latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/covid-19-drove-a-record-us-emissions-drop-impacts-likely-to-linger-8211-rhodium-59371915 content esgSubNav
In This List

COVID-19 drove record US emissions drop; impacts likely to linger – Rhodium


Despite turmoil, project finance remains keen on offshore wind

Case Study

An Energy Company Assesses Datacenter Demand for Renewable Energy


Japan M&A By the Numbers: Q4 2023


See the Big Picture: Energy Transition in 2024

COVID-19 drove record US emissions drop; impacts likely to linger – Rhodium

The economic fallout from the COVID-19 pandemic reduced U.S. greenhouse gas emissions by 18% between March 15 and June 15 compared to year-ago levels and may continue to impact U.S. emissions totals over the decade to come, according to new research from consultancy firm Rhodium Group LLC.

The group forecast that COVID-19 may drive greenhouse gas emission reductions of 6% to 12% lower than pre-pandemic projections this year alone and have persistent effects of between 2% and 12% by 2030. The emissions decline still falls short of the scale of reductions needed to achieve net-zero emissions by midcentury because the changes primarily stem from decreased economic activity rather than structural changes, the group said.

With many state economies beginning to reopen or otherwise loosen restrictions around the virus, determining exactly where greenhouse gas emission totals for full year 2020 will land is tricky.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

"If there is no second wave of COVID-19 and this reopening continues unimpeded, the full-year emissions decline could be less than half of current levels," the report said. "If, on the other hand, there is another large outbreak and another wave of lockdowns, full-year emissions will remain closer to what we have seen over the past few months. In either case, the U.S. will certainly see the largest annual drop in [greenhouse gas] emissions in recorded history in 2020."

The group modeled various scenarios based on the potential depth and duration of the pandemic and its economic effect, including a V-shaped, W-shaped and an L-shaped recovery of the economy. Even under the relatively optimistic V-shaped recovery model, the U.S. will have gone through the largest economic crisis since the Great Depression and the deadliest pandemic since the 1918 Spanish flu.

"I think there's this perception that when there's either a natural disaster or financial crisis or something that's a shock to the economy, that there's an impact and then we can recover from it, not only to a pre-crisis baseline level but also we catch up to that trajectory line that we would have been on," said Hannah Pitt, a senior analyst at Rhodium and one of the authors of the report. "There's not a lot of evidence for that happening in past recessions."

Pitt said in an interview about the report that the emissions reductions are not a cause for celebration.

"You're reducing emissions, but in the way that we're doing it, basically halting economic activity, forcing people to change their behaviors, it's the most expensive way to do it," Pitt said.

Rhodium Group estimated that near-term emission reductions have come at the high cost of about $3,200 to $5,400 per ton of carbon dioxide emissions reduced, on average, this year. For context, a 2017 World Bank report concluded that a carbon price range of the comparatively low price of $40 to $80 per ton is necessary by 2020 to reach the goals set by the 2015 Paris agreement on climate change.

The amount of reduced greenhouse gas emitted varies by sector. Emissions from the transportation space have dropped 28% compared to 2019's levels, the group found. The group concluded that the pandemic is likely to continue to disrupt transportation, which accounts for roughly one-third of U.S. greenhouse gas emissions, more than any other sector.

In the electricity sector, coal, already endangered by persistently low prices seen in natural gas markets, is expected to take a substantial hit based on the group's post-COVID-19 scenarios. The report projected that coal generation will finish the year 28% to 31% lower than the previous year as electric sector emissions fall 12% to 15% in the group's post-COVID-19 scenarios. The authors noted that would mark the lowest electric power sector emissions in the U.S. going back to at least 1973. Already, between March 15 and June 28, coal's market share of electricity generation was reduced to just 17%, a wide margin from the industry's once-ubiquitous claim of powering half of the country.

With coal generation rapidly fading, the fight to reduce greenhouse gas emissions may soon increase its focus on natural gas. Henry Hub natural gas prices have remained well below $2/MMBtu since the pandemic began, and the fuel captured about 38% of the share of U.S. electricity generation between March 15 and June 28. Falling emissions are likely to start flattening out in 2024 and onward due to the expansion of cheap natural gas, the group said.

"We see natural gas go from about a third of generation now to over half by 2030. Meanwhile, you know, renewable and nuclear, zero-emitting power sources stayed around a third through that time frame," Pitt said. "So we suddenly see that natural gas goes from being a major driver of emission reductions to actually being a threat towards further progress in the power sector."

Dominion Energy Inc. announced in early July that it would stop construction of the Atlantic Coast Pipeline, a massive natural gas project, and instead pivot to cleaner energy. The company had previously said it would shut down coal plants and ramp up investments in renewables as it tries to meet a net-zero emissions target.

Rhodium said it plans to release further research into potential policies that could tie economic recovery to opportunities to reduce greenhouse gas emissions in the U.S. The Rhodium Group called for policies focused on "sustained transformational changes needed to reach long-term decarbonization."

Many groups, including the International Energy Agency, have expressed a similar message as impacts from the pandemic ripple through the energy sector and the broader economy. In a July 2 report released by the organization, IEA Executive Director Fatih Birol said there is a "stark disconnect" between climate goals set by companies and governments and concluded that getting to net-zero emissions by 2050 will be "all but impossible" without "much faster clean energy innovation" and called for more investment in energy technology.

"A recent IEA survey revealed that companies that are developing net-zero emissions technologies consider it likely that their research and development budgets will be reduced, a clear sign of the damage that the COVID-19 crisis could do to clean energy innovation," Birol said. "Now is not the time to weaken support for this essential work. If anything, it is time to strengthen it."