The year 2022 was marked by the emergence of longer-term economic repercussions of the COVID-19 pandemic and an unexpected war in Eastern Europe that caused turmoil in energy markets. Despite efforts to continue stimulating the US economy in the wake of the pandemic, high inflation put a damper on economic growth, which was exacerbated by a spike in oil prices as a result of Russia’s invasion of Ukraine. Consequently, the US economy grew 1.9% in 2022, down from a 5.7% GDP increase in 2021.

Based on preliminary economic activity and energy data, Rhodium Group estimates that greenhouse gas (GHG) emissions in the US slightly increased in 2022, rising 1.3% compared to the previous year. While this is the second year in a row that emissions have increased, it nonetheless marks a change from 2021, when emissions rebounded faster than the economic growth rate. This reversal in 2022 was largely due to the substitution of coal with natural gas—a less carbon-intensive fuel—and a rise in renewable energy generation.

Even with the slight increase, this indicates that the GHG intensity of the US economy declined in 2022, a turnaround from the more carbon-intensive rebound experienced in 2021.

This reversal in 2022 was primarily driven by a drop in emissions from the electric power sector, mostly due to the displacement of coal by natural gas and an increase in renewable energy. Outside of the power sector, emissions increased slightly. The most significant increase was seen in direct emissions from buildings, which rose by 6% and was the only sector to rebound to pre-pandemic levels. This was largely due to increased energy consumption for heating in homes, as 2022 reported below-average winter temperatures.

Little change in transportation and industry. Emissions in the transportation and industrial sectors—the two highest-emitting sectors which together account for two-thirds of total US GHG emissions—rose slightly by 1.3% and 1.5%, respectively.

The changes in industrial and transportation sector emissions reflect the impact of inflationary uncertainty. Industrial production was affected by supply chain turmoil and rising oil prices, leading to higher production and shipping costs. This led to a limited increase in the manufacturing of goods, and emissions in the industrial sector remained mostly unchanged.

Meanwhile, in the transportation sector, emissions remained relatively flat due to the impact of rising oil prices on demand. The slight emissions increase in this sector was driven mainly by the demand for jet fuel as air travel increased relative to 2021. In the first quarter of 2022, fuel demand in the transportation sector, including gasoline, jet fuel, and diesel, rose slightly. However, once the cost of oil began to affect transportation fuel costs, demand remained below 2019 levels for the rest of the year.

Still off track for meeting the US target under the Paris Agreement. With the slight increase in emissions in 2022, the US continues to fall behind in its efforts to meet its target set under the Paris Agreement of reducing GHG emissions 50-52% below 2005 levels by 2030. In 2022, emissions reached only 15.5% below 2005 levels. In order to meet the 2025 target of 26-28% below 2005 levels and get back on track for the 2030 Paris goal, the US needs to increase its efforts significantly. The Rhodium Group expects to see the effects of the “Inflation Reduction Act” (IRA) on emissions as early as this year if the government can fast-track implementation, with progress expected to accelerate by 2025. However, even with the IRA, more aggressive policies are needed to close the gap fully to 50-52% by 2030. In 2023, federal agencies can close this gap further by proposing aggressive regulations that drive down emissions. These actions, together with additional policies from leading states as well as action from private actors, can put the target within reach—but all parties must act quickly, Rhodium said.