by 2020, or 30% reduction by 2030 – even without the use of international offsets - is still less than a dollar a day per US household.

In addition, the analysis clearly shows that the longer time over which emissions are to be reduced, the less it costs. With more time, investments can be scheduled to coincide with the building of new facilities rather than costly retrofitting, and by building up economies of scale in production and installation unit costs come down. This suggests that policy-makers should be considering implementing supporting policies sooner rather than later.

“This report offers a road map to policymakers, investors and traders on the true long-term costs of addressing climate change,” said Guy Turner, Bloomberg New Energy Finance head of carbon market research. “By taking into account existing trends, as well as real-world factors that affect how investors actually making decisions, our marginal abatement cost curves outline just where the best opportunities for reducing emissions lie – and how much they really cost.”

The report, titled “A fresh look at the economics of US carbon emissions abatement,” is available as a free download on the Bloomberg New Energy Finance website. It contains a detailed examination of marginal abatement cost (MAC) curves, which offer a set of options available to an economy to achieve emission reductions. The MAC curve is a valuable tool for driving forecasts of carbon allowance prices, prioritizing low-carbon investment opportunities, and shaping policy discussions around a national climate change strategy.

Bloomberg New Energy Finance’s MAC curve analysis addresses deficiencies in previous MAC studies by developing a methodology which rigorously links the MAC curve with the reference case and which accounts for hidden and missing costs. The results of this approach are US MAC curves for the years 2020 and 2030 that yield valuable conclusions with implications for policy-makers and investors.

For further information, please contact:

Milo Sjardin
Head of US Carbon Markets
Bloomberg New Energy Finance
1841 Broadway, Suite 802
New York, NY 10023
Tel: +1 646 214 6168

Guy Turner
Head of Carbon Market Research
Bloomberg New Energy Finance
283-288 High Holborn
London
WC1V 7HP
Tel: +44 207 092 8800

Ethan Zindler
Head of North American Research
Bloomberg New Energy Finance
1940 Duke Street, 2nd Floor
Alexandria, VA 22308
Tel: +1 703 486 5667

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