Natural gas gains market share in all sectors. Natural gas gains from the power generation sector as a result of low gas prices, environmental considerations, and improved efficiency of gas fired combined cycle units. In the residential sector, 65% of new homes are heated with gas compared to a 26% market share of the existing stock. Gas is the predominant fuel for power in the industrial sector, and its use is projected to increase substantially in this market. Coal markets will also grow, albeit not at the same pace as electric markets. Rising electricity sales and the continuous loss of the nuclear units support growth in coal markets of 0.9% between 2005 and 2010, 1.2% over 2010 and 2015, and 1.6% over 2015 and 2020. Energy Prices The baseline projection is for little change in energy prices after adjustment for inflation over the coming 25 years. Continued advances in technology such as three and four dimensional seismic and horizontal drilling are expected to offset the impact of the depletion of oil and gas reserves. Yet, the U.S. will become increasingly dependent on imports of petroleum. And, as strong worldwide demand for petroleum products in the transportation sector require continued growth in supplies, constant dollar oil prices are expected to increase about 0.6% per year over the forecast horizon. Natural gas prices are expected to remain close to their 1996 level of approximately $2.14 per MMBtu over the forecast horizon. Coal prices at the minemouth are expected to decline in real terms as a result of continued improvements in productivity and the phasing out of high-priced long-term contracts. Restructuring will cause electricity prices GLOBAL WARMING: THE ECONOMIC COST OF EARLY ACTION The baseline projection is for little change in energy prices after adjustment for inflation over the coming 25 years. Carbon emissions from to decline in real terms. Plants will be managed more effectively and older inefficient plants will be retired. Carbon emissions from the energy sector will increase faster than energy consumption because of the increasing reliance on fossil fuels. This increase in fossil fuel share is attributable to the increase in electric sales combined with the retirement of aging nuclear facilities. The power generation sector's contribution to total carbon emissions rises from 37.6% in 1995 to 41.4% in 2020. The transportation sector contributes another 33.0% by 2020, and other direct consumption of fossil fuels in the residential, commercial and industrial sectors contributes the remaining 29.4%. GLOBAL WARMING: THE ECONOMIC COST OF EARLY ACTION Increasing electricity sales lead to sharp increases in carbon emissions from gas and coal. Baseline energy sector carbon emissions will exceed the target level by more than 27% in 2000 and 46% 2010. Carbon emissions from the combustion of petroleum and coal dominate the outlook for carbon. Transportation petroleum demand drives the increase in carbon emissions from this fuel source. Rising electricity sales leads to extraordinary growth in the power generation sector, which drives the sharp increase in carbon emissions for both natural gas as well as coal. The proposal is to reduce target carbon emissions to the 1990 level. The reference case projections are for carbon emissions to exceed the target level by 27% in the year 2000 and 46% in the year 2010. Under a carbon constraint, carbon emissions per person would continuously decline. Under the baseline outlook, energy use per person is projected to remain constant, while carbon emissions per person will continue to rise. Stabilizing carbon emissions from the energy sector implies reducing both energy use per person and carbon emissions per person. Extraordinary changes in the use and allocation of energy by both industry and consumers would be required to meet the goal. Financial risks and safety issues plague many nuclear facilities and environmental considerations have virtually halted hydro development. Distributed electric energy technologies would play an expanding role as their economics improve. Stabilizing Carbon Emissions at 1990 Levels: A commitment to stabilize the energy sector's carbon emissions at 1990 Markets in Transition To meet the policy goal of stabilizing carbon emissions from the energy sector at 1990 levels in 2010, the U.S. and other developed countries would institute intra-country tradable permits. The value of the permit would reflect the market cost of inducing consumers and businesses to reduce their consumption of carbon via energy use to 1990 levels. Higher energy prices would encourage: ■ substitution of non-carbon-emitting fuel for fossil fuel use; ■ substitution of lower emitting fuel for higher emitting fuels; and using less energy by. 1. investing in improvements in their capital or process efficiency, and 2. reducing their consumption of energy services. Limited Opportunities to Reduce Carbon Emissions by The substitution of non carbon emitting fuels in the energy mix offers the Some carbon emission reductions could be achieved through the increased use of nuclear or hydro power in the generation of electricity. However, it is unlikely that either of these technologies would play a substantive role in limiting carbon emissions. Concerns over the safety of nuclear technology, along with the most recent estimates of the costs of extending their useful life, have led to the assessment that the current stock of nuclear units would be retired at the end of their license. Hydropower expansion is also unlikely. Environmental considerations have virtually halted the development of the remaining hydro sites. While these non-carbon-emitting technologies are not expected to be relied upon to meet a policy to cap carbon emissions, there are some emerging technologies, such as photovoltaics and fuel cells, that would play a limited role in reducing carbon emissions over the mid-term and perhaps a larger role over the very long run. Under this proposal, these technologies could account for nearly 9,100 megawatts (1.2% of power GLOBAL WARMING: THE ECONOMIC COST OF EARLY ACTION supply) by 2020 versus the baseline expectation of 2,500 megawatts (0.3% of baseline power capacity). Fuel Switching Switching from fossil fuels with higher carbon emission rates to those with lower emission rates could also provide some of the reductions needed to reach a target. As there is a substantial difference in the carbon content of coal, petroleum and natural gas-gas has only 56% of the carbon content of coal, distillate fuel has 77% of coal's carbon content, and residual fuel has 83% of coal's carbon content-a permit would provide significant economic incentive to switch to natural gas from both coal and petroleum applications. However, the potential for fuel switching is also limited in most sectors. Natural gas gains substantial market share in the residential, commercial and industrial sectors in the base case, limiting the potential for additional carbon emissions savings from fuel switching in these applications. Transportation market opportunities for fuel switching are in part limited by the small difference in carbon content of the two fuels and the opportunity for -efficiency gain. In addition, the cost of developing a second national infrastructure system for delivering the fuel is substantial. Source: U.S. Dept of Energy, Energy Information Administration, Gas is currently intensively used in the residential, commercial and industrial sectors. Further, the market share of natural gas is projected to increase substantially in the base case. Petroleum currently plays a small or specialized role in these markets. Finally, only 11% of coal consumption is consumed directly in the industrial market, mainly in applications that can take advantage of other attributes of the fuel. While not precluding a switch in fuels, the price difference" in the delivered coal cost would have to be large enough to overcome these other attributes of the fuel. The transportation market also provides limited opportunities for widespread fuel substitution. Alternative-fuel vehicle sales are projected to increase under the provisions of the Energy Policy Act (EPAct), Clean Air Act Amendments (CAAA) and various state programs to improve local air quality. These programs were designed to meet other environmental emissions constraints, but would shift some fuel consumption from petroleum to natural gas. However, the widespread transformation of the transportation sector from petroleum to natural gas is not expected in this analysis. The carbon savings of switching from petroleum to natural gas are not sufficiently great relative to long-term opportunities for improving the efficiency of light duty vehicles and increasing the payload of trucks and barges. Further reducing the likelihood of substantial reductions in GLOBAL WARMING: THE ECONOMIC COST OF EARLY ACTION |