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Figure G2. Comparison of IEO Forecasts with 1995
Energy Consumption In Market
Economies

Actual 1995

IE093

IE092

IE091

IEO90

IE089

IE087

IEO86

IE085

0 50 100

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273

269

268

IE093

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375

M

377

ar

374

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150 200 250 300 350 Quadrillion Btu

Sources: 1995: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). 1995 Projections: EIA, International Energy Outlook, DOE/EIA-0484 (Washington, DC, various years).

by consumption in the countries of Eastern Europe but also including Cambodia, Cuba, Laos, Mongolia, North Korea, and Vietnam-showed a similar pattern. The magnitude and duration of the economic declines in the FSU were not anticipated, and projections for the region ran about 30 percent higher than actual consumption.

As might be expected, the IEO projections for the use of specific fuels reflect the tendency of the total regional consumption projections to underestimate energy use in the market economies outside the OECD and overestimate energy use in the FSU and "other CPE." For instance, IEO85 underestimated 1995 oil use in the "other developing market economies" by more than 40 percent, and IEO90 overestimated 1995 oil use in the FSU by 84 percent.

It is interesting to consider the forecasts in the historical context that certainly influenced the analytical thinking of the day. For example, IEO85, published after the oil price shocks of the 1973-1974 Arab embargo and the 1979-1980 Iranian revolution but before the Chernobyl nuclear accident of 1986, projected that oil would lose share of total energy consumption in the market

Sources: 1995: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). 1995 Projections: EIA, International Energy Outlook, DOE/EIA-0484 (Washington, DC, various years).

economies over the 1985-1995 decade, declining by as much as 5 percentage points as natural gas, coal, and "other fuels" all gained share. Nuclear was expected to be the fastest growing energy source, with a projected growth rate of nearly 4 percent per year.

In reality, the IEO85 forecast for nuclear energy turned out to be fairly accurate. Nuclear power consumption did increase more rapidly than any other energy source in the market economies, at a rate of nearly 5 percent per year between 1985 and 1995. On the other hand, oil use did not decline as projected but maintained a 45-percent share of energy consumption. The natural gas share grew more slowly than projected, reaching 21 percent of energy consumption in the market economies by 1995, rather than the projected 22-percent share. The largest divergence between projected and actual trends was for coal, which in IEO85 was expected to see increasing use for electricity generation and industrial applications in Western Europe. Those expectations did not materialize. Coal's share of energy consumption in the market econ omies declined from 21 percent in 1985 to 18 percent in 1995, whereas IEO85 had projected an increase to a 22-percent share in 1995.

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750

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Reference A reference case (based on Annual Energy Outlook 1998) with no new actions to reduce carbon
emissions. 1990+24%-Substantial international activities, including trading of "carbon emission permits",
but with some new domestic actions to reduce carbon. 1990+14%-Stabilization at roughly 1998 levels.
1990+9%-Moderate level of international activities as well as offsets from other gases and carbon sinks.
1990-Equivalent to 1990 emissions. 1990-3%-Substantial domestic actions, plus offsets and sinks.
1990-7%-Kyoto Protocol target for U.S. lowers 1990 emissions by 7%, with none of the offsets, sinks, trading
in the previous cases. (All carbon reduction cases represent average emissions for 2008-2012.) Percentages
shown represent deviation from the 1990 level.

Reference

1990-24%

1990+14%

1990+9%

1990 level

1990-3%

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1990-7%

Depend on Many Assumptions

• The amount prices must rise is uncertain. Accounting procedures and international trading rules for greenhouse gases are not finalized. Forecasting technological change and public response to it under various pricing scenarios is an inexact science. The more stringent the need for domestic emission reductions, however, the more costly the adjustment process will be.

EIA undertook this study in response to a request by the
Chairman and Ranking Minority Member of the House
Committee on Science that it analyze impacts of the
Protocol (which the President has not yet submitted to the
U.S. Senate for ratification) on U.S. energy use, prices,
and the general economy in the 2008-2012 time frame.
That is when this country is supposed to reach an average
level of net greenhouse gas emissions 7 percent lower
than they were in 1990-having shown demonstrable
progress toward that goal by 2005. At the Committee's
request, EIA assumed that actions begin in 2005.

EIA was asked to do the study for several reasons. More than 80 percent of the human-originated greenhouse gas emissions are energy-related. EIA's National Energy Modeling System (NEMS) is perhaps the most complete, integrated, regional computer model available to simulate all elements of U.S. energy supply and demand in the context of the full U.S. macroeconomy. NEMS presents year-by-year projections over a 20-year horizon, accounting for capital stock turnover and the availability and penetration of specific energy-consuming technologies. Its annual "Reference Case" assumes no change from existing laws and regulations, and so it provides a base from which to evaluate policy options or alternative assumptions.

EIA analyzed six cases to investigate the uncertain range
of impacts which could result from the Kyoto Protocol.
Differences among the cases analyzed arise
from three facts: 1) The Protocol gives credit for
"CO,- equivalent" reductions in five gases other than
CO,-methane, nitrous oxide, and three synthetic
gases as well as for certain actions that take carbon out

of the atmosphere (such as preserving or extending
forests); 2) participating developed countries are allowed
to sell excess "permits" (e.g., because of economic
problems since 1990 in the participating countries of the
former Soviet Union, they may have about 165 million
metric tons of carbon permits easily available); and
3) support for effective programs in other countries can
earn permits. Details of this last process (called "Joint
Implementation" among developed countries and the
"Clean Development Mechanism," or CDM, for
developing countries) are unsettled.

EIA's six cases cover a range of reductions in energy-linked carbon emissions from an annual average of 122 million metric tons below the expected baseline emissions (1990+24% Case) to 542 million metric tons (1990-7% Case) in 2008-2012. In the 1990+24% Case, domestic actions may furnish about one-fifth of all reductions, with the rest coming from international activities (including trading), offsets of other gases, and carbon sinks in the U.S., while the 1990+9% Case assumes that nearly 60 percent of the reductions result from such domestic initiatives as fuel-switching, improved technology, and cutbacks in energy use. EIA did not separately calculate the contributions of international activities, offsets or sinks for any case. The 1990-3% Case assumes all reductions are from domestic actions, with a 4 percentage point contribution from sinks and offsets from other In gases. the 1990-7% case, all reductions must come from domestic energy-related reductions.

The Kyoto Protocol does not specify targets for greenhouse gases after the period 2008-2012. At the Committee's request, EIA held the target for energyrelated carbon emissions in the commitment period constant to 2020, the end of the forecast horizon. Targets following the 2008-2012 period will be a topic at future negotiating sessions.

To reduce carbon emissions, EIA assumes that a "carbon
price" is added to the price of delivered energy fuels
based on their carbon content. For example, coal prices
rise more than petroleum and natural gas prices; and

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the cost of generating electricity from non-carbonemitting nuclear and renewable fuels is not increased due to the carbon price. Although electricity does not have the carbon price directly added to it, its price is increased due to the higher cost of fossil fuels used for generation.

The price increases encourage a reduction in the use of energy services (heating, lighting, and travel, for example), the adoption of more energy-efficient equipment, and a shift to less carbon-intensive fuels. The carbon price reflects the amount fossil fuel prices in the U.S., adjusted for the carbon content of the fuel, must rise to achieve the removal of the last ton of carbon emissions that meets the carbon reduction target in each case.

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►For more detail, see Executive Summary and Chapter I of the main report

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