Analysis of HR 2454, the American Clean Energy and Security Act of

2009

Presented September 30, 2009

Energy Information Administration• Independent statistical agency within the Department of Energy

– www.eia.doe.gov• Produce monthly short-term and annual long-term forecasts of U.S. and

world energy markets• Short Term Energy Outlook

– http://www.eia.doe.gov/emeu/steo/pub/contents.html• Annual Energy Outlook, 2009

– http://www.eia.doe.gov/oiaf/aeo/index.html• International Energy Outlook, 2009

– http://www.eia.doe.gov/oiaf/ieo/index.html• Produce special analyses of emerging issues and the impacts of

regulatory/legislative changes– http://www.eia.doe.gov/oiaf/service_rpts.htm– http://www.eia.doe.gov/oiaf/analysis.htm

• EIA’s analyses and projections should not be seen as advocating or reflecting any position of the Department of Energy, the Administration, or any other organization.

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Key Provisions of ACESARepresented:

• The cap-and-trade program for GHGs other than hydrofluorocarbons (HFCs), including provisions for the allocation of allowances to electricity and natural gas distribution utilities, low-income consumers, State efficiency programs, rebate programs, energy-intensive industries, and other specified purposes,

• The combined efficiency and renewable electricity standard for electricity sellers, • The CCS demonstration and early deployment program, • Federal building code updates for both residential and commercial buildings, • Federal efficiency standards for lighting and other appliances, • Technology improvements driven by the Centers for Energy and Environmental

Knowledge and Outreach, and • The smart grid peak savings program.

Not Represented:

• The Clean Energy Deployment Administration• The strategic allowance reserve• The separate cap-and-trade program for HFC emissions• The GHG performance standards for activities not subject to the cap-and-trade

program• The distribution of allowances to coal merchant plants• New efficiency standards for transportation equipment, and• The effects of increased investment in energy research and development

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Main Analysis Cases

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Case Name Assumptions

ReferenceUpdated AEO2009 Reference Case, which includes the provisions of the American Recovery and Reinvestment Act.

Policy Cases

BasicIntegrated analysis of all of the modeled provisions of ACESA.

Zero BankSame as Basic but no carryover of allowances beyond 2030. Proxy for major low- no-carbon energy technology breakthroughs with significant market impacts after 2030

High OffsetsSame as Basic but assumes increased use of international offsets.

High CostSame as Basic but assumes that nuclear, fossil with CCS and biomass gasification costs are 50 % higher

No InternationalSame as Basic but assumes international offsets are too expensive or unable to meet the requirements for use

No International / LimitedSame as Basic but limits additions of nuclear, fossil with CCS and biomass to reference case levels of 11, 2, and 6 thousand megawatts, respectively. Also no international offsets.

* Additional report cases examine impacts of high technology assumptions, limited supply technology availability, the recent proposal to modify CAFE standards, an lower banking discount rate, and more aggressive banking through 2030.

Key Overall Findings• Offsets (particularly international offsets) and low/no carbon energy

technology availability (over the next two decades and beyond) are the key drivers of the compliance mix and the costs of ACESA.

• ACESA raises consumer energy bills, and reduces GDP and household consumption – mainly after 2025. The range of impacts varies across the policy cases, which reflect alternative assumptions regarding offset availability and the cost, timing, and public acceptance of key low- and no-carbon technologies. Generally, the availability of offsets and/or low/no carbon technologies significantly moderates costs.

• The electricity sector accounts for the vast majority of reductions in domestic energy-related emissions through 2030. Coal use without CCS is displaced by low- and no-emissions technologies including nuclear, renewables and fossil plants with CCS, and consumers make investments to reduce their energy use

– Higher cost, delayed development, or opposition to the deployment of low- and no-carbon technologies that can displace conventional coal-fired generation make compliance with ACESA more challenging and costly.

– Conventional coal declines, falling most rapidly in cases where offsets are less available or and/or more costly. Natural gas use for electricity generation can either rise or fall relative to the Reference Case projection depending on the cost and availability of low-emitting technologies like nuclear, renewables, fossil with CCS and offsets.

– The Combined Efficiency and Renewable Energy Standard (CERES) is not binding. It is projected to be exceeded as a byproduct of compliance with the Title III cap-and-trade program.

• The output-based allocation of allowances to energy-intensive industries provides more than enough resources to offset their higher energy costs over the 2014 to 2028 period. As a result, these sectors do not experience disproportionate adverse economic impacts relative to other industries.

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Compliance Sources by YearEnergy Sector Contribution (2 bottom blue wedges) Varies With Availability of Offsets

and Low-Emitting Generating Technologies

6

Basic High Cost

No International/Limited High Offsets

CO

2-e

quiv

ale

nt em

issi

ons,

mill

ion m

etric

tons

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)Offsets, Noncovered emissionsOffsets, BiosequestrationNon-Energy-CO2 covered emissionsCarbon Capture and StorageEnergy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)Offsets, Noncovered emissionsOffsets, BiosequestrationNon-Energy-CO2 covered emissionsCarbon Capture and StorageEnergy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)Offsets, Noncovered emissionsOffsets, BiosequestrationNon-Energy-CO2 covered emissionsCarbon Capture and StorageEnergy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)Offsets, Noncovered emissionsOffsets, BiosequestrationNon-Energy-CO2 covered emissionsCarbon Capture and StorageEnergy-Related CO2

Cumulative 2012 to 2030 Compliance SourcesEnergy Sector Contribution (2 bottom blue sections) Varies With Availability of Offsets

and Low-Emitting Generating Technologies

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Cumulative compliance, 2012-2030 (billion metric tons)

0

5

10

15

20

25

30

35

40

Basic Zero Bank High Offsets High Cost NoInternational

NoInt'l/Limited

Energy-Related CO2 Carbon Capture and StorageNon-Energy-CO2 covered emissions Offsets, BiosequestrationOffsets, Noncovered emissions Offsets, International - - - - - Required Abatement - - - - -

Projected Allowance Prices Depend on the availability of offsets and low- and no- carbon electricity

generation technologies

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(2007 dollars per metric ton CO2-equivalent)

0

20

40

60

80

100

120

140

160

180

200

2012 2015 2020 2025 2030

Basic Zero Bank High Offsets

High Cost No International No Int / Limited

2030 Energy Related CO2 EmissionsElectricity sector dominates emissions reductions

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(million metric tons)

561 576 534 543 543 527 519 494

987 955 855 879 880 847 815 779

2009 20371952 1985 1986 1942 1915 1868

2433 2639

1074

1886 18311573

384 908

0

1,000

2,000

3,000

4,000

5,000

6,000

2007 Reference Basic Zero Bank High Offsets High Cost NoInternational

No Int /Limited

Electric Pow er

Transportation

Industrial

Buildings

2030

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Key Findings: Electricity Sector• Electricity sector accounts for bulk of total reductions in energy-related

emissions.• Electricity demand growth slows, driven by efficiency programs and, after

2025, by higher prices• The fuel mix for power generation shifts dramatically, mainly from coal to

increased use of nuclear, renewables, and fossil with CCS. Coal use and production falls dramatically in some cases because the cost of using it without CCS becomes prohibitive.

• Natural gas use grows sharply if nuclear, CCS and biomass use are limited by commercialization time needed, cost, regulations, or other factors

• Change in capacity additions parallels shift in fuel mix, with large increases in nuclear, renewables, and fossil with CCS, though natural gas capacity grows if these are limited.

• Electricity prices are higher, but impact is dampened significantly through 2025 by allocation of allowances to electricity retailers. It is assumed that consumers view monthly bill adjustments from allowance allocations as price adjustments.

• The combined efficiency and renewable electricity standard (CERES) is exceeded in all ACESA cases

Annual Percent Growth in Electricity UseEfficiency programs and higher electricity prices slow electricity demand growth

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0.90%

0.64% 0.72% 0.72%0.57% 0.56%

0.21%

1.15%

2.39%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

1990 to2000

2000 to2007

Reference Basic Zero Bank High Offsets

High Cost NoInternational

No Int /Limited

2007 to 2030

Electricity Sector CO2 EmissionsElectricity sector accounts for majority of energy-related CO2 emissions

reductions, particularly if international offsets are limited.

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(million metric tons)

0

500

1,000

1,500

2,000

2,500

3,000

2005 2010 2015 2020 2025 2030

Reference

Basic

Zero Bank

High Offsets

High Cost

No International

No Int / Limited

2030 Generation by FuelGenerally shifts from coal with CCS to nuclear, renewables, and fossil with CCS, though natural gas use grows if the use of those options are limited

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2021 2296

8411650 1593 1281

100 285

015

513

262 304293

440 15

892976

636

708 713880

5921638

806890

15481147 1151 923

1863 890

352

798

1021 979 987974

13991315

0

1,000

2,000

3,000

4,000

5,000

2007 Reference Basic Zero Bank High Offsets

High Cost No Interational

No Int / Limited

Renewable Nuclear Natural Gas w/CCS Natural Gas Oil Coal w/CCS Coal

(billion kilowatthours)

Electricity Prices Stay near Reference Case level through 2025 in all but one case, then rise to

higher levels through 2030

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(2007 cents per kilowatthour, all sectors average)

0

2

4

6

8

10

12

14

16

18

20

2005 2010 2015 2020 2025 2030

Reference Basic Zero Bank

High Offsets High Cost No International

No Int / Limited

Combined Efficiency and Renewable Electricity Standard Compliance

Adjusted target is exceeded in all cases due to cap and trade program

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CERES requirements w/ adjustments vs. achieved penetration (percentage of total electricity sales)

0

5

10

15

20

25

2012 2015 2020 2025 2030

Nominal TargetMinus Exempt Hydro and Small UtilityMinus New Nuclear and CCSWith Full Efficiency CreditsReference Case AchievedACESA Basic Case Achieved

Capacity Additions, 2008 to 2030Generally dominated by mix of nuclear, renewables, and fossil with CCS,

though natural gas options are more important if those options are limited

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(thousand megawatts)

6935 39

125 4255 53 82 46

112

96

44 45

13581

119

93 95116

219

250

60410

100

200

300

400

500

600

Reference Basic Zero Bank High Offsets High Cost NoInternational

No Int /Limited

Renewable

Nuclear

Natural Gas with CCS

Natural Gas

Coal with CCS

Coal

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(million tons)

0

200

400

600

800

1,000

1,200

1,400

2005 2010 2015 2020 2025 2030

Reference

Basic

Zero Bank

High Offsets

High Cost

No International

No Int / Limited

US Coal ProductionU.S. coal production drops in all cases, particularly if international offsets are limited.

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Key Findings: Economic Impacts• Key determinants of economic impacts include:

– The greenhouse gas allowance price– The allocation of allowances and the uses of allowance related revenue– The timing and magnitude of energy price impacts– The No International/Limited case, where international offsets are unavailable and low- and no-

emitting baseload electricity cannot expand, results in much higher adverse economic effects than the other 5 analysis cases

• Summary findings:– Over the 2012 to 2030 period, reductions in the present value of GDP range from 0.20 to 0.37 percent,

while consumption losses range from 0.13 to 0.26 percent range in 5 of the analysis cases. Impacts are significantly higher (0.7 % for consumption and 0.9 % for GDP below baseline) in the No International/Limited case. Consumption losses are dampened relative to GDP losses because of the allocations of allowances aimed at reducing consumer costs.

– The average annual reduction in household consumption from 2012 to 2030 (year 2007 dollars) ranges from $95 to $190 ($59 to $124 when discounted) over 5 of analysis cases. Average annual consumption losses are significantly higher ($435, or $292 when discounted) in the No International/Limited case.

– Household energy bill increases (year 2007 dollars) range from $103 to $350 in 2020 and $282 to $885 in 2030 across 5 analysis cases, with a significantly larger increase ($767 in 2020 and $1870 in 2030) in the No International/Limited case.

– The economic costs of ACESA grow after 2025 as the emissions cap continues to tighten, allowance prices rise and the free allocation of allowances to key sectors is phased out.

– By 2030, GDP ranges between 0.5 % and 1.1 % ($104 to $226 billion) below baseline across 5 of analysis cases, with a significantly larger reduction of 2.3% ($453 billion) in the No International/Limited case. (Note: GDP impacts are in year 2000 dollars)

Consumption and Energy Bill ImpactsConsumption impacts are smaller than energy bill impacts due to revenue allocation, but impacts

vary substantially across cases and rise over time

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0

500

1,000

1,500

2,000

Basic Zero Bank High Offsets

High Cost NoInternational

No Int /Limited

Annualized Incremental Capital Expenditures

Light Duty Vehicle Expenditures

Home Energy Expenditures

0

500

1,000

1,500

2,000

Basic Zero Bank High Offsets

High Cost NoInternational

No Int /Limited

Annualized Incremental Capital Expenditures

Light Duty Vehicle Expenditures

Home Energy Expenditures

-122

-83-95

-59

-137

-89

-190

-124

-109

-76

-435

-292

-500

-450

-400

-350

-300

-250

-200

-150

-100

-50

0Undiscounted Present Value @ 4%

BasicZero BankHigh OffsetHigh CostNo InternationalNo Int/Limited

2020 Average Change in Household Energy Bills 2030

Change in Consumption per Household2020 and 2030 (2007 dollars) Average Annual,2012-2030

-134

-339

-30

-157

-66

-301

-200

-574

-50

-257

-362

-850-900

-800

-700

-600

-500

-400

-300

-200

-100

02020 2030

BasicZero BankHigh OffsetHigh CostNo InternationalNo Int/Limited

Change in Real GDP and ConsumptionOver the 2012-2030 period, present-value GDP losses range from 0.20 to 0.37 percent, while consumption

losses range from 0.13 percent to 0.26 percent in 5 of the analysis cases. Impacts are significantly higher in the No International/Limited Alternatives case.

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Percent Change in Real GDP Percent Change in Cumulative Real GDP

Percent Change in Real Consumption Percent Change in Cumulative Real Consumption

-1.4%

-1.2%

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

2012 2015 2018 2021 2024 2027 2030

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

-0.3%

-0.3%

-0.2%

-0.2%-0.3%

-0.2%

-0.4%

-0.4%

-0.4%

-0.3%

-1.0%

-0.9%

-1.1%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%Undiscounted Present Value @ 4%

BasicZero BankHigh OffsetHigh CostNo InternationalNo Int/Limited

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

2012 2015 2018 2021 2024 2027 2030

Basic

Zero Bank

High OffsetHigh Cost

No International

No Int/Limited-0.2%

-0.2%

-0.2%

-0.1%-0.2%

-0.2%

-0.3%

-0.3%

-0.2%

-0.2%

-0.7%

-0.7%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%Undiscounted Present Value @ 4%

BasicZero BankHigh OffsetHigh CostNo InternationalNo Int/Limited

Industrial ImpactsImpacts vary significantly across cases and generally increase after 2025, but

energy-intensive industries are not disproportionally hurt.

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Real Industrial Shipments(percent change)

Impacts on Shipments in the Basic Case(percent change)

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%2012 2015 2020 2025 2030

BasicZero BankHigh OffsetHigh CostNo InternationalNo Int/Limited -3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

2012 2015 2020 2025 2030

Total Industrial ShipmentsEnergy Intensive ShipmentsManufacturing Shipments

Additional Information

• Full report and detailed spreadsheets available at:

– http://www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html

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