Tax Credit for Highly Fuel-Efficient Hybrid Vehicles. The proposal would provide a new tax credit of $1,000 for 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: $2.000 for hybrid vehicles from 2003 to 2006 that are at least two-thirds more efficient; $3,000 for hybrid vehicles from 2004 to 2006 that are at least twice as efficient; and $4,000 for hybrid vehicles from 2004 to 2006 that are at least three times as efficient.

• Industry

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

• 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 before 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 is adjusted for inflation from a 1992 base, is provided for systems using dedicated energy crops placed in service after 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 certain 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.

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 incremental 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 first 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 31.6 trillion Btu, or 0.03 percent, relative to baseline consumption of nearly 111 quadrillion Btu. In addition, the tax credits for wind and biomass generation would reduce fossil energy consumption for electricity generation by 71.9 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

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.

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, blomass 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 biomass gasification will qualify for the credit. Similarly, the tax credit for fuel cell vehicles extends only through 2006, when the technology is assumed by ELA 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

Buildings

1

*Reductions are relative to the CCTI reference case which is similar to that in Energy Information Administration, Annual Energy Outlook
1999, DOEЛEIA-0383(99) (Washington, DC, December 1998). For wind and biomass, the expenditure savings are for expenditures on fossil
fuels for electricity generation.

For the wind and biomass tax credits, the change represents the reduction in fossil energy use for electricity generation.
Reductions in carbon emissions from electricity are calculated by displacing marginal generating plants.

EIA's revenue losses are for calendar years, and the Administration's revenue losses are for fiscal years.

*The revenue impacts can only be estimated for natural gas heat pumps-$21.6 million without unintended beneficiaries and $61.6 million with unintended beneficiaries.

Assumes a portion of the commitments of the photovoltaic installations under the Million Solar Roots program. Excludes Federal government installations.

Revenue impacts are for 2000 through 2004 although the proposed tax credit for photovoltaic systems extends through 2006.
Cogenerated electricity substitutes for purchased electricity, and total site 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 tax credit.
Total revenue impacts for all three wind and biomass programs. Treasury does not disaggregate the revenues into the individual programs.

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

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

*Reductions are relative to the CCTI reference case which is similar to that in Energy Information Administration, Annual Energy Outlook 1999, DOE/EIA-0383(99) (Washington, DC, December 1998).

For the wind and biomass tax credits, the change represents the reduction in fossil energy use for electricity generation.

Reductions in carbon emissions from electricity are calculated by displacing marginal generating plants.

Cogenerated electricity substitutes for purchased electricity, and total site use increases due to additional natural gas consumption.

Efficiency Standards

Appliance efficiency standards can lead to significant reductions in energy consumption and carbon emissions by accelerating the penetration of more efficient technologies. The example with the largest impact is refrigerators, which will collectively be responsible for fewer carbon emissions in 2010 than in 1990 despite population growth and performance enhancements. The latest refrigerator standards adopted in 1993 and coming into effect in 2001 are aggressive enough to not only take inefficient units off the market but also accelerate the introduction of new 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.

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 Strategies for the U.S.3 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

*Reductions are relative to the CCTI reference case which is similar to that in Energy Information Administration, Annual Energy Outlook 1999, DOE/EIA-0383(99) (Washington, DC, December 1998).

Reductions in carbon emissions from electricity are calculated by displacing marginal 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 technologies, 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.

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

› Industry. Programs include partnerships to develop more energy-efficient technologies for the most energyintensive industries and the continuing development of cogeneration systems and elimination of barriers for combined heat and power technologies.

Electricity Generation. Funding includes continued development for solar energy, biomass power, wind energy. geothermal power, and hydropower, the Renewable Energy Production Incentive, renewable energy demonstration projects; the International Solar Program; improvements for the quality and reliability of power service; distributed generation; hydrogen production and storage; superconducting technology, life extension of 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 enhancing the natural capacity of terrestrial ecosystems and oceans to take up and store carbon dioxide in underground geological structures and the deep ocean.

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

The impacts of research and development funding for new technologies, whether ongoing or incremental, are difficult to quantify in the same manner as the tax incentives. Some of the proposed technologies may only achieve benefits in a long time frame beyond 2020 or may not achieve success at all; however, predicting which technologies will be successful is highly speculative. A direct link cannot be established between levels of funding for research and development and specific improvements in the characteristics and availability of energy technologies. In addition, successful development of new technologies may not lead to immediate penetration in the marketplace. Low prices for fossil energy and conventional technologies; unfamiliarity with the benefits, use, and maintenance of new products, and uncertainties concerning the reliability and further development of new technologies are all factors that may slow technology penetration and are barriers that the tax credits are intended to address. However, these limitations do not mean that the impacts of the research, development, and deployment programs could not be substantial over time.

It is also difficult to analyze the impacts of information programs, voluntary initiatives, and partnerships on realized technology development and deployment. Some voluntary programs appear to have achieved some success, such as Energy Star. The benefits of past efforts are difficult to quantify but are generally assumed in the reference case. 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 the economics of their development and deployment. For several of these programs, the potential impacts are addressed by assuming that program goals are achieved, then deriving the impacts on energy consumption and emissions, or by analyzing the impact of technology improvements based on current levels of research and development.

In AE099, the baseline assumptions include continuing improvements in technology, consistent with ongoing research and development. The impacts of these improvements can be evaluated by comparing the reference case with a case in which it is assumed that all future equipment choices in the end-use demand sectors are from technologies available in 1999, building shell and industrial plant efficiencies are frozen at 1999 levels, and new fossil generating technologies do not improve beyond 1999. In 2010, energy consumption in this low technology case is