Industrial fuel price projections from the 1996 EIA Annual Energy Outlook Reference Case are summarized in Table 3. Source: Energy Information Administration, 1996 Annual Energy Outlook AEO96 reference case oil prices increased at an annual average rate of 2.6 percent from The AEO96 reference case projected a 10 percent decrease in coal prices faced by The AEO96 reference case projected only modest changes in natural gas prices to AEO96 projected a small decrease in U.S. industrial electricity prices from their Because crude oil is traded on well-functioning global markets, it was assumed that absolute increases in oil product prices to U.S. industry in AEO96 also be applied in other OECD markets. It was assumed that a pattern similar to that of the U.S. would hold for other OECD regions, starting from their actual 1994 levels. For OECD Europe, where the 1994 average price was strongly influenced by Germany's reliance on high-cost domestic coal, the U.K. coal price was recommended to be used as the 1994 base value relevant to the determination of future coal prices to industry in Europe, given the expected phaseout of high-cost German coal. The OECD assumption for natural gas was near 1994 industrial natural gas prices through 2010, followed by an increase in absolute terms equal to that projected in AEO96 between 2010 and 2015. It was assumed that other OECD countries, starting from a much higher base level of electricity prices, would secure as large a change as the U.S. in percentage terms. The effects of electricity restructuring were not considered. Tables 4 and 5 outline the assumed energy price "add factors" for the two fuel price increase scenarios. Fuel price adders for OECD nations, consistent with the carbon content of the fuels, were assumed to be phased in until the year 2010 and remain constant thereafter. The list of developed nations in Annex I of the FCCC also includes the Economies in Transition of the former Soviet Union and eastern Europe. Because all of the Economies in Transition are far below their 1990 emission levels and should remain so through the subject period, the working assumption was that the emissions limitations under negotiation will constrain only the OECD countries. The assumed scenarios for fuel price adders may be considered as reflecting alternative views regarding the relative difficulties of mitigating emissions in the different OECD regions. For Scenario 1, the increase in effective industrial energy prices in the U.S. falls between that of OECD Europe (on the low end) and OECD Pacific (on the high end). This scenario reflects the likelihood that the rate of baseline emissions growth in OECD Europe will be below that of the U.S. due to energy use reductions following German reunification, the economically-driven substitution of natural gas (which has the lowest carbon content per unit of energy among fossil fuels) for subsidized coal in Germany and the United Kingdom, and lower rates of population growth, all of which would reduce the magnitude of actions required to reach an emissions reduction target. The high level of baseline energy efficiency in Japan, together with projected rapid growth in demand for residential and personal transportation energy use starting from low initial levels, implies a high rate of baseline emissions growth in OECD Pacific, resulting in the need for more intense action to constrain emissions. To put a few of the Scenario 1 fuel price adders into a broader perspective, the U.S. baseline price projection for natural gas in the year 2015 is $127 (all prices in 1994 dollars) per metric ton of oil equivalent (equal to 38.5 thousand cubic feet of natural gas). The Scenario 1 add factor would add $86.30 to this, or a 68 percent increase. In units of thousands of cubic feet, the U.S. baseline price in 2015 is $3.30, with the Scenario 1 add factor adding $2.24. The U.S. baseline coal price projection for 2015 is $32.41 per metric ton, with Scenario 1 adding $106.34 per metric ton, or a 328 percent increase. For OECD Europe, the lead authors were advised to assume a baseline natural gas price projection of approximately $200 per metric ton of oil equivalent for the year 2015, and the Scenario 1 add factor was $57.54, or a 29 percent increase. In units of thousands of cubic feet, the baseline price is $5.19, and the Scenario 1 add factor is $1.49. For Japan, the baseline coal price projection for 2015 was assumed to be $42.74 per ton, and the Scenario 1 add factor added $141.78, or an increase of 332 percent. Scenario 2 reflects an alternative outlook. While OECD Pacific nations would still require relatively intense action to limit emissions, required actions affecting industrial energy prices in the U.S. and OECD Europe are assumed to be roughly comparable. This reflects the larger set of energy efficiency opportunities that some believe are available in the U.S., and the differential in potential for emissions reduction through fuel substitution in the electric utility industry between the U.S. and Europe. Providing perspective for a few of the Scenario 2 fuel price adders, the U.S. baseline price projection for heavy fuel oil in the year 2015 is $155.6 per metric ton of oil equivalent (or $21.23 per barrel, since a metric ton of crude oil equals 7.33 barrels). The Scenario 2 add factor would add $88.20 (or $12.03 per barrel) to this, a 57 percent increase. The U.S. baseline industrial electricity price projection for 2015 is 4.8 cents per kilowatt-hour, with Scenario 2 adding 1.69 cents, or a 35 percent increase. For OECD Europe, the baseline heavy fuel oil price projection was $198.30 per metric ton of oil equivalent for the year 2015 (or $27.05 per barrel), and the Scenario 2 add factor was the same as that for the U.S., $88.20 ($12.03 per barrel), or a 44 percent increase. For Japan, the baseline electricity price projection for 2015 was assumed to be 16.28 cents per kilowatt-our, and the Scenario 2 add factor added 1.98 cents, or an increase of 12 percent. |