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equipment, consumer preference for other equipment attributes instead of efficiency. corsete

payback periods, and uncertainties about reliability, installation and maintenance, tan nents, and infrastructure requirements. EIA analyzes empirical evidence to estimate ptz

umer preferences in order to project consumer reaction to changes in energy prices ar hergy efficiency: however, models cannot predict shifts in consumer tastes or rate lated with the rapid adoption of new technologies, such as the Internet

.

· Tax Credit for Highly Fuel-Efficient Hybrid Vehicles. The proposal would provide a new tax credit of $1,000 fc qualifying hybrid vehicles, including cars, minivans, sport utility vehicles, and pickup trucks, purchased from 2003 to 2004 that are at least one-third more fuel efficient than a comparable vehicle in the same class: $2,00 for hybrid vehicles from 2003 to 2006 that are at least two-thirds more efficient: $3.000 for hybrid vehicles fror 2004 to 2008 that are at least twice as efficient; and $4,000 for hybrid vehicles from 2004 to 2006 that are at leathree times as efficient.

ayed a significant role in energy policy for many years. Some incentives have been able to

the introduction of new technologies into the market, while others have had little impar entives and likely market conditions are important factors in any assessment of the impacz vs. Compared to some earlier tax credits, such as the solar tax credit of 40 percent which en pired in 1985, the incentives currently proposed are of small to modest magnitude and 1

• Industry

Tax Credit for Combined Heat and Power Systems. A new tax credit of 8 percent would be provided for qualifiecombined heat and power systems larger than 50 kilowatts, installed between 2000 and 2002. Qualified system would produce at least 20 percent thermal and at least 20 percent electrical or mechanical power. Systems wit electrical capacity higher than 50 megawatts would need at least 70-percent total efficiency, and smalle systems would need at least 60-percent efficiency.

nt tax credits for buildings, vehicles, and industry to lower the initial costs of more energ echnologies and production tax credits for renewable generation technologies

. These 3 only a few years for the intended purpose of encouraging the penetration of the sts, and creating a more mature market. Administration estimates of the revenue impar lion in fiscal year 2000 and $3.6 billion from fiscal year 2000 through fiscal year 2004

• Renewable Energy Electricity Generation

Tax Credit for Wind Generation. Under current law, a tax credit of 1.5 cents per kilowatthour, which is adjusted for inflation from a 1992 base, is provided for systems placed in service after December 31, 1993, and befor July 1, 1999. The proposal would extend this credit to systems placed in service before July 1, 2004. · Tax Credits for Biomass Generation. Under current law, a tax credit of 1.5 cents per kilowatthour, which I adjusted for inflation from a 1992 base, is provided for systems using dedicated energy crops placed in servicafter December 31, 1992, and before July 1, 1999. The proposal would extend the credit to systems placed in service before July 1, 2004, extend the definition of biomass systems eligible for the credit to include certair forest-related, agricultural, and other biomass sources, and provide a new 1.0-cent-per-kilowatthour tax credit which is adjusted for inflation from a 1999 base, for biomass-fired electricity generated at coal plants using biomass co-firing through June 30, 2004.

n CCTI are as follows:

Efficient Homes. A new $1.000 tax credit would be established for new homes purchased 701 that are at least 30 percent more efficient than the 1998 International Energy -CC). a $1.500 credit for homes between 2000 and 2002 that are at least 40 percent Ber? of $2,000 for homes between 2000 and 2004 that are at least 50 percent more efficient

Ticient Equipment in Existing Homes and Buildings. A new tax credit of 10 percent up to = established for electric heat pumps, central air conditioners, and advanced natural gas ed in 2000 and 2001 meeting specified efficiency levels and a 20-percent credit far D and 2003 of fuel cells, electric heat pump hot water heaters, electric heat pumps, advanced natural

gas water heaters, and natural gas heat pumps meeting specified is $500 per kilowatt for fuel cells, $1,000 per unit for natural gas

heat pumps or equipment Far Systems. A new 15-percent tax credit, subject to a cap, would be established for ems installed between 2000 and 2006 and solar water heating systems installed from available for solar-heated swimming pools. The cap is $2,000 for the photovoltaic solar water heating systems.

Table ES1 presents the impacts of the tax credits in terms of energy savings and reductions in carbon emissions relative to the AEO99 reference case, which assumes current law. The carbon savings include only those incrementa changes in emissions, relative to the reference case. Where possible, an estimate of the tax revenue implications is provided and compared to the Administration estimates. The year 2010 is the focus because it is the midpoint of the firse compliance period in the Kyoto Protocol. Some of the technologies covered by the tax credits are likely to penetrate even without the credits and are included in the reference case; however, the credits are applied to both the units that are added because of the credits and the units that would be added without the credits, which become unintended beneficiaries of the tax credits. For the EIA estimates, both revenue impacts are presented. In 2010

, the tax credits for buildings, Industrial, and transportation would reduce primary energy consumption by 31.5 trillion Btu, or 0.03 percent, relative to baseline consumption of nearly 111 quadrillion Btu. In addition, the tar credits for wind and biomass generation would reduce fossil energy consumption for electricity generation by 71.5 trillion Btu, or 0.06 percent of the total. In the reference case, carbon emissions are projected to reach 1,790 million metric tons in 2010, which would be reduced by 3.1 million metric tons, or 0.17 percent, as a total of the individual impacts of the tax credits, reflecting lower energy consumption and a shift in the mix of energy fuels. Although the investment tax credits reduce the initial cost of purchasing the applicable equipment in the buildings, transportation and industrial sectors

, the analysis assumes that consumers will continue to make decisions as indicated by EIA's analysis of historical trends. Consumers are typically reluctant to invest in more expensive technologies with long

les and Fuel Cell Vehicles. Under current law, the 10-percent tax credit, subject to a 2 of qualified electric vehicles and fuel cell vehicles begins to phase down in 2002 ver, this proposal would extend the credit at its full level through 2006

payback periods to recover the incremental costs. In addition, energy efficiency is only one of many attributes that consumers consider when purchasing new energy equipment or buildings.

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Tax credits of longer duration and/or higher value could encourage greater penetration of the technologies by making them more economically competitive to consumers. The timing of the tax credits is also a key factor in their impacts. For example, the tax credit for combined heat and power systems applies only to systems installed between 2000 and 2002. Since 18 to 36 months are required to plan, design, and install new capacity, there is not much opportunity for incremental investments in the systems. As another example, in the AEO99 reference case, biomass gasification is assumed to be commercially available in 2005; however, since the credit expires in 2004, there is no opportunity to take advantage of the credit. Only a small quantity of capacity, based on current technology, and demonstration plants for blomass gasification will qualify for the credit. Similarly, the tax credit for fuel cell vehicles extends only through 2006. when the technology is assumed by EIA to become commercially available. The date was advanced from the reference case assumption of 2010 due to the credit.

Table ES1. Summary of Impacts for Selected Climate Change Technology Initiatives, 2010

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Total

100.5

10.2
'Reductions are relative to the CCTI rolarenco caso which is similar to that in Energy Information Administration, Annual Energy Outaat
1909, DOELEIA-0383499) Washington, DC, December 1996). For wind and blomneas, the expenditure savings are for expenditures on toen
tools for clectricity generation

o for the wind and biomass beaux credito, the chango represents the reduction in toval energy wo ter wectricity generation.
(Reductions in carbon emissions from electricity are calculated by dispiacing marginal generating plante.
PEIA's revenus losses are tor calendar years, and the Administration's revenue losses are for Mecal years.

The revenue impacts can only be es tornated for natural gas heat pumper 21.6 million without unintended beneficiaries and $81.6 millon
with unintended beneficiarias.

'Assumes a portion of the commitments of the photovoltaic Installations under the Milhon Solar Roots program. Excludes Federal
government installations
Rovanno impacts are for 2000 through 2004 although the proposed tax credit for photovoltamic systorns extends through 2006.
Cogenerated electricity substitutes for purchased electricity

, and total shto use increases due to additional natural gas consumption
The range results from the possibility that additions currently planned for 1999 or 2003 may be moved to take advantage of the box cradle
Total revenue impacts for all three wind and biomass programa. Treasury does not disaggregate the revenues into the indicran programa.

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cover the incremental costs. In addition, energy efficiency is only one of many attributes tan vhen purchasing new energy-equipment or buildings

duration and/or higher value could encourage greater penetration of the technologies znomically competitive to consumers. The timing of the tax credits is also a key factor in their the tax credit for combined heat and power systems applies only to systerns installed between 18 to 36 months are required to plan, design, and install new capacity. there is not much ental investments in the systems. As another example, in the AEO99 reference case, bices

to be commercially available in 2005; however, since the credit expires in 2006, there is no vantage of the credit. Only a small quantity of capacity, based on current technology

, and r biomass gasification will qualify for the credit. Similarly, the tax credit for fuel cel vetide 06. when the technology is assumed by EIA to become commercially available

. The date was ence case assumption of 2010 due to the credit.

Table ES2 shows the impacts of the tax credits in 2002 to 2004, which increase through that time period as the or advanced technologies become avallable and gradually penetrate the market. The total impact on carbon emissi is less in 2010 than in the earlier years because of the buildings equipment and biomass co-firing tax credits. credits for energy efficient buildings equipment have a larger impact on carbon emissions in the earlier years, w is reduced as the credits expire and some of the new, more efficient equipment begins to be retired and is repla by equipment with lower efficiency. Without the tax credit, the more efficient equipment is no longer economi Similarly, the impact of the co-firing tax credit is lower when the credit expires. The co-firing tax credit production tax credit that leads to more generation from biomass in coal plants when it makes biomass competitive with coal. The transportation tax credits have a small impact in the earlier years because of the limi availability of eligible technologies. After 2010, the impacts of the tax credits generally remain stable or deci through 2020. For example, the credits for energy efficient new homes and for combined heat and power syste encourage some incremental investment during the period of the credits, which has a sustained impact on ene consumption and carbon emissions.

if Impacts for Selected Climate Change Technology Initiatives, 2010

Table ES2. Summary of Impacts for Selected Climate Change Technology Initiatives, 2002-2004

Tu Revenue Lou Cumulathe, 2000-2001 pillon 1 Dolen)

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Roduction Roduction In Carbon Reduction In Carbon Reduction In Carbou In Energy

Emlaslonso in Energy Emissions In Energy Emissions Uso (Million

Use

(Millon Use (Million (Trillion Btu) Metric Tons) (Trillion Btu) Metric Tons) (Trillion Btu) Metric Tone

CCTI Initiative

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Buildings • Energy Efficient Equipment · Energy-Ellicient New Homes .. • Rooftop Solar Equipment Industrial Sector

Combined Heat and Power Systems ... Transportation Sector

Electric, Fuel Call, and

Electric Hyond Vehicles Wind and Biomas

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09.99

Total

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TI reference case which is similar to that in Energy Information Administration, and Erog Order En, DC, December 1998). For wind and biomess, the upendant savings are for cependieron en boel

Ats, the chengo represents to reduction in food energy wo tor electoty generaton => electionty are calculated by displecing marginal generating plants. the years, in the Administration's revenue touw no tor kacel your ustrated for natural gas novat pumpe-1.8 milion without writtended benotzades end $61.5 ments of the photovoltaic installations under the Makan Soker Roots program Erledes factured gh 2004 although the proposed to credit for photovoltaic sypternos estende trough 2006. ex purchased electricity and total site use incrueses due to attentional nos consumption

that additions currently planned for 1999 or 2003 may be moved to take advantage of the word nd and biomass programs. Treasury does not disaggregate the revenues into the individual program

eductions and relative to the CCTi retorenco como which is similar to that in Energy Information Administration, Annual Energy Outon 1999, DOELEIA-0383499) (Washington, DC, December 1998).

where the wind and dicrness tax credite, the chango represents the reduction in fossil energy weo for doctricity generation. Production in carbon emissions from electricity to calculated by deplacing marginal generating planta. "Cogenerated electorally obedientes for purchased bloctricity, and total sitio uso increases due to aditional natural gas consumption. Efficiency Standards Appliance efficiency standards can lead to significant reductions in energy consumption and carbon emissions scelerating the penetration of more efficient technologies. The example with the largest impact is refrigerators, whic will collectively be responsible for fewer carbon emissions in 2010 than in 1990 despite population growth ar performance enhancements. The latest refrigerator standards adopted in 1993 and coming into effect in 2001 a aggressive enough to not only take inefficient units off the market but also accelerate the introduction of ne

technologies.

Within the building technologies program, additional funding is provided to DOE to accelerate the lighting and appliance efficiency standards program in order to encourage the deployment of more energy-efficient appliances and equipment. Program goals include the development of new standards for fluorescent lamp ballasts, water heaters, and clothes washers, with test procedures for residential central air conditioners and heat pumps. distribution transformers, commercial heating, ventilation, and air conditioning, and water heaters.

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Because future standards are not specified, the potential impact is analyzed by evaluating the impacts of proposed standards in the American Council for an Energy-Efficient Economy study Approaching the Kyoto Targets: Five Key Strategles for the U.S. The results are shown in Table ES3. EIA projects that energy consumption in 2010 would be reduced by 143.9 trillion Btu, or 0.13 percent, and carbon emissions by 5.4 million metric tons, or 0.30 percent. Because of the energy efficiency improvements, consumers would save $2,335 million (1998 dollars) in 2010 alone in expenditures for energy. not accounting for additional equipment costs. As the technologies penetrate the market. the average efficiency of the equipment stock improves. As a result, the assumed efficiency standards have increasing impacts on energy consumption and carbon emissions after 2010. In fact, of the programs evaluated here, efficiency standards have the most significant impact.

Table ES3. Summary of Impacts for Proposed Efficiency Standards, 2010

Roduction in

Raduction in Annual Energy Fuel

Energy Uwe Carbon Emissione Expenditure Sevingen
CCTI Initiative

(Trillon Btu) (Million Metric Tons) (Million 1996 Dollars) Accelerated Efficiency Standarde

143.9

5.4

2,335 Reductions are relative to the CCTI raterence Case which las similar to that in Energy Information Administration, Arund Energy Outlook 1999, DOE EIA-0383(99) (Washington, DC, December 1998).

Productions in carbon emissions from electricity are calculated by displacing merginal generating plants.

Research, Development, and Deployment

CCTI also includes nearly $1.4 billion of funding in the fiscal year 2000 budget request for research, development, and deployment of more energy efficient and renewable energy and for research into carbon sequestration. More than $1.1 billion is requested for programs within DOE, with additional funding for EPA and the Departments of Housing and Urban Development (HUD). Commerce, and USDA. In addition to developing new technologies, some programs aim to reduce the costs and improve the operating characteristics of existing technologles, making them more economically competitive with conventional technologies. Other initiatives include programs to encourage the deployment of new technologies, such as consultations, partnerships, and voluntary programs.

Buildings. Programs include cooperative efforts with the building Industry to improve the energy efficiency of
homes, funding for new Energy Star products, the development of energy-efficient technologies, and partnerships

to improve the energy efficiency of commercial buildings and schools.
Transportation. Proposed funding includes the Partnership for a New Generation of Vehicles program, plus other

partnerships to develop advanced diesel cycle engine technologies for pickup trucks, vans, and sport utility
vehicles and to improve the fuel efficiency of new heavy trucks, and the continued development of ethanol and
other biofuels.

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'American Council for an Energy-Emicient Economy, Approaching the Kyoto Targets: Five Key Strategies for the U.S. (Washington, DC. August 1998).

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technologies program, additional funding is provided to DOE to accelerate the lighting met standards program in order to encourage the deployment of more energy-eficient places gram goals include the development of new standards for fluorescent lamp belas te

washers, with test procedures for residential central air conditioners and best perega vers, commercial heating, ventilation, and air conditioning, and water heaters

• Industry. Programs include partnerships to develop more energy efficient technologies for the most ener Intensive Industries and the continuing development of cogeneration systems and elimination of barriers combined heat and power technologies.

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rds are not specified, the potential impact is analyzed by evaluating the impacts of property nican Council for an Energy-Efficient Economy study Approaching the Kyoto Targes Pie Me The results are shown in Table ES3. EIA projects that energy consumption in 2010 would se on Btu, or 0.13 percent, and carbon emissions by 5.4 million metric tons or 1.30 percent efficiency Improvements, consumers would save $2,335 million (1998 dollars) in 2010 alime "ky. not accounting for additional equipment costs. As the technologies penetrate the same.

the equipment stock improves. As a result, the assumed efficiency standards have increasing umption and carbon emissions after 2010. In fact, of the programs evaluated here, eficer I significant impact.

Electricity Generation Funding includes continued development for solar energy. biomass power, wind enes geothermal power, and hydropower, the Renewable Energy Production Incentive, renewable ene demonstration projects; the International Solar Program; Improvements for the quality and reliability of poservice; distributed generation; hydrogen production and storage; superconducting technology: life extension nuclear power plants; and development of more efficient coal and natural gas generation. • Carbon Sequestration. This program funds research into the capture and storage of carbon dioxide by enhanc the natural capacity of terrestrial ecosystems and oceans to take up and store carbon dioxide in undergrou geological structures and the deep ocean.

Impacts for Proposed Efficiency Standards, 2010

Accelerating the adoption of new technologies in the market at lower costs through research, development, a deployment can help reduce carbon emissions and also can contribute positively to the overall quality of life. Supp for these activities at historic levels is assumed in the AEO99 reference case. As a result, reductions in these progra could lead EIA over time to raise its carbon projections, and new or expanded programs could lead EIA to low its carbon estimates.

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The impacts of research and development funding for new technologies, whether ongoing or incremental, are diffic to quantify in the same manner as the tax incentives. Some of the proposed technologies may only achieve bene in a long time frame beyond 2020 or may not achieve success at all; however, predicting which technologies will successful is highly speculative. A direct link cannot be established between levels of funding for research a development and specific improvements in the characteristics and availability of energy technologies. In additie successful development of new technologies may not lead to immediate penetration in the marketplace. Low prie for fossil energy and conventional technologies: unfamiliarity with the benefits, use, and maintenance of ne products

, and uncertainties concerning the reliability and further development of new technologies are all facto that may slow technology penetration and are barriers that the tax credits are intended to address. However, the limitations do not mean that the impacts of the research, development, and deployment programs could not

substantial over time.

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It is also difficult to analyze the impacts of Information programs, voluntary initiatives, and partnerships on realiztechnology development and deployment. Some voluntary programs appear to have achieved some success, su as Energy Star. The benefits of past efforts are difficult to quantify but are generally assumed in the reference cas They are even more difficult to quantify for the future. This analysis addresses these Initiatives by discussing the current state of development of the technologies and to economics of their development and deployment. For several of these programs, the pote

| impacts are address by assuming that program goals are achieved, then deriving the impacts on energy consumption and emissions, by analyzing the impact of technology Improvements based on current levels of research and development. In AEO99, the baseline assumptions include continuing improvements in technology. consistent with ongoir research and development. The impacts of these improvements can be evaluated by comparing the reference ca with a case in which it is assumed that all future equipment choices in the end-use demand sectors are fro lechnologies available in 1999, building shell and Industrial plant efficiencies are frozen at 1999 levels, and new fose generating technologies do not improve beyond 1999. In 2010, energy consumption in this low technology case

Micient Economy. Approaching the Kyoto Targets Five Key Strategies for the US Mashington, DC.

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