Policies in the Buildings and Industrial Sectors
Carbon emissions from fuel combustion in the buildings sector contribute approximately 10% of the United States' greenhouse gas emissions, while the industrial sector adds another 20% When factoring in emissions from electricity consumption, these figures rise to over 35% for buildings and 30% for industry Our analysis examined a range of policies aimed at reducing these emissions, including updated building codes, new appliance standards, tax incentives for high-efficiency products, a national public benefits fund, enhanced research and development, voluntary agreements, and support for combined heat and power systems.
Building energy codes mandate that new residential and commercial structures achieve a minimum standard of energy efficiency that is both cost-effective and technically feasible Currently, 32 states have adopted "good practice" residential energy codes, aligned with the 1992 or more recent versions of the Model Energy Code, now known as the International Energy Conservation Code Similarly, 29 states have embraced "good practice" commercial energy codes based on the ASHRAE 90.1 model standard The Energy Policy Act of 1992 (EPAct) further stipulates that all states must implement a commercial building code that meets or exceeds ASHRAE 90.1 and encourages states to enhance their residential codes to comply with or surpass the 1992 Model Energy Code.
This policy relies on the assumption that the Department of Energy (DOE) will enforce the commercial building code requirements outlined in the Energy Policy Act (EPAct), with states complying accordingly It is also presumed that states will enhance their residential energy codes by adopting either the 1995 or 1998 Model Energy Code, either voluntarily or through new federal mandates Additionally, we anticipate significant improvements to model energy codes over the next decade, leading all states to implement mandatory codes that exceed current best practices by 2010 To assess the impact of these changes, we estimate a 20% reduction in energy consumption for heating and cooling in half of all new homes and commercial buildings.
New Appliance and Equipment Efficiency Standards
The National Appliance Energy Conservation Act of 1987 and its subsequent updates in early 2001 have significantly improved electricity efficiency standards for appliances like washers, water heaters, and central air conditioners These regulations have effectively phased out the least efficient models, while ensuring a wide variety of products remains available to consumers According to an analysis by the American Council for an Energy Efficient Economy, these standards are projected to save nearly 8% of annual electricity consumption by 2020, highlighting their positive impact on energy efficiency.
Many appliance efficiency standards lag behind current legal requirements and technological advancements The Department of Energy has significantly delayed its obligation to update standards for specific appliances, failing to ensure they reach the maximum level of energy efficiency that is both technically feasible and economically justified.
This study explores the potential impact of government initiatives to enhance energy efficiency standards for various essential appliances and equipment, including distribution transformers, commercial air conditioning systems, residential heating systems, and more We propose the introduction of stricter standards, particularly for residential central air conditioning and heat pumps, surpassing those permitted during the Bush Administration These measures, which leverage readily available and cost-effective technologies, can be implemented in the short term to promote energy conservation and sustainability.
Despite the availability of advanced energy-efficient products, they struggle to gain a strong foothold in the market due to the dominance of conventional technologies These traditional options benefit from economies of scale, consumer familiarity, and established infrastructure, making them more appealing to consumers As a result, innovative alternatives, which could become financially viable through mass production and demonstration, are often overlooked To facilitate the entry of these advanced alternatives into the marketplace, initial temporary tax incentives can be effective, enabling them to establish a presence and subsequently capture significant market share without ongoing subsidies.
This study evaluates initial tax incentives for various products, proposing a $50 to $100 incentive per unit for consumer appliances For new homes exceeding 30% efficiency over the Model Energy Code, an incentive of up to $2,000 is suggested, while commercial buildings achieving a 50% reduction in heating and cooling costs could receive $2.25 per square foot Additionally, a 20% investment tax credit is proposed for efficient building equipment, including furnaces and heat pumps To prevent these incentives from becoming permanent subsidies, they would include a sunset clause, set to phase out in approximately five years Similar tax incentives have already been introduced in legislative bills before the Senate and House.
Electric utilities have historically supported programs aimed at promoting energy-efficient equipment, assisting low-income families with home weatherization, commercializing renewable energy, and conducting research and development These initiatives have consistently delivered electricity bill savings for households and businesses that are approximately double the program costs However, due to rising price competition and industry restructuring, utilities have been scaling back their investments in these public benefit programs in recent years To maintain these essential initiatives, fifteen states have established public benefits funds, funded by a minor surcharge on all electricity consumed by customers.
This study proposes a national public benefits fund (PBF), inspired by Sen Jeffords and Rep Pallone's earlier legislation, which would impose a 0.2 cents per kilowatt-hour surcharge on electricity sales, resulting in an approximate monthly cost of $1 for the average residential consumer The PBF aims to provide matching funds for state-approved public benefits expenditures and is designated for various programs focused on enhancing energy efficiency in lighting, air conditioning, motors, and other electricity-using equipment.
Expand Federal funding for Research and Development in Energy Efficient Technologies
Federal funding for energy efficiency research and development (R&D) has proven to be an exceptionally cost-effective investment, with the Department of Energy (DOE) estimating that energy savings from 20 of its R&D programs have reached approximately $30 billion This figure is more than three times the amount allocated by the federal government for these programs.
Several bills have been introduced by Senators and Representatives, including S.389 by Murkowski and Lott, S.596 by Bingaman and Daschle, S.207 by Smith, S.760 by Hatch, and H.R 1316 by Nussle During the 1990s, the entire energy efficiency and renewables R&D budget was focused on addressing critical energy issues As energy concerns dominate national discussions, it is essential to enhance R&D efforts, viewing them as a solution to the pressing energy crises caused by reliance on fossil fuels, such as climate change, environmental degradation, and dwindling fossil fuel resources.
Significant advancements are possible in material-processing technologies, manufacturing, electric motors, and energy-efficient systems such as lighting and heating/cooling The EPA's Energy Star programs have played a crucial role in energy conservation by promoting efficient products, with approximately 80% of personal computers and 95% of monitors sold being Energy Star certified To build on this success, it is essential to increase funding for the Energy Star program to include more products and building sectors, particularly in retrofitting existing structures Enhanced investment in research and development across industries, including motors and advanced heating/cooling systems, is expected to yield a greater variety of energy-saving products in the market.
Industrial Energy Efficiency through Intensity Targets
Industrial facilities today hold significant untapped potential for cost-effective energy efficiency Some corporate leaders, like Johnson & Johnson, have taken proactive steps to harness this potential In 1995, the company aimed to cut its energy costs by 10% by 2000 by implementing best practices across its 96 U.S facilities Building on this initiative, Johnson & Johnson committed in 2000 to reduce global warming gases by 7% below 1990 levels by 2010, with an interim target of 4% reduction by 2005.
In 1998, British Petroleum committed to reducing its carbon emissions by 10 percent below 1990 levels by 2010, aiming for a nearly 40 percent decrease from projected emissions under a “business-as-usual” scenario Similarly, in September 1999, DuPont pledged to cut its global greenhouse gas emissions by 65 percent relative to 1990 levels, while maintaining energy consumption and increasing renewable energy to 10 percent of total inputs by 2010 DuPont is on track to meet earlier goals of a 15 percent reduction in energy intensity and a 50 percent decrease in total GHG emissions by 2000 Companies like Alcoa, Kodak, Polaroid, IBM, and Royal Dutch Shell are also finding it cost-effective to set greenhouse gas reduction targets, positioning themselves advantageously in an economy that values carbon reduction.
Policies in the Electric Sector
A key objective of US energy and climate policy is to significantly lower carbon and pollutant emissions from the electric sector, which accounts for over one-third of total emissions.
The analysis of US greenhouse gas emissions focused on key policies in the electric sector designed to address market barriers to investment in emission-reducing technologies Three significant policies were examined: a renewable portfolio standard, a cap on pollutant emissions, and a carbon cap-and-trade system These mechanisms aim to promote cleaner energy sources and facilitate reductions in greenhouse gas emissions.
A Renewable Portfolio Standard (RPS) is a market-driven policy designed to promote the adoption of renewable energy sources in the electricity sector It establishes a timeline for achieving a minimum percentage of renewable electricity generation, requiring electricity providers to either generate this renewable energy or acquire credits from those who exceed the minimum The RPS allows the market to decide on the best mix of technologies and locations to meet these targets cost-effectively, facilitated by a trading system that enables generators to earn and trade credits for renewable energy production Currently, thirteen states, including Arizona, Connecticut, Hawaii, Iowa, and Maine, have implemented RPS policies.
Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, Pennsylvania, Texas, and
Wisconsin – already have RPSs, and Senator Jeffords introduced a bill in the 106 th Congress (S
The Renewable Portfolio Standard (RPS) incentivizes suppliers to create cost-effective and reliable renewable energy projects while targeting niche applications for maximum value It offers stability to renewable technology vendors by ensuring market access, which allows them to benefit from a more predictable market environment Despite this stability, the RPS fosters a competitive landscape that drives innovation among developers By promoting the swift deployment of renewable technologies, the RPS enhances learning and economies of scale, making renewables increasingly competitive with traditional energy sources This is crucial as the urgent need for climate stabilization in the coming decades will necessitate a significant increase in renewable energy deployment.
This study examines a Renewable Portfolio Standard (RPS) that mandates a gradual increase in renewable energy requirements, starting at 2% in 2002, escalating to 10% by 2010, and reaching 20% in 2020, accounting for all efficiency policies Eligible renewable energy sources include wind, solar, geothermal, biomass, and landfill gas; however, municipal solid waste is excluded due to environmental concerns regarding toxic emissions from waste-burning plants, and large-scale hydro is not considered an emerging technology since it already contributes nearly 10% to the nation's electricity supply.
We offer a modest subsidy for grid-connected solar photovoltaic electricity generation as part of the Renewable Portfolio Standards (RPS) This initiative aims to integrate solar technology into the energy mix, fostering technology learning, enhancing performance, and achieving economies of scale Ultimately, it seeks to promote fuel diversity and provide a long-term zero-emissions solution By keeping the subsidy level small, we ensure minimal cost and price impacts.
Tightening of SO 2 and NO x Emission Regulations
Acid rain and urban air pollution continue to be significant issues in the United States The 1990 Clean Air Act Amendments aimed to tackle these challenges by implementing a cap-and-trade system that sought to reduce sulfur dioxide (SO2) emissions from the electric sector by approximately 50% by the year 2000, along with setting specific standards for nitrogen oxides (NOx) emissions Compliance with the SO2 regulations turned out to be much more affordable than initially anticipated, as earlier projections relied heavily on the costs associated with "scrubbers." However, the discovery of extensive low-sulfur coal deposits in Wyoming and a substantial decrease in rail transport costs led to significant savings.
Recent studies indicate that despite the advancements made by the Clean Air Act and its Amendments, sulfur dioxide (SO2) and nitrogen oxides (NOx) still pose significant threats to lake and forest ecosystems, diminish agricultural productivity, and adversely impact public health by degrading urban air quality The Clean Air Act mandates only minimal reductions in emissions by 2010, with no further reductions required thereafter.
This study proposes a tightening of the sulfur dioxide (SO2) cap to achieve a reduction in sulfur emissions to approximately 40% of current levels by 2010 and one third by 2020 Additionally, a cap-and-trade system for nitrogen oxides (NOx) emissions will be implemented during the summer months, when NOx significantly contributes to photochemical smog This expanded cap-and-trade program will involve all states, with an initial cap established in 2003 that will decrease by 2010, based on 1999 emission levels As a result, the program aims for a 25% reduction in annual NOx emissions by 2003 and a 50% reduction by 2010.
Carbon Cap-And-Trade Permit System
This study proposes a cap-and-trade system for carbon emissions in the electric sector, aiming for increasingly stringent targets over time Starting in 2003, the cap is set at 2% below current levels, progressing to 12% below by 2010 and reaching 30% below by 2020 Implementing restrictions on carbon emissions from electricity generation not only addresses climate change but also delivers significant co-benefits, such as a reduction in other harmful emissions.
SO2 and NOx contribute to fine particulate matter, a significant factor in respiratory diseases, while mercury, a potent neurotoxin, contaminates over 50,000 lakes and streams across the US Stricter regulations on these pollutants not only mitigate health risks but also decrease coal demand, leading to a reduction in mining-related pollution and the preservation of aquatic ecosystems and terrestrial habitats.
In trading systems for SO2, NOx, and CO2, permits are allocated through open auctions, allowing revenues to be returned to households via tax reductions or rebates Recent studies indicate that auctions are the most economically efficient method for distributing permits, achieving emissions caps at a lower cost compared to grandfather allowances or equal per kWh distributions (Burtraw et al 2001) Implementing auctions in the electric sector paves the way for a broader economy-wide auctioning approach in the future This study reveals that the price of auctioned carbon permits can reach $100 per metric ton of carbon.
The operators of 850 outdated coal plants, built before the 1970 Clean Air Act and known for emitting 3-5 times more pollution than newer facilities, are likely to retire these plants instead of incurring the costs of purchasing credits to keep them operational Initially, the Clean Air Act aimed to phase out these polluting power plants; however, utilities have continued to operate them beyond their intended lifespan and even increased their output in the past decade By imposing the same regulatory requirements on these old plants as on newer ones, as seen in states like Massachusetts and Texas, operators would be compelled to either modernize their facilities or transition to cleaner energy alternatives.
The implementation of a cap and trade system for CO2, SOx, and NOx emissions significantly decreases pollution from power plants, mirroring the approach outlined in the Four Pollutant Bill (H.R 1256 and S 556) currently under consideration The proposed reductions in these pollutants are as substantial as those stipulated in the Four Pollutant Bills and are achievable within a similar timeline However, the Department of Energy's NEMS model does not track mercury emissions, preventing a direct comparison with the mercury requirements of the Four Pollutant Bill.
Policies in the Transport Sector
US energy and climate policy aims to cut carbon emissions from the transportation sector, which accounts for approximately one-third of the nation's greenhouse gas emissions Key strategies include enhancing efficiency in light-duty vehicles, heavy-duty trucks, and aircraft, implementing a comprehensive fuel-cycle GHG standard for motor fuels, promoting measures to reduce road travel, and developing high-speed rail systems.
Current fuel economy standards for vehicles, established in the mid-1970s, have failed to keep pace with rising population and driving trends, particularly the shift towards larger, less efficient SUVs While light duty trucks represented only 20% of vehicle sales at the time these standards were introduced, they now make up nearly 50%, significantly lowering the overall fuel economy of the light duty vehicle fleet to its lowest point since 1981 If fuel economy had remained at 1981 levels, the U.S would be importing 500,000 fewer barrels of oil daily.
This study presents an enhanced Corporate Average Fuel Economy (CAFE) standard for cars and light trucks, aiming to increase fuel economy from an estimated 25.2 mpg in 2001 to 36.5 mpg by 2010, and reaching 50.5 mpg by 2020 This significant rise in fuel efficiency is projected to save approximately twice the amount of oil that could be extracted from the Arctic National Wildlife Refuge over 50 years Our analysis indicates that achieving the 2010 CAFE target will incur an incremental vehicle cost of about $855, while the 2020 target will require an additional $1,900 Importantly, these costs are two to three times lower than the fuel savings drivers will experience at the pump throughout the vehicle's lifespan.
Improving Efficiency of Freight Transport
Improving fuel economy in heavy-duty truck freight transport is essential, as it represents around 16% of total transport energy consumption Key advancements, including advanced diesel engines, drag reduction techniques, reduced rolling resistance, load reduction strategies, and low-friction drivetrains, present significant opportunities to enhance the fuel efficiency of freight trucks.
8 On December 15, 2000, the EPA announced that mercury emissions need to be reduced, and that regulations will be issued by 2004
Currently, several technologies are accessible, while advanced diesel and turbine engines have been technically demonstrated but are not yet commercially available, assuming an average market price of oil at $20 per barrel.
To enhance heavy-duty truck efficiency, we propose expanding R&D for diesel technology, implementing vehicle labeling and promotion, and providing financial incentives for new technologies Additionally, we suggest establishing efficiency standards for medium- and heavy-duty trucks, alongside fuel taxes and user fees designed to eliminate current subsidies for freight trucking Collectively, these measures are projected to improve fuel economy by 6% by 2010 and 23% by 2020 compared to today's trucks.
Improving Efficiency of Air Travel
Air travel is the fastest-growing transportation method, yet it consumes significantly more energy than vehicle travel, requiring approximately 1.7 times more fuel per passenger mile To enhance the efficiency of air travel, it is essential to implement policies focused on research and development of advanced aircraft technologies, establish fuel consumption standards, and reform existing policies that subsidize air travel through public investments.
Air travel efficiency is projected to improve by 23% by 2010 and 53% by 2020, significantly surpassing the Base Case estimates of 9% by 2010 and 15% by 2020 This enhanced efficiency is attributed to advancements in aircraft technology, including new engine types, lightweight composite materials, and improved aerodynamics, as well as increased load factors and faster air traffic management improvements.
By 2020, air travel is projected to achieve 82 seat-miles per gallon, up from the current 51 However, advancements in technology may enable even greater efficiencies, potentially reaching up to 150 seat-miles per gallon in the long term.
Greenhouse Gas Standards for Motor Fuels
Transportation in the United States is heavily dependent on petroleum-based fuels, contributing significantly to greenhouse gas (GHG) emissions To address this issue, we propose a comprehensive fuel-cycle GHG standard for motor fuels, akin to the Renewable Portfolio Standard (RPS) in the electric sector This standard would impose a cap on the average GHG emissions from gasoline, with the requirement becoming increasingly stringent over time Fuel suppliers would have the option to comply with the standard independently or by purchasing tradable credits from other producers of renewable or low-GHG fuels.
The policy adopted in this study requires a 3 percent reduction in the average national GHG emission factor of fuels used in light duty vehicles in 2010, increasing to a 7 percent reduction by
In 2020, a comprehensive policy aimed at promoting low-greenhouse gas (GHG) fuels was introduced, supported by enhanced research and development (R&D), market creation initiatives, and financial incentives This program is designed to boost the production of sustainable fuels, including cellulosic ethanol and hydrogen derived from biomass or solar energy.
This modeling study focuses on the assumption that the majority of low-GHG fuel will be derived from cellulosic ethanol, which can be sourced from agricultural residues, forest and mill wastes, urban wood waste, and short rotation woody crops Additionally, since cellulosic ethanol can be co-produced with electricity, we anticipate that the electricity output will reach significant levels.
10 percent of ethanol output by 2010 and 40 percent by 2020 (Lynd, 1997) Due to the
Assuming typical load factors of 0.33 for automobiles and 0.6 for air travel, advancements in cellulosic ethanol production technology are projected to reduce the price to $1.40 per gallon of gasoline equivalent by 2010, maintaining this price in subsequent years (Interlaboratory Working Group, 2000).
Improving Alternative Modes to reduce Vehicle Miles Traveled
The rise in travel by cars and light-duty trucks is driven by population growth and low vehicle occupancy, with vehicle miles traveled expected to increase by approximately 2% annually from 1999 to 2020 To enhance the efficiency of the passenger transportation system, it is essential to implement strategies that curb the growth of vehicle miles traveled This can be achieved through land-use planning, infrastructure investments, and pricing reforms that eliminate implicit subsidies for energy-intensive cars.
These measures are expected to significantly impact urban passenger transportation by promoting higher occupancy vehicles such as carpooling, vanpooling, public transportation, and telecommuting We anticipate that these initiatives will lead to a reduction in vehicle miles traveled, achieving an 8% decrease by 2010 and an 11% decrease by 2020 compared to the Base Case.
Overview of Results
Table 5.1 summarizes the energy, carbon, pollutant emissions, and economic impacts for the Base and Climate Protection cases in 2010 and 2020 The Climate Protection scenario's portfolio of carbon-reducing policies significantly advances the US toward achieving its Kyoto targets by effectively reducing carbon emissions.
Net GHG Emissions (MtCe/yr) 1,648 2,204 1,533 - -
13 Under Kyoto, the base year for three of the non-CO2 GHGs (HFCs, PFCs, SF6) is 1995, not 1990, and the 1995 levels for these emissions are reported here.
In 1999, savings were calculated in 1999 dollars, while by 2010, the annual costs for non-energy related measures to meet the Kyoto target reached $2.3 billion, totaling $9 billion cumulatively Although costs for 2020 are not included, emissions are projected to decrease from current levels to 1372 MtC/yr by 2010, which remains 2.5 percent above 1990 levels Continued reductions are expected beyond 2010, with national emissions anticipated to drop to 1087 MtC/yr by 2020, significantly below previous levels.
National policies are projected to lead to an 11% decrease in primary energy consumption by 2010 and nearly a 30% reduction by 2020, all while sustaining energy service levels for consumers Additionally, the utilization of renewable energy is expected to double by 2010 compared to the baseline scenario and maintain that level through 2020.
The implementation of these policies is expected to significantly lower air pollutant emissions by decreasing fossil fuel consumption and increasing the use of renewable energy sources, particularly resulting in a notable reduction of sulfur dioxide (SO2) levels.
2010 levels in the Climate Protection case are almost half of Base case levels, due in great part to the effect of the more stringent cap in the electric sector
The analysis revealed that national savings on energy bills would surpass the net incremental investments in more efficient technologies and low carbon fuels By 2010, average savings were projected to exceed the additional costs of new equipment by approximately $13 billion annually.
Sectoral Impacts
Figures 5.1a and 5.1b illustrate the carbon emission trajectories for both the Base and Climate Protection scenarios, highlighting the effectiveness of policies aimed at reducing energy-related carbon emissions The reductions in carbon emissions can be categorized by their sources (as shown in 5.1a) or by the specific sectors targeted by the policies (as depicted in 5.1b).
Refinery emissions reductions from decreased transportation oil use are linked to transport policies, while reductions from decreased industrial oil use are connected to industrial policies Additionally, the emissions reductions in electric generation and the increase in on-site fuel use due to enhanced Combined Heat and Power (CHP) systems are also attributed to industrial policies.
The first graph, Figure 5.1a, shows the emissions reductions in the sectors of their origin, that is, in which the combustion of fossil fuels
15 This takes account of the percentage levels required by the Jeffords Bill for the electric sector (10% renewables by
By 2020, the Renewable Portfolio Standard (RPS) aimed for a 20% increase in renewable energy However, when integrated with the robust energy efficiency policies outlined in this study, the overall contribution of renewables in the electric sector remains relatively stable from 2010 to 2020.
2020 because the percentage targets have already been met A more aggressive renewables policy for the 2010-2020 period could be considered (ACEEE, 1999).
Figure 5.1 illustrates carbon emissions reductions by source and major policy group, highlighting significant decreases from on-site fossil fuel combustion in buildings, industry, transportation, and electricity production The electric sector experiences the most substantial reductions, primarily due to end-use energy efficiency policies that lower demand, as well as emissions and renewable energy policies that transform the electricity generation mix Additionally, Figure 5.1b details the reductions achieved through various sectoral policies.
Table 5.2 outlines the cost of saved carbon for various policies in 2010 and 2020, calculated by aggregating annualized capital, administrative, and operational costs while deducting savings from operation and fuel costs, all discounted at 5% The Climate Protection policy package shows net savings of $115 per ton of carbon (tC) in 2010 and $576/tC in 2020 Notably, the net savings from demand policies exceed the incremental costs associated with the electric supply policies, with further details on sector impacts provided in subsequent sections.
Enhanced building codes, improved appliance standards, tax incentives, and policies promoting combined heat and power (CHP) systems have significantly improved energy efficiency in residential and commercial buildings This has resulted in a 19% reduction in net electricity usage by 2010 and nearly 50% by 2020 Although CHP requires additional natural gas, on-site fuel consumption decreases by 3% in 2010 and 10% by 2020 compared to the baseline scenario Consequently, carbon emissions are projected to decline by nearly one-third by 2010 and two-thirds by 2020.
2020, relative to the Base case.
Industrial energy efficiency measures undertaken largely through voluntary measures and tax incentives, cause the industrial sector to reduce it’s direct energy consumption by 9 percent in
Between 2010 and 2020, the Climate Protection scenario showed a significant reduction in net electricity consumption, decreasing by 30 percent in 2010 and an impressive 70 percent by 2020, primarily due to the aggressive implementation of cogeneration technologies.
Carbon emissions are projected to hold commodity value, with the industrial sector experiencing a significant reduction of 26 percent in emissions by 2010 and 46 percent by 2020 compared to the base case.
Across both sectors, the policies result in combined fuel and electricity savings of 9.6 quads in
2010 and 24.6 quads by 2020 The cumulative investment in efficiency measures to achieve these savings is $80 billion by 2010 and $365 billion by 2020 (discounted 1999$).
Policies in the buildings and industrial sectors significantly reduce electricity demand from national power stations, as shown in Figure 5.2a Energy efficiency measures implemented after 2005 fully offset the growth in electricity demand, leading to a projected decline of 15 percent by 2010 and 35 percent by 2020 compared to current levels.
In addition to this reduced demand for electricity, the mix of fuels used to generate electricity changes dramatically, as shown in Figure 5.2b The electric sector policies shift the generation
Table 5.2 Carbon reductions, net costs, and cost per saved carbon in 2010 and 2020
Cost of saved carbon MtC/yr billion
(1999)$ (1999)$ per tC MtC/yr billion
NOx/SO2 Cap and Trade Aggregated below Aggregated below Carbon trading subtotal 147 $140 $258 180 $258 $188
To reduce dependence on coal and prevent excessive natural gas generation, a significant shift towards renewable energy and cogeneration is essential Cogeneration is projected to rise from approximately 300 TWh today to 660 TWh by 2010 and reach 1260 TWh by 2020 In contrast, the Base case forecasts a modest increase in cogeneration to 380 TWh in 2010 and only 440 TWh by 2020 Additionally, non-hydro renewable energy consumption is expected to grow nearly fivefold by 2010 compared to the Base case, maintaining this elevated level through 2020.
Electric sector policies aimed at reducing carbon emissions have a net economic cost, raising the average unit cost of electricity by approximately 2 cents per kWh in 2010 However, this impact lessens over time as the sector adapts to new regulations and decreased electricity demand results in fewer new power plants being needed.
In 2020, electricity prices experienced a slight increase of approximately 1 cent per kWh compared to the base case This rise is largely due to the ongoing economic viability of existing coal plants, as well as the construction and operation of new facilities within a price-competitive restructured industry A significant factor contributing to this trend is the exclusion of environmental externalities in the cost of coal-based electricity generation.
By 2010, power stations achieved a reduction of 4.3 quads in fossil fuel consumption, with an increase to 6.5 quads by 2020 To facilitate these savings and enhance the use of renewable energy, cumulative investments reached $166 billion by 2010 and are projected to total $333 billion by 2020, adjusted for 1999 dollars.
Figures 5.2 Generation mix in (TWh)
Cogeneration Non-hydro Renew ables Hydro
Nuclear Natural Gas Petroleum Coal
(b) in the Climate Protection case
Efficiency Cogeneration Non-hydro Renew ables Hydro
Nuclear Natural Gas Petroleum Coal
Despite rising electricity costs per unit, implementing demand-side efficiency measures results in lower overall electricity bills for end-users and reduces the total costs associated with electricity services.
The vehicle efficiency and transportation demand management initiatives in the Climate
In 2010, protection measures led to energy savings of 4.6 quads, increasing to 12.6 quads by 2020, which corresponds to a 12 percent reduction in 2010 and 28 percent in 2020 compared to the base case Carbon emissions also decreased more significantly, with reductions of 13 percent in 2010 and 31 percent in 2020, largely due to a shift towards less carbon-intensive fuels like cellulosic ethanol By 2010, ethanol accounted for approximately 2 percent of transport fuel demand, rising to 4 percent by 2020 This shift not only supports the co-production of electricity in biomass-intensive industries but also enhances carbon benefits by displacing fossil fuel-derived electricity and reducing emissions from refineries through decreased fuel production.
Air Pollution Reductions
Air pollutants from fossil fuel use significantly harm health and the environment Reducing fossil fuel consumption can lead to substantial local health improvements by decreasing air pollution levels Studies indicate that pollutants like fine particulates, carbon monoxide, and ozone—created from volatile organic compounds and nitrogen oxides in sunlight—are linked to severe health issues, including premature death Vulnerable populations, particularly young children and the elderly, face heightened risks from these harmful emissions.
The implementation of these policies is expected to significantly decrease pollution at national, regional, and local levels by reducing fossil fuel consumption, leading to notable environmental and health benefits, particularly for vulnerable populations such as children and the elderly Specifically, sulfur dioxide emissions are projected to be 52% lower in 2010 compared to the base case and 68% lower than 1990 levels Nitrogen oxides are anticipated to decrease by 16% in 2010, marking a 37% reduction from 1990 Particulate matter emissions are expected to drop by 13% in 2010, which is 24% lower than in 1990 Additionally, carbon monoxide emissions are forecasted to be 9% lower in 2010 and 2% below 1990 levels, while volatile organic compounds are projected to decrease by 7%.
Figure 5.3 shows the impacts of the Climate
Over time, protection policies have significantly reduced particulate emissions, primarily due to a substantial decrease in coal generation The baseline projections indicate a decline in sulfur dioxide levels, which is enhanced by the cap-and-trade provisions of the 1990 Clean Air Act Amendments Additionally, reductions in nitrogen oxides, volatile organic compounds, and carbon monoxide—stemming from tailpipe emissions standards as new vehicles are introduced—are further improved by policies influencing vehicle travel patterns.
The reductions in nitrogen, sulfur, and carbon are similar to those introduced in the Four
The Pollutant Bill is currently under consideration in both the House and the Senate The Climate Protection scenario demonstrates that it can meet the necessary reduction targets for carbon a few years ahead of the Four Pollutant Bill's 2007 deadline, while achieving similar goals for nitrogen and sulfur slightly later, with significantly greater reductions sustained beyond that timeframe.
Economic Impacts
The proposed aggressive policy package significantly advances the United States' commitment to the Kyoto Protocol by not only meeting initial emission reduction targets but also continuing to lower emissions thereafter Remarkably, despite its ambitious nature and substantial carbon impact, this initiative is projected to yield net economic benefits for the country.
By 2010, the benefits of new technologies began to significantly surpass the costs associated with their implementation, reflecting the long-term advantages of reduced expenses as these innovations were commercialized and systems adapted to new policies The costs stem from investments in energy-efficient lighting, high-efficiency motors, and advanced automobiles that decrease dependence on high carbon fuels In contrast, savings arise from avoided fuel costs, leading to increased income and job creation in related industries and services where these investments are made.
Figures 5.5 and 5.6 illustrate the cost-effectiveness of demand and supply side policies in 2010 and 2020, highlighting the allocation of costs and benefits between equipment investments and fuel savings The demand sector policies demonstrate significant energy efficiency savings, proving to be highly cost-effective with substantial net benefits In 2010, fuel and operational savings exceeded investment costs by more than three times, while in 2020, this ratio remained strong at approximately two and a half times.
Table 5.3: Impact of policies on air pollutant emissions
Figure 5.3: Emissions of Major Air Pollutants: 1999-2020
2020, yielding cumulative discounted net benefits of
$259 billion and $844 billion, respectively, in those years.
Supply sector policies alone are not cost-effective, leading to significant net costs Transitioning from coal to cleaner energy sources, such as renewables and natural gas, incurs capital, fuel, and operational and maintenance expenses Consequently, the cumulative discounted net costs for electric sector policies amounted to $144 billion in 2010 and are projected to rise to $268 billion by 2020.
Figure 5.5: Cost-effectiveness of demand policies in 2010 and 2020
400 cu m ul at iv e pr es en t va lu e of s av in gs (b ill io n 19 99 $)
0 500 1,000 1,500 cu m ul at iv e pr es en t va lu e of s av in gs (b ill io n 19 99 $)
In 2010, the combined policies resulted in cumulative savings surpassing costs by $114 billion, with net benefits projected to reach around $576 billion by 2020 Although these savings are notable, they represent a minor portion of the overall economic activity, as the $48 billion in annual net savings for 2010 constitutes only a small fraction of the projected GDP of $13.2 trillion for that year.
Figure 5.4 Cumulative undiscounted costs and savings from all policies and measures (1999$)
C u m u la ti ve b il li o n 1 9 9 9 $ cumulative savings cumulative costs
Figure 5.6: Cost-effectiveness of supply policies in 2010 and 2020
400 c u m u la ti ve p re s e n t va lu e o f s a vi n g s (b il li o n 1 9 9 9 $ )
0 500 1,000 1,500 c u m u la ti ve p re s e n t va lu e o f s a vi n g s (b il li o n 1 9 9 9 $ )
The analysis highlights that energy-related carbon dioxide emissions are the primary source of greenhouse gas emissions in the U.S., making their reduction crucial for climate protection Due to historically weak emissions mitigation policies and the delayed ratification of the Kyoto Protocol, the U.S may struggle to meet its obligation of a 7% reduction in emissions below 1990 levels without incurring economic costs If aggressively pursued, current policies could reduce energy sector CO2 emissions growth from a projected 35% to just 2.5% above 1990 levels by 2010, yielding a small net economic benefit However, this approach would still leave the U.S 128 MtC/yr short of the Kyoto target of 1244 MtC/yr by 2010 Implementing a stricter carbon cap for the electric sector could enhance emissions reductions but may lead to incremental costs that could offset any net economic benefits.
The Kyoto Agreement addresses six greenhouse gases: methane (CH4), nitrous oxide (N2O), perfluorocarbons (PFCs), hydrofluorocarbons (HFCs), sulfur hexafluoride (SF6), and carbon dioxide (CO2) The usage of these gases is on the rise, primarily due to the replacement of ozone-depleting substances with HFCs Additionally, emissions of CH4 from livestock and fossil fuel systems, N2O from fertilizers, and PFCs from semiconductor manufacturing are contributing to this increase.
The United States is committed to reducing emissions of all six Kyoto gases by 7% below baseline levels, which translates to a target of 1,533 MtCe/yr from an initial 1,680 MtCe/yr With projected emissions for 2010 estimated at 2,204 MtCe/yr, this necessitates a total reduction of 672 MtCe/yr Current energy-CO2 policies are expected to achieve a reduction of 436 MtCe/yr by that time.
To effectively manage greenhouse gas emissions, it is essential to control gases interchangeably based on their 100-year Global Warming Potentials (GWP), aiming to reduce total carbon-equivalents (C e ) to 93% of baseline levels While the primary greenhouse gases—carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O)—reference a 1990 baseline, high GWP gases utilize a 1995 base year for their assessments.
Figure 6.1: Projected emissions, 2010, all gases
Projected 2010 emissions with energy/CO2 policies
Other Gases Energy-related CO2
(second column), leaving the US with
236 MtCe/yr additional reductions to achieve from other policies and measures
The Kyoto agreement offers various strategies to achieve an additional reduction of 236 MtCe per year, including domestic measures such as multi-gas control, which focuses on managing non-CO2 gases.
The Kyoto Protocol allows countries to achieve their emissions reduction targets through biotic sequestration via land use, land use change, and forestry options Additionally, countries can acquire credits and allowances from international sources, including the Clean Development Mechanism (CDM), Joint Implementation, and Emissions Trading (ET), to offset domestic emissions that surpass the 7% reduction target This section explores the potential methods for meeting the Kyoto target through these mechanisms, along with the associated costs and implications.
Domestic options
Greenhouse gas (GHG) emissions and removals from land use, land use change, and forestry (LULUCF) are contentious and scientifically uncertain topics The Kyoto Protocol categorizes LULUCF activities into two main groups: afforestation, reforestation, and deforestation under Article 3.3, and additional human-induced activities like forest and cropland management under Article 3.4 Different interpretations of these articles can significantly affect the US reduction commitment For example, the US estimates a business-as-usual forest uptake of 288 MtCe/yr during the first commitment period, which, if credited as an Article 3.4 activity, could account for over 40% of the US reduction requirement without actual mitigation efforts However, most countries do not support crediting business-as-usual offsets, advocating for their exclusion instead.
The starting point of our LULUCF analysis is the assumed adoption of the “consolidated negotiating text” of Jan Pronk, President [of COP6], as issued on June 18, 2001 19 The so-called
The "Pronk text" represents a negotiated agreement addressing several contentious issues, particularly focusing on the proposals outlined in Articles 3.3 and 3.4 Notably, this text seeks to limit the total crediting for the United States from activities related to Article 3.4, including afforestation efforts.
Different accounting methods and regulations have been evaluated concerning the definition of a forest, the biotic pools and lands included in assessments, the eligibility of activities for crediting under Article 3.4, and the uncertainties involved in measuring carbon stocks both above and below ground.
The Pronk proposal, as outlined in the revised negotiating text from June 18, 2001, suggests that reforestation projects under the CDM and JI could yield approximately 58 MtCe per year However, domestic forest management activities would incur an 85% discount, leading to an estimated 42 MtCe per year in zero-cost credits for practices that are likely to occur regardless Additionally, agricultural management strategies, such as no-till farming and grazing land management, could contribute another expected 10 MtCe per year under a net-net accounting method Overall, the Pronk proposal could result in 52 MtCe per year of "free" carbon removals, with an additional 6 MtCe per year possible through new domestic forest or agricultural management initiatives.
A total of 58 MtCe per year in LULUCF credits, valued at $10 per ton of carbon equivalent, would be available to address the remaining reduction requirement of 236 MtCe per year, following the implementation of the outlined energy-related CO2 policies.
Multi-gas control is a crucial component of the Protocol, with numerous studies highlighting its potential to reduce the overall costs associated with meeting Kyoto targets (Reilly et al., 1999 and 2000) Table 6.1 illustrates both baseline and projected emission levels for non-CO2 gases.
Table 6.1: Baseline and Projected Emissions for the non-CO2 Kyoto Gases (MtCe/yr)
Nitrous Oxide 111 103 121 18 (Reilly et al 1999b; EPA 2001a)
The analysis of Pronk conditions serves as a hypothetical exploration rather than an endorsement While the Pronk text may have its shortcomings, this report does not concentrate on evaluating or critiquing those deficiencies.
21 The Pronk text would prohibit first commitment period crediting of CDM projects that avoid deforestation It also
The April 9 draft of the Pronk text, as outlined in Annex Table 1, adopts the accounting approach for Article 3.3 activities recommended by the IPCC Special Report on LULUCF This method results in an annual debit of 7 MtCe from net afforestation, reforestation, and deforestation activities, which can be entirely offset by undiscounted forest management practices Consequently, the estimate of 42 MtCe per year is derived from 85% of the adjusted total, calculated as (288 - 7) MtCe per year.
23 The Pronk proposal also allows this cap to be filled through afforestation and deforestation activities in the CDM.
Missfeldt and Haites (2001) estimate a central figure of 50 MtCe per year at a cost of $7.50 per ton of carbon equivalent for Clean Development Mechanism (CDM) afforestation and reforestation projects Additionally, they project the availability of 150 MtCe per year at a price of $15 per ton of carbon equivalent for Article 3.4 sinks in Annex.
The Pronk 85% discount on forest management projects could theoretically raise their costs by 6.7 times However, considering the limited quantity of 6 MtCe available for purchase, more cost-effective options in cropland management or the Clean Development Mechanism (CDM) are likely to be adequate.
The USEPA anticipates that voluntary Climate Change Action Plan (CCAP) initiatives will lead to a reduction of approximately 10% in methane emissions and 15% in high global warming potential (GWP) gases by 2010 Notably, these reductions are not factored into their 2010 projections, as outlined in Table 1, but are instead integrated into both their cost curves and our analysis.
(a) These are the reductions that would be needed if each gas were independently required to be 7% below its base year level.
Methane emissions are projected to rise by only 10% from 1990 to 2010, primarily due to increased natural gas leakage and venting, as well as higher levels of enteric fermentation and anaerobic decomposition from livestock and dairy production Meanwhile, methane emissions from landfills, which represented 37% of total emissions in 1990, are anticipated to decrease slightly as a result of the Landfill Rule under the Clean Air Act.
1999), which requires all large landfills to collect and burn landfill gases
To significantly decrease methane emissions, several effective strategies have been identified The USEPA estimates that capturing methane from unregulated landfills for electricity generation could cut projected emissions by 21% By investing $30 per ton of carbon equivalent, this reduction potential increases to 41% Additionally, the USEPA has developed cost curves for various methane reduction methods, including minimizing leaks in natural gas systems, recovering methane from underground mines, utilizing anaerobic digesters for manure management, and altering livestock feeding practices to reduce enteric fermentation.
A USEPA study estimates that high global warming potential (GWP) gases, despite constituting a small percentage of baseline emissions, will significantly contribute to the net growth in non-CO2 emissions, surpassing the 7% reduction target Various strategies can mitigate these emissions, including substituting HFCs and PFCs with alternative gases, implementing new industrial processes, reducing leaks, and enhancing the efficiency of gas-using equipment For example, minor repairs in air conditioning and refrigeration systems could potentially save 6.5 MtCe/year in HFC emissions by 2010 at a cost of approximately $2/tCe, while innovative cleaning processes in semiconductor manufacturing might reduce PFC emissions by 8.6 MtCe/year by 2010 at an estimated cost of $17/tCe The USEPA has identified 37 measures to reduce high GWP gases, though this list may not encompass all possible abatement methods due to limited data and experience.
In the United States, nitrogen fertilizers are the primary contributor to nitrous oxide emissions, accounting for approximately 70% of the total Farmers often apply excess fertilizer to maximize crop yields, making it challenging to develop effective strategies for reducing N2O emissions from agricultural practices While there are some measures to mitigate N2O emissions from adipic and nitric acid production, as well as from mobile sources influenced by transportation policies, a comprehensive analysis of N2O reduction opportunities remains largely unexplored (USEPA, 2001).
International options
The Kyoto Protocol establishes two main types of greenhouse gas offsets in the international market: the acquisition of surplus allowances from countries that have met or exceeded their Kyoto targets, and the generation of carbon credits through project-based mechanisms such as the Clean Development Mechanism (CDM) and Joint Implementation (JI).
Emissions allowance trading/hot air
27 A similar assumption is used by European Commission (1998) Approximately fifteen percent of N2O emissions are a byproduct of fuel combustion, largely by vehicles equipped with catalytic converters (USEPA, 2001a)
Coal production is assumed to be directly proportional to coal consumption, disregarding net imports and exports The USEPA anticipates that the marginal methane emissions rate will rise with increased production, as a larger portion of coal is expected to be sourced from deeper underground mines (USEPA, 1999).
Figure 6.2: Non-CO2 GHG emissions reductions, cost and potential, 2010
Additional reductions needed to reach Kyoto target:
Non-CO2 GHG abatement cost curve
The restructuring of economies in transition (EITs) since 1990 has led to a significant pool of excess emissions allowances, commonly known as "hot air," with estimates ranging from under 100 MtCe/yr to nearly 500 MtCe/yr, primarily from Russia and Ukraine This surplus could potentially meet a substantial portion of the US's demand for additional emissions reductions at a low cost, contingent on competing demands from other Annex 1 parties However, it is anticipated that government and private sector actors responsible for emissions obligations will limit the use of hot air, as relying on it undermines legitimate mitigation efforts and carries a negative public perception due to its controversial history Consequently, it is projected that hot air will account for no more than 50% of all international trading, with a maximum availability of 200 MtCe/yr, according to recent analyses.
CDM and JI projects play a crucial role in effective climate policy by fostering sustainable development in host countries and delivering real, additional greenhouse gas benefits It is anticipated that the US government and various stakeholders will seek to enhance the CDM and JI market to engage developing nations, facilitate technology transfer, gain competitive advantages, and prepare for upcoming commitment periods.
The establishment of rules regarding critical issues like additionality and baselines for the Clean Development Mechanism (CDM) is still pending, leading to a limited understanding of CDM and Joint Implementation (JI) markets, as well as high transaction costs associated with increased activity Consequently, cost and volume estimates for CDM and JI projects remain largely speculative To address this uncertainty, both bottom-up and top-down methods have been utilized in GHG mitigation analysis, allowing us to analyze existing data and literature to create a preliminary aggregate cost curve for CDM and JI initiatives.
A bottom-up assessment of Clean Development Mechanism (CDM) and Joint Implementation (JI) costs can analyze emerging project-based greenhouse gas (GHG) trading markets, including private broker transactions, the Prototype Carbon Fund (PCF), and the Dutch ERUPT program, to gauge current real-world prices and transaction costs However, the overall size of these markets is still minimal compared to the expected total flows once CDM and JI projects are fully operational Current activities, such as the initial PCF project focused on landfill gas capture in Latvia, may exemplify low-return investments.
According to Vrolijk and Grubb (2000), the carbon emissions range is estimated between 100-350 MtCe per year, while Missfeldt and Haites (2001) provide a base estimate of around 240 MtCe per year, with a high estimate reaching 480 MtCe per year For the purpose of this analysis, we will consider the availability of these estimates.
200 MtCe/yr, based on a recent analysis by Victor et al (2001)
Windfall credits, often referred to as "hot air" sales, present an opportunity for economies to enhance the environmental integrity of agreements By allocating the revenue generated from these credits to energy projects, these nations can achieve significant additional emissions reductions.
Thirty-one CDM projects must demonstrate "additional" emissions reductions, yet the criteria for determining what qualifies as additional have not been established Furthermore, credits will be allocated based on reductions relative to a baseline This presents a significant challenge, as the easily achievable reductions may not meet the anticipated demand of several hundred MtCe per year from CDM and JI activities projected under certain Kyoto compliance scenarios (Missfeldt and Haites, 2001; Grubb and Vrolijk, 2000).
To better understand the costs associated with high-volume projects, early project estimates can be integrated with non-Annex B country studies, which include various national GHG abatement analyses supported by organizations like UNEP and UNDP A notable example is a study by the Dutch Energy Foundation (ECN, et al., 1999), which analyzed data from GEF projects and 25 country studies The findings indicated that 440 MtCe per year of reductions from non-Annex 1 countries could be achieved at a cost of less than $22 per ton of carbon equivalent.
However, the uncertainty related to these bottom-up studies is fundamentally quite high
National studies often overlook numerous abatement options due to insufficient data, resources, or perceived necessity Additionally, abatement costing studies may underestimate transaction and barrier removal costs associated with Clean Development Mechanism (CDM) and Joint Implementation (JI) projects As CDM and JI markets develop and clearer regulations are established, transaction costs related to project preparation, baselines, certification, and monitoring could evolve Ultimately, the chosen methodology for determining project additionality and baselines will significantly influence the market's size and structure.
The potential for limited crediting lifetimes and the discounting of future carbon reduction projects may raise the effective cost per ton of carbon equivalent (tCe) A study by Bernow et al (2000) demonstrated that varying methods of standardizing baselines could result in a fourfold difference in additional activity within the power sector Unfortunately, such critical factors are often overlooked in both bottom-up and top-down analyses of Clean Development Mechanism (CDM) and Joint Implementation (JI) projects.
Many climate policy assessments rely on CDM and JI cost curves developed by a handful of
The "top-down" modeling approach, exemplified by the MIT-EPPA computable general equilibrium model, has been instrumental in developing parameterized cost curves for five non-Annex 1 regions, as demonstrated by Ellerman and Decaux (1998) and subsequently utilized by various researchers (Reilly et al., 1999; Haites, 2000; Krause et al., 2001; Missfeldt and Haites, 2001; Grutter, 2001) Similarly, the ABARE-GTEM model has been employed for comparable analyses (Vrolijk and Grubb, 2000; Grutter, 2001; EMF, 1999) Although the EPPA and GTEM models offer a more comprehensive assessment of reduction potential and costs from an economy-wide perspective compared to bottom-up studies, they tend to inadequately capture the dynamics of project-based investments.
It turns out that the GTEM, EPPA, and bottom-up ECN studies, do yield rather similar results
At $20/tCe, the total CDM potential under the GTEM run is 470 MtCe/yr, while under EPPA it is
The GTEM results indicate a carbon dioxide equivalent emission rate of approximately 480 MtCe per year, while ECN et al (1999) estimate it to be around 440 MtCe per year Despite these minor discrepancies, we prefer the GTEM findings due to their comprehensive representation of the Clean Development Mechanism (CDM) curve, the inclusion of multiple greenhouse gases, and the provision of a cost curve for Joint Implementation (JI) investments.
32 For instance, anecdotal evidence suggests that the current international GHG emission credit market is at about
The annual transactions amount to $25 million, with the PCF and ERUPT pledging an additional $225 million in the coming years This investment is notable when compared to the projected market of $10-20 billion per year, which equates to approximately 400-500 MtCe annually at a price range of $20-40 per ton of carbon equivalent, as estimated by analysts under the Clean Development Mechanism (CDM) (Missfeldt and Haites, 2001).
Combining the options
To achieve our Kyoto targets, we can either prioritize options based on their strategic advantages and co-benefits or focus on the lowest-cost solutions for the short term A long-term climate policy perspective favors the former approach, emphasizing the need for rules and criteria in Joint Implementation (JI) and the Clean Development Mechanism (CDM) that maximize additionality, sustainability, and technology transfer Ideally, our cost curves for CDM and JI should only include investments that align with these criteria; however, our current capacity to quantitatively estimate the potential of CDM and JI based on these factors remains limited.
Investing in domestic reductions of non-CO2 gases can be prioritized through measures that may exceed the global market carbon price Similar to energy and CO2 initiatives like Renewable Portfolio Standards, which are supported by technological advancements and long-term cost savings, certain non-CO2 strategies can also be justified While specific policies for non-CO2 gases have not been evaluated as thoroughly as those for CO2, we have identified a cost point of $100/tCe to emphasize the importance of domestic action At this cost level, domestic non-CO2 measures can provide significant benefits.
118 MtCe/yr of reductions, still about 60 MtCe/yr short of the Kyoto goal, to which we must turn to the international market.
We modeled the global emissions trading market by utilizing the CDM/JI cost curves and hot air assumptions, alongside demand projections for credits and allowances from all Annex B parties This approach generated market-clearing prices and quantities for the three main flexible mechanisms: CDM, JI, and ET/hot air, with the findings detailed in Table 6.2.
The first row of the table shows that 93 MtCe/yr are available at net savings or no net cost, over half from the non-additional or “anyways” forest
A brief examination of the potential impact of a CDM fast track for renewables and efficiency, as outlined in the Pronk text, reveals that using the power sector CDM model by Bernow et al (2001) indicates a carbon price of $20/tCe would generate only 3 MtCe/yr in new renewable energy projects by 2010 However, increasing the carbon price to $100/tCe could boost this figure to 18 MtCe/yr Additionally, the significant technical potential for energy efficiency projects, particularly those under 5 MW useful energy equivalents as per the Pronk text, could lead to substantial increases in project activity at lower costs.
To estimate the demand for Clean Development Mechanism (CDM), Joint Implementation (JI), and emissions trading (ET) or hot air from other Annex 1 parties, we utilized a blend of the EPPA and GTEM cost curves, as referenced in studies by Reilly et al (1999b), Ellerman and Decaux (1998), Vrolijk and Grubb (2000), and Grutter (2001).
36 Our approach is similar to that used in a few other recent studies (Grutter, 2001; Haites, 2000; Missfeldt and
Table 6.2: Reductions available in 2010 up from various sources (in
Domestic Options International Trade Non-CO2 gases Sinks
Amount available at < or = $0/tCe (MtCe)
In 2010, nearly $1.8 billion was invested in technologies and practices aimed at reducing non-CO2 greenhouse gas emissions by 118 MtCe per year Additionally, $60 million was allocated for expected additional sinks projects under the Pronk proposal, which could yield 6 MtCe annually The international trading market accounted for 60 MtCe per year, with half of this coming from Clean Development Mechanism (CDM) projects, while the remainder largely consisted of less credible sources The estimated market-clearing price for these purchased credits and allowances was around $8 per ton of carbon equivalent, resulting in a total annual expenditure of under $500 million.
To achieve the Kyoto Protocol targets by 2010, a total reduction of 672 MtCe/yr is necessary, with approximately 65% of this reduction coming from energy sector CO2 policies, 18% from domestic non-CO2 gas abatement, and 9% each from domestic sinks and the international market The economic benefits from energy-related carbon reductions are projected to be nearly $50 billion annually by 2010 The estimated cost for the remaining 35% of reductions, derived from non-CO2 control, sinks, and international trading, is about $2.3 billion, resulting in a favorable economic outcome Alternatively, a strategy focused on minimizing near-term compliance costs would increase reliance on international trading, potentially lowering overall annual costs to $0.9 billion and reducing non-CO2 control by over 40% However, this approach offers limited additional benefits compared to the comprehensive economic and environmental advantages of the full policy portfolio.
The United States can meet its Kyoto Protocol carbon reduction target of 7 percent below 1990 levels by implementing national policies for greenhouse gas reductions and utilizing flexibility mechanisms for a portion of its total reductions This Climate Protection package would result in net economic savings while facilitating a transition from carbon-intensive fossil fuels to energy-efficient equipment and renewable energy sources By taking prompt action, the US could achieve approximately a 24 percent reduction in carbon emissions by 2010, resulting in emissions that are about 2.5 percent above 1990 levels.
Furthermore, emissions of other pollutants would also be reduced, thus improving local air quality and public health.
Implementing national policies through legislation will enable America to achieve its Kyoto targets while providing significant economic benefits for consumers Households and businesses can expect annual energy bill reductions that exceed their initial investments, leading to increasing net savings over time—projected to reach nearly $113 per household by 2010 and $375 by 2020 Overall, these measures could result in cumulative net savings of approximately $114 billion (in present value from 1999).
The market clearing price in this study is significantly lower compared to similar research, primarily because of reduced US demand for international trade This decline is attributed to the country's strong focus on domestic abatement strategies and the assumption that implementing domestic policies and investments is essential for effective energy and environmental management, leading to price inelasticity.
Greenhouse gas emissions in the United States have increased by approximately 15% since 1990 As the initial budget period approaches, a feasible start date is anticipated no sooner than the upcoming timeline.
To meet the Kyoto targets, the implementation of national policies in 2003 necessitated not only reductions in energy-related carbon emissions but also additional strategies for reducing other greenhouse gases By 2010, the Climate Protection case projected a total of 436 million tons of carbon per year from energy-related reductions, alongside 58 million tons from domestic land-based carbon reductions, 118 million tons from reductions in domestic non-carbon greenhouse gases, and 60 million tons from purchased allowances.
“flexibility mechanisms” of the Kyoto Protocol
Implementing these ambitious policies and supplementary non-energy measures is a crucial transitional strategy for achieving long-term climate protection goals This approach lays the groundwork for significant future emission reductions and fosters innovation within the U.S Additionally, it positions the country as a responsible global leader in addressing the challenges posed by climate change.
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Energy and Carbon Summaries
Total Energy Consumption by Fuel and by Sector in 1990 (Quads)
Residential Commercial Industrial Transportation Electricity Total
Total Energy Consumption by Fuel and by Sector in 2005 (Quads), Base Case
Residential Commercial Industrial Transportation Electricity Total
Total Energy Consumption by Fuel and by Sector in 2005 (Quads) Policy Case
Residential Commercial Industrial Transportation Electricity Total
Total Energy Consumption by Fuel and by Sector in 2010 (Quads), Base Case
Residential Commercial Industrial Transportation Electricity Total
Total Energy Consumption by Fuel and by Sector in 2010 (Quads) Policy Case
Residential Commercial Industrial Transportation Electricity Total
Percentage Difference in Primary Consumption by 2010 Relative to 1990
Residential Commercial Industrial Transportation Electricity Total
Nuclear NA NA NA NA 28% 28%
Hydro NA NA NA NA 4% 4%
Total Energy Consumption by Fuel and by Sector in 2015 (Quads), Base Case
Residential Commercial Industrial Transportation Electricity Total
Total Energy Consumption by Fuel and by Sector in 2015 (Quads) Policy Case
Residential Commercial Industrial Transportation Electricity Total
Percentage Difference in Primary Consumption by 2015 Relative to 1990
Residential Commercial Industrial Transportation Electricity Total
Nuclear NA NA NA NA 23% 23%
Hydro NA NA NA NA 4% 4%
Total Energy Consumption by Fuel and by Sector in 2020 (Quads), Base Case
Residential Commercial Industrial Transportation Electricity Total
Total Energy Consumption by Fuel and by Sector in 2020 (Quads) Policy Case
Residential Commercial Industrial Transportation Electricity Total
Percentage Difference in Primary Consumption by 2020 Relative to 1990
Residential Commercial Industrial Transportation Electricity Total
Nuclear NA NA NA NA 12% 12%
Hydro NA NA NA NA 4% 4%
Carbon Emissions in 1990 (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2005 Base Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2005 Policy Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2010 Base Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2010 Policy Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Percentage Difference in Carbon Emissions in 2010 Relative to 1990
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2015 Base Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2015 Policy Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Percentage Difference in Carbon Emissions in 2015 Relative to 1990
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2020 Base Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Carbon Emissions in 2020 Policy Case (Million metric tons)
Sector Gas Oil Coal Indirect Electric Totals
Percentage Difference in Carbon Emissions in 2020 Relative to 1990
Sector Gas Oil Coal Indirect Electric Totals