Energy Demand from Executive Summary

The rate of growth in energy use slows over the projection period, reflecting moderate population growth, an extended economic recovery, and increasing energy efficiency in end-use applications

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Overall U.S. energy consumption grows at an average annual rate of 0.3 percent from 2010 through 2035 in the AEO2012 Reference case. The U.S. does not return to the levels of energy demand growth experienced in the 20 years prior to the 2008- 2009 recession, because of more moderate projected economic growth and population growth, coupled with increasing levels of energy efficiency. For some end uses, current Federal and State energy requirements and incentives play a continuing role in requiring more efficient technologies. Projected energy demand for transportation grows at an annual rate of 0.1 percent from 2010 through 2035 in the Reference case, and electricity demand grows by 0.7 percent per year, primarily as a result of rising energy consumption in the buildings sector. Energy consumption per capita declines by an average of 0.6 percent per year from 2010 to 2035 (Figure 1). The energy intensity of the U.S. economy, measured as primary energy use in British thermal units (Btu) per dollar of gross domestic product (GDP) in 2005 dollars, declines by an average of 2.1 percent per year from 2010 to 2035. New Federal and State policies could lead to further reductions in energy consumption. The potential impact of technology change and the proposed vehicle fuel efficiency standards on energy consumption are discussed in "Issues in focus."

Much of the projected decline in the net import share of energy supply is accounted for by liquids. Although U.S. consumption of liquid fuels continues to grow through 2035 in the Reference case, reliance on petroleum imports as a share of total liquids consumption decreases. Total U.S. consumption of liquid fuels, including both fossil fuels and biofuels, rises from about 18.8 million barrels per day in 2009 to 21.9 million barrels per day in 2035 in the Reference case. The import share, which reached 60 percent in 2005 and 2006 before falling to 51 percent in 2009, falls to 42 percent in 2035 (Figure 1).

With modest economic growth, increased efficiency, growing domestic production, and continued adoption of nonpetroleum liquids, net imports of petroleum and other liquids make up a smaller share of total U.S. energy consumption

U.S. dependence on imported petroleum and other liquids declines in the AEO2012 Reference case, primarily as a result of rising energy prices; growth in domestic crude oil production to more than 1 million barrels per day above 2010 levels in 2020; an increase of 1.2 million barrels per day crude oil equivalent from 2010 to 2035 in the use of biofuels, much of which is produced domestically; and slower growth of energy consumption in the transportation sector as a result of existing corporate average fuel economy standards. Proposed fuel economy standards covering vehicle model years (MY) 2017 through 2025 that are not included in the Reference case would further reduce projected need for liquid imports.

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Although U.S. consumption of petroleum and other liquid fuels continues to grow through 2035 in the Reference case, the reliance on imports of petroleum and other liquids as a share of total consumption declines. Total U.S. consumption of petroleum and other liquids, including both fossil fuels and biofuels, rises from 19.2 million barrels per day in 2010 to 19.9 million barrels per day in 2035 in the Reference case. The net import share of domestic consumption, which reached 60 percent in 2005 and 2006 before falling to 49 percent in 2010, continues falling in the Reference case to 36 percent in 2035 (Figure 3). Proposed light-duty vehicles (LDV) fuel economy standards covering vehicle MY 2017 through 2025, which are not included in the Reference case, could further reduce demand for petroleum and other liquids and the need for imports, and increased supplies from U.S. tight oil deposits could also significantly decrease the need for imports, as discussed in more detail in "Issues in focus."

Total energy-related emissions of carbon dioxide in the United States remain below their 2005 level through 2035

Energy-related carbon dioxide (CO₂) emissions grow slowly in the AEO2012 Reference case, due to a combination of modest economic growth, growing use of renewable technologies and fuels, efficiency improvements, slow growth in electricity demand, and increased use of natural gas, which is less carbon-intensive than other fossil fuels. In the Reference case, which assumes no explicit Federal regulations to limit GHG emissions beyond vehicle GHG standards (although State programs and renewable portfolio standards are included), energy-related CO₂ emissions grow by just over 2 percent from 2010 to 2035, to a total of 5,758 million metric tons in 2035 (Figure 6). CO₂ emissions in 2020 in the Reference case are more than 9 percent below the 2005 level of 5,996 million metric tons, and they still are below the 2005 level at the end of the projection period. Emissions per capita fall by an average of 1.0 percent per year from 2005 to 2035.

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Projections for CO₂ emissions are sensitive to such economic and regulatory factors due to the pervasiveness of fossil fuel use in the economy. These linkages result in a range of potential GHG emissions scenarios. In the AEO2012 Low and High Economic Growth cases, projections for total primary energy consumption in 2035 are, respectively, 100.0 quadrillion Btu (6.4 percent below the Reference case) and 114.4 quadrillion Btu (7.0 percent above the Reference case), and projections for energy-related CO₂ emissions in 2035 are 5,356 million metric tons (7.0 percent below the Reference case) and 6,117 million metric tons (6.2 percent above the Reference case).

Energy Demand from Market Trends

China and India account for half the growth in world energy use

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World energy consumption increases by 47 percent from 2010 through 2035 in the AEO2012 Reference case (Figure 68). Most of the growth is projected for emerging economies outside the OECD, where robust economic growth is accompanied by increased demand for energy. Total non-OECD energy use grows by 72 percent, compared with an 18-percent increase in OECD energy use.

Energy consumption in non-OECD Asia, led by China and India, shows the most robust growth among the non-OECD regions, rising by 91 percent from 2010 to 2035. However, strong growth also occurs in much of the rest of the non-OECD regions: 69 percent in Central and South America, 65 percent in Africa, and 62 percent in the Middle East. The slowest growth among the non-OECD regions is projected for non-OECD Europe and Eurasia (including Russia), where substantial gains in energy efficiency are achieved through replacement of inefficient Soviet-era capital equipment.

Worldwide, the use of energy from all sources increases in the projection. Given expectations that oil prices will remain relatively high, petroleum and other liquids are the world's slowest-growing energy sources. High energy prices and concerns about the environmental consequences of greenhouse gas (GHG) emissions lead a number of national governments to provide incentives in support of the development of alternative energy sources, making renewables the world's fastest-growing source of energy in the outlook.

In the United States, average energy use per person declines from 2010 to 2035

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Growth in energy use is linked to population growth through increases in housing, commercial floorspace, transportation, and goods and services. These changes affect not only the level of energy use but also the mix of fuels consumed.

Changes in the structure of the economy and in the efficiency of the equipment deployed throughout the economy also have an impact on energy use per capita. The shift in the industrial sector away from energy-intensive manufacturing toward services is one reason for the projected decline in industrial energy intensity (energy use per dollar of GDP), but its impact on energy consumption per capita is less direct (Figure 71). From 1990 to 2007, the service sectors increased from a 69-percent share of total industrial output to a 75-percent share, but energy use per capita remained fairly constant, between 330 and 350 million British thermal units (Btu) per person, while energy use per dollar of GDP dropped from about 10,500 to 7,700 Btu. Increases in the efficiency of freight vehicles and the shift toward output from the service sectors are projected to continue through 2035, lowering energy use in relation to GDP. Energy use per dollar of GDP is projected to be about 4,400 Btu in 2035, or about one-third of the 1980 level.

Efficiency gains in household appliances and personal vehicles have a direct, downward impact on energy use per capita, as do efficiency gains in the electric power sector, as older, inefficient coal and other fossil steam electricity generating plants are retired in anticipation of lower electricity demand growth, changes in fuel prices, and new environmental regulations. As a result, U.S. energy use per capita declines to 274 million Btu in 2035.

Renewable energy sources lead rise in primary energy consumption

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With the exception of petroleum and other liquids, which falls through 2032 before increasing slightly in the last 3 years of the projection, consumption of all fuels increases in the AEO2012 Reference case. In addition, coal consumption increases at a relatively weak average rate of less than 0.1 percent per year from 2010 to 2035, remaining below 2010 levels until after 2031. As a result, the aggregate fossil fuel share of total energy use falls from 83 percent in 2010 to 77 percent in 2035, while renewable fuel use grows rapidly (Figure 73). The renewable share of total energy use (including biofuels) increases from 8 percent in 2010 to 14 percent in 2035 in response to the Federal RFS, availability of Federal tax credits for renewable electricity generation and capacity, and State renewable portfolio standard (RPS) programs.

The petroleum and other liquids share of fuel use declines as consumption of other liquids increases. Almost all consumption of liquid biofuels is in the transportation sector. Biofuels, including biodiesel blended into diesel, E85, and ethanol blended into motor gasoline (up to 15 percent), account for 10 percent of all petroleum and other liquids consumption in 2035.

Natural gas consumption grows by about 0.4 percent per year from 2010 to 2035, led by the use of natural gas in electricity generation. Growing production from tight shale keeps natural gas prices below their 2005-2008 levels through 2035. By the end of 2012, a total of 9.3 gigawatts of coal-fired power plant capacity currently under construction is expected to come online, and another 1.7 gigawatts is added after 2017 in the Reference case, including 0.9 gigawatts with carbon sequestration capability. Additional coal is consumed in the coal-toliquids (CTL) process to produce heat and power, including electricity generation at CTL plants.

Electricity use increases with number of households despite efficiency improvement

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Despite a decrease in electricity consumption per household, total delivered electricity use in the residential sector grows at an average rate of 0.7 percent per year in the AEO2012 Reference case, while natural gas use and petroleum and other liquids use fall by 0.2 percent and 1.3 percent per year, respectively, from 2010 to 2035. The increase in efficiency, driven by new standards and improved technology, is not high enough to offset the growth in the number of households and electricity consumption in "other" uses.

Portions of the Federal lighting standards outlined in EISA2007 went into effect on January 1, 2012. Over the next two years, general-service lamps that provide 310 to 2,600 lumens of light are required to consume about 30 percent less energy than typical incandescent bulbs. High-performance incandescent, compact fluorescent, and light-emitting diode (LED) lamps continue to replace low-efficacy incandescent lamps. In 2035, delivered energy for lighting per household in the Reference case is 827 kilowatthours per household lower, or 47 percent below the 2010 level (Figure 75).

Electricity consumption for three groups of electricity end uses increases on a per-household basis in the Reference case. Electricity use for televisions and set-top boxes grows by an average of 1.1 percent per year, accounting for 7.3 percent of total delivered electricity consumption in 2035. Personal computers (PCs) and related equipment account for 4.6 percent of residential electricity consumption in 2035, averaging 1.8-percent annual growth from their 2010 level. Electricity use by other household electrical devices, for which market penetration increases with little coverage by efficiency standards, increases by 1.8 percent annually and accounts for nearly onefourth of total residential electricity consumption in 2035.

Residential consumption varies depending on efficiency assumptions

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The AEO2012 Reference case and three alternative cases demonstrate opportunities for improved energy efficiency to reduce energy consumption in the residential sector. The Reference, High Demand Technology, and Best Available Demand Technology cases include different levels of efficiency improvement without anticipating the enactment of new appliance standards. The Extended Policies case assumes the enactment of new rounds of standards, generally based on improvements seen in current ENERGY STAR equipment.

Despite continued growth in the number of households and number of appliances, energy consumption for some end uses is lower in 2035 than in 2010, implying that improved energy efficiency offsets the growth in service demand. In the case of natural gas space heating, population shifts towards warmer and drier climates also reduce consumption; the opposite is true for electric space cooling.

In the Extended Policies case, the enactment of new standards is based on the U.S. Department of Energy's multi-year schedule. For lighting, which already has an EISA2007-based standard that is scheduled to go into effect in 2020, future standards are not assumed until 2026. Among electric end uses, lighting has the largest percentage decline in energy use (more than 50 percent) in the Best Available Demand Technology case from 2010 to 2035 (Figure 76).

Televisions and set-top boxes, which are not currently covered by Federal standards, are assumed to have new standards in 2016 and 2018, respectively, in the Extended Policies case. The enactment of these new standards holds energy use for televisions and set-top boxes at or near their 2010 levels through 2035.

Tax credits could spur growth in renewable energy equipment in the residential sector

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Consistent with current law, existing investment tax credits (ITCs) expire at the end of 2016 in the AEO2012 Reference case. The current credits can offset 30 percent of installed costs for a variety of distributed generation (DG) technologies, fostering their adoption. Installations slow dramatically after the ITCs expire, and in several cases their overall market penetration falls because growth in households exceeds the rise in new renewable installations (Figure 77). In the AEO2012 Extended Policies case, the ITCs are extended through 2035, and penetration rates for all renewable technologies continue to rise.

In the Reference case, photovoltaic (PV) and wind capacities grow by average rates of 10.8 percent and 9.2 percent per year, respectively, from 2010 to 2035. In the Extended Policies case, residential PV capacity increases to 54.6 gigawatts in 2035, with annual growth averaging 18.1 percent, and wind capacity grows to 11.0 gigawatts in 2035, averaging 15.9 percent per year.

The ITCs also affect the penetration of renewable spaceconditioning and water-heating equipment. Ground-source heat pumps reach a 2.6-percent market share in 2035 in the Extended Policies case, after adding nearly 3.5 million units. In the Reference case, without the ITC extension, their market penetration is only 1.5 percent in 2035, with 1.6 million fewer installations than in the Extended Policies case.

Market penetration of solar water heaters in the Extended Policies case is 2.5 percent in 2035, more than triple the Reference case share. In the Reference case, installations increase by 2.5 percent annually from 2010 to 2035, compared with 7.5 percent annually in the Extended Policies case.

Residential and commercial sectors dominate electricity demand growth

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Electricity demand (including retail sales and direct use) growth has slowed in each decade since the 1950s, from a 9.8-percent annual rate of growth from 1949 to 1959 to only 0.7 percent per year in the first decade of the 21st century. In the AEO2012 Reference case, electricity demand growth rebounds somewhat from those low levels but remains relatively slow, as growing demand for electricity services is offset by efficiency gains from new appliance standards and investments in energy-efficient equipment (Figure 93).

Electricity demand grows by 22 percent in the AEO2012 Reference case, from 3,877 billion kilowatthours in 2010 to 4,716 billion kilowatthours in 2035. Residential demand grows by 18 percent over the same period, to 1,718 billion kilowatthours in 2035, spurred by population growth, rising disposable income, and continued population shifts to warmer regions with greater cooling requirements. Commercial sector electricity demand increases by 28 percent, to 1,699 billion kilowatthours in 2035, led by demand in the service industries. In the industrial sector, electricity demand has been generally declining since 2000, and it grows by only 2 percent from 2010 to 2035, slowed by increased competition from overseas manufacturers and a shift of U.S. manufacturing toward consumer goods that require less energy to produce. Electricity demand in the transportation sector is small, but it is expected to more than triple from 7 billion kilowatthours in 2010 to 22 billion kilowatthours in 2035 as sales of electric plug-in LDVs increase.

Average annual electricity prices (in 2010 dollars) increase by 3 percent from 2010 to 2035 in the Reference case, generally falling through 2020 in response to lower fuel prices used to generate electricity. After 2020, rising fuel costs more than offset lower costs for transmission and distribution.

Energy Demand from Issues in Focus

3. Potential efficiency improvements and their impacts on end-use energy demand

In 2010, the residential and commercial buildings sectors used 20.4 quadrillion Btu of delivered energy, or 28 percent of total U.S. energy consumption. The residential sector accounted for 57 percent of that energy use and the commercial sector 43 percent. In the AEO2012 Reference case, delivered energy for buildings increases by a total of 9 percent, to 22.2 quadrillion Btu in 2035, which is modest relative to the rate of increase in the number of buildings and their occupants. In contrast, the U.S. population increases by 25 percent, commercial floorspace increases by 27 percent, and the number of households increases by 28 percent. Accordingly, energy use in the buildings sector on a per-capita basis declines in the projection. The decline of buildings energy use per capita in past years has been attributable in part to improvements in the efficiencies of appliances and building shells, and efficiency improvements continue to play a key role in projections of buildings energy consumption.

Existing policies, such as Federal appliance standards, along with evolving State policies, and market forces, are drivers of energy efficiency in the United States. A number of recent changes in the broader context of the U.S. energy system that affect energy prices, such as advances in shale gas extraction and the economic slowdown, also have the potential to affect the dynamics of energy efficiency improvement in the U.S. buildings sector. Although these influences are important, technology improvement remains a critical factor for energy use in the buildings sector. The emphasis for this analysis is on fundamental factors, particularly technology factors, that affect energy efficiency, rather than on potential policy or regulatory options.

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Three alternative cases in AEO2012 illustrate the impacts of different assumptions for rates of technology improvement on delivered energy use in the residential and commercial sectors (Figure 20). These cases are in addition to the Extended Policies and No Sunset cases discussed earlier, and they are intended to provide a broader perspective on changes in demand-side technologies. In the High Demand Technology case, high-efficiency technologies are assumed to penetrate end-use markets at lower consumer hurdle rates, with related assumptions in the transportation and industrial sectors. In the Best Available Demand Technology case, new equipment purchases are limited to the most efficient versions of technologies available in the residential and commercial buildings sectors regardless of cost. In the 2011 Demand Technology case, future equipment purchases are limited to the options available in 2011 ("frozen technology"), and 2011 building codes remain unchanged through 2035. Like the High Demand and Best Available Demand Technology cases, the 2011 Demand Technology case includes all current Federal standards.

Without the benefits of technology improvement, buildings energy use in the 2011 Demand Technology case grows to 23.4 quadrillion Btu in 2035, as compared with 22.2 quadrillion Btu in the Reference case. In the High Demand Technology case, energy delivered to the buildings sectors only reaches about 20 quadrillion Btu for any year in the projection period, and in the Buildings Best Available Demand Technology case it declines to 17.9 quadrillion Btu in 2026 before rising slightly to 18.1 quadrillion Btu in 2035.

Background

The residential and commercial sectors together are referred to as the "buildings sector." The cases discussed here are not policy-driven scenarios but rather "what-if" cases used to illustrate the impacts of alternative technology penetration trajectories on buildings sector energy use. In a general sense, this approach can be understood as reflecting uncertainty about technological progress itself, or uncertainty about consumer behavior, in that the market response to a new technology is uncertain. This type of uncertainty is being studied through market research, behavioral economics, and related disciplines that examine how purchasers perceive options, differentiate products, and react to information over time. By varying technology progress across the full range of end uses, the integrated demand cases provide estimates of potential changes in energy savings that, in reality, are likely to be less uniform and more specific to certain end uses, technologies, and consumer groups. Specific assumptions for each of the cases are summarized in Tables 6 and 7.

Results for the residential sector

To emphasize that efficiency is persistent and its effects accumulate over time, energy use is discussed in terms of cumulative reductions (2011-2035) relative to a case with no future advances in technology after 2011. An extensive range of residential equipment is covered by Federal efficiency standards, and the continuing effects of those standards contribute to the cumulative reduction in delivered energy use of 12.3 quadrillion Btu through 2035 in the Reference case relative to the 2011 Demand Technology case. Electricity and natural gas account for more than 85 percent of the difference, each showing a cumulative reduction greater than 5 quadrillion Btu over the period. Energy use for space heating shows the most improvement in the Reference case, affected by improvements in building shells and heating equipment (Figure 21). Televisions and PCs and related equipment use 1.9 quadrillion Btu less energy over the projection period, as devices with energy-saving features continue to penetrate the market, and laptops continue to gain market share over desktop PCs.

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Cumulative savings in residential energy use from 2011 to 2035 total 31.6 quadrillion Btu in the High Demand Technology case and 56.2 quadrillion Btu in the Best Available Demand Technology case in comparison with the 2011 Demand Technology case. Electricity accounts for the largest share of the reductions in the High Demand Technology case (49 percent) and the Best Available Demand Technology case (51 percent). In addition to adopting more optimistic assumptions in the High Demand Technology and Best Available Demand Technology cases for end-use equipment, residential PV and wind technologies are assumed to have greater cost declines than in the Reference case, contributing to reductions in purchased electricity. In 2035, residential PV and wind systems produce 23 billion kilowatthours more electricity in the Best Available Demand Technology case than in the 2011 Demand Technology case.

In the High Demand Technology and Best Available Demand Technology cases, energy use for residential space heating again shows the most improvement relative to the 2011 Demand Technology case. Large kitchen and laundry appliances claim a small share of the reductions, as Federal standards limit increases in energy consumption for those uses even in the 2011 Demand Technology case. Light-emitting diodes (LED) lighting provide the potential for further savings in the High and Best Available Demand Technology cases beyond the reductions realized as a result of the EISA2007 (Public Law 110-140) lighting standards.

Results for the commercial sector

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Like the residential sector, analysis results for the commercial sector are discussed here in terms of cumulative reductions relative to the 2011 Demand Technology case, in order to illustrate the effect of efficiency improvements over the period from 2011 to 2035. Buildings in the commercial sector are less homogeneous than those in the residential sector, in terms of both form and function. Although many commercial products are subject to Federal efficiency standards, FEMP guidelines, and ENERGY STAR specifications, coverage is not as comprehensive as in the residential sector. Still, those initiatives and the ensuing efficiency improvements contribute to a cumulative reduction in commercial delivered energy use of 4.1 quadrillion Btu in the Reference case relative to the 2011 Demand Technology case (Figure 22). Virtually all of the reduction is in purchased electricity. Increased adoption of DG and CHP accounts for 0.4 quadrillion Btu (115 billion kilowatthours) of the cumulative reduction in purchased electricity in the Reference case. Commercial natural gas use is actually slightly higher in the Reference case because of the increased penetration of CHP. Office-related computer equipment sees the most significant end-use energy savings relative to the 2011 Demand Technology case, primarily because laptop computers gain market share from desktop computers.

Commercial heating, ventilation and cooling account for almost 50 percent of the 17.1 quadrillion Btu in cumulative energy savings in the High Demand Technology case relative to the 2011 Demand Technology case. The more optimistic assumptions for enduse equipment in the High Demand Technology case offset the additional energy consumed as a result of greater adoption of CHP, resulting in a cumulative reduction in natural gas consumption of 0.9 quadrillion Btu. The increase in distributed and CHP generation contributes 0.8 quadrillion Btu (231 billion kilowatthours) to the cumulative reduction in purchased electricity use.

Technologies such as LED lighting result in almost as much improvement as space heating and ventilation in the Best Available Demand Technology case relative to the 2011 Demand Technology case. Significant reductions are seen for all enduse services, with a cumulative reduction in energy consumption of 24.6 quadrillion Btu. Even when consumers choose the most efficient type of each end-use technology, the more optimistic assumptions regarding technology learning for advanced CHP technologies result in more natural gas use in the Best Available Demand Technology case relative to the 2011 Demand Technology case.

In comparison to a case that restricts future equipment to the efficiencies available in 2011, the alternative cases show the potential for reductions in energy consumption from the adoption of more energy-efficient technologies. In the Reference case, technology improvement reduces residential energy consumption by 12.3 quadrillion Btu—equivalent to 4.1 percent of total residential energy use—from 2011 to 2035 in comparison with the 2011 Demand Technology case. In the commercial sector, energy consumption is reduced by 4.1 quadrillion Btu—equivalent to 1.7 percent of total commercial energy use—over the same period. With greater technology improvement in the High Demand Technology case, cumulative energy savings from 2011 to 2035 rise by an additional 6.4 percent and 5.5 percent in the residential and commercial sectors, respectively. In the Best Available Demand Technology case, the cumulative reductions in energy consumption grow by an additional 8.2 percent and 3.1 percent in the residential and commercial sectors, respectively. In the Reference case, a cumulative total of 16.4 quadrillion Btu of energy consumption is avoided over the projection period relative to the 2011 Demand Technology case. That reduction is roughly equivalent to 80 percent of the energy that the buildings sectors consumed in 2010. In the Best Available Demand Technology case, cumulative energy consumption is reduced by an additional 64.3 quadrillion Btu from 2011 to 2035.