SR-OIAF/97-01 Service Report Analysis of Carbon Stabilization Cases October 1997 Prepared for Office of Policy and International Affairs Prepared by Office of Integrated Analysis and Forecasting Energy Information Administration This report was prepared by the Energy Information Administration (EIA), the independent statistical and analytical agency within the U.S. Department of Energy. Service Reports are prepared by EIA upon special request and are based on For Further Information.. An Analysis of Carbon Mitigation Cases was prepared by the Energy Information Administration (ELA), Office of Integrated Analysis and Forecasting, under the direction of Mary J. Hutzler (mhutzler@cia.doc.gov, 202/5862222). General questions may be addressed to Andy S. Kydes (andy.kydes@eia. doc.gov, 202/586-2222), Senior Technical Advisor and Project Director, or Dan Skelly, (Daniel.Skelly@cia.doe.gov, 202/586-1722) Deputy Project Leader, NEMS Branch. Detailed questions about the forecasts and related model components may be addressed to the following analysts: Residential Demand Commercial Demand International Oil Markets Electronic Access and Related Reports John Cymbalsky (john.cymbalsk@eia.doc.gov, 202/586-4815) G. Daniel Butler (george.butler@eia.doe.gov, 202/586-9503. Model documentation reports for the National Energy Modeling System (NEMS) are available on CD-ROM Quarterly projections of energy supply and demand for 1996 and 1997 are available in the Short-Term Energy Outlook (Spring 1997). For ordering information and questions on other energy statistics available from ElA. please contact ELA's National Energy Information Center. Addresses, telephone numbers, and hours are as follows: National Energy Information Center, El-231 Energy Information Administration Forrestal Building, Room IF-048 Telephone: 202/586-8800 or hard of hearing: 202/586-1181 E-mail: infoctr@eia.doe.gov World Wide Web Site: http://www.eia.doe.gov Preface The carbon stabilization analysis described in this report was produced by the Energy Information Administration (EIA), applying the National Energy Modeling System (NEMS) to assumptions specified by the U.S. Department of Energy (DOE), Office of Policy and International Affairs, consistent with analysis being undertaken in an inter-agency process to study the economic effects of carbon mitigation. NEMS is an integrated energy-economy modeling system for U.S. energy markets, developed by the EIA as a policy analysis tool to provide an integrated framework for policymakers to understand the implications of proposed policies and alternative assumptions concerning energy markets. NEMS is used annually by ELA's Office of Integrated Analysis and Forecasting (OIAF) to produce a reference case and a range of alternative projections for the midterm future, which were published most recently in the Annual Energy Outlook 1997. The Energy Information Administration is an independent statistical and analytical agency within the U.S. Department of Energy. This analysis is provided by the Energy Information Administration as a service to the DOE Office of Policy and International Affairs to assess the impact of carbon stabilization goals on the U.S. energy system and economy. As such, the ELA does not advocate the policy outcomes resulting from assumptions specified by the U.S. Department of Energy for this analysis. None of the cases presented should be interpreted as an ELA forecast of the future. Energy Information Administration Executive Summary This study was undertaken at the request of the U.S. Department of Energy (DOE), Office of Policy and International Affairs (PO). Carbon mitigation and climate change are issues that must be addressed on a global scale by the international community. This study contributes to the analytical process by examining the impact of several carbon stabilization scenarios on the U.S. energyeconomy. One set of cases extensively analyzes the impacts on the U.S. system assuming that carbon stabilization is achieved without the benefit of flexible international trading policies. The second sensitivity estimates the impacts on the U.S. energy-economy system of a much lower carbon value that may be realized under more flexible trading and other comprehensive approaches. Each potential member of the international community is expected to evaluate its options in a similar way prior to signing any international commitment to control carbon emissions. International emissions trading and a comprehensive approach to greenhouse gases are key elements of the U.S. position within the current international negotiations on climate. The DOE Office of Policy and International Affairs was a participant in the analytical effort of the Interagency Analysis Team (LAT) studying the economic effects of global climate change policies in the United States. DOE/PO requested the analysis of several carbon policy scenarios using the National Energy Modeling System (NEMS) to examine how carbon stabilization could be achieved by 2010 and beyond. Assumptions adopted by the IAT about domestic emissions permit trading, energy market incentives, and the effects of potential policy initiatives were implemented by ELA in the model. Alternative cases were simulated to gain some insights into the following questions: How might carbon reductions be achieved in U.S. energy markets? For example, what are the contributions from such factors as fuel switching, energy demand reductions, coal power plant retirements, and nuclear plant life extensions? What are the effects on individual energy sectors? How could technologies and capital stock turnover contribute to carbon stabilization? How does the starting date for achieving carbon stabilization influence the projected cost to the U.S. energy system? How does the length of time available for compliance influence the cost to the U.S. energy system? How are the marginal costs of carbon reduction affected with increasingly more stringent carbon goals? If a comprehensive and flexible emissions trading system resulted in carbon permit values of $40 per ton, with no Federal Reserve Bank accommodation, how many permits would Energy Information Administration |