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CCAP Program Funding Levels (+ or -)

The point estimate assumes that CCAP funding through 2000 reflects an extrapolation of fiscal year 1996 funding. Increases or decreases in 1993 CCAP program funding relative to the "current funding" level in fiscal years after 1996 would result in higher or lower levels of projected emissions in 2000.

Required Legislative Authority (-)

Included in the estimates of emission reductions are the assumed adoption of policies that require no additional funding, but require some congressional or regulatory action, such as tire-labeling and energyefficiency standards. Many of the actions in this category are still assumed to occur, but their deployment has been adjusted to account for delay in their implementation. If legislative authority to initiate these programs is not received, emissions will be higher than projected.

Energy Prices (+ or -)

The relationship between energy prices and emissions is complex. Lower energy prices generally reduce the incentive for energy conservation. However, reductions in the price of natural gas relative to other fuels also encourages fuel switching that can reduce carbon emissions.

The energy price projections from the 1997 Annual Energy Outlook used in developing the updated emissions baseline are significantly lower than those used for the 1993 CCAP (U.S. DOE/EIA 1996a). However, real prices for oil and gas are still projected to rise at respective average annual rates of 1.1 percent and 2.5 percent between 1995 and 2000.

The Annual Energy Outlook also provides sensitivity scenarios to changes in oil prices. In the year 2000 high oil price scenario, emissions are lower by about 4 MMTCE than projections using the reference-case scenario oil price assumptions. In the year 2000 low oil price scenario, emissions are higher by about 13 MMTCE not using the reference case scenario.

Economic Growth (+ or -)

Higher economic growth increases the demand for energy services, such as vehicle miles of travel, square feet of lighted and ventilated space, and process heat used in industrial production. However, faster growth also reduces the average age of the capital stock, increasing its average energy efficiency. The energy-service demand and energy-efficiency effects of higher growth work in offsetting directions. The effect on service demand is the stronger of the two, so that levels of primary energy use are positively correlated with the size of the economy.

In addition to the reference case used in developing the updated baseline, the Annual Energy Outlook provides high and low economic growth cases.

■In the high-growth case, the per

centage change increase in energy
use is slightly more than half the per-
centage increase in the size of the
economy. By 2000, the high-growth
economy is 3.5 percent larger than
the reference economy, but energy
consumption is only 1.8 percent
higher. In addition, carbon emissions
are 33 MMTCE larger than the refer-

ence case.

In the low-growth case, a 2.7 percent reduction in the size of the 2000 economy translates into a 1.9 percent reduction in primary energy use. In this case, carbon emissions were 28 MMTCE lower than the reference scenario in the year 2000.

Electricity Demand Growth (+)

While the annual rate of growth in electricity demand from 1995 to 2000 is appreciably higher in the present analysis than in the 1993 CCAP, there is a strong possibility of even faster growth. Regulatory changes to allow competition in wholesale and retail electricity markets could significantly lower prices to electricity end users, while at the same time reduce utility investments in demand-side management and other conser. vation activities.

If electricity demand grows at 2.1 percent annually (as projected by the Gas Research Institute), rather than by 1.9 percent (as projected in this analysis), carbon emissions will be about 7 MMTCE higher in 2000. The Annual Energy Outlook also evaluates . a-sensitivity that assumes electricity sales to grow at 3.3 percent annually between 1995 and 2000. In that scenario, emissions are 56 MMTCE higher in the year 2000.

Forest Carbon Sequestration (+ or -)

The estimates used here for annual carbon sequestration in U.S. forests include above-ground carbon plus harvested carbon in wood products and landfills. The tree carbon estimates are derived from two indepen. dent measurements of forest inventories and growth, and have standard errors of plus or minus 3 percent. The reported forest esti

mates do not include sequestration in the forest floor understory complex.

Estimates of other carbon stocks (e.g., forest floor and understory) are likely to be less certain, since there are no comprehensive, statistically valid inventories of non-tree organic matter for large areas of the United States. USDA estimates their uncertainty at plus or minus 15 percent.

Additional unquantified sources of uncertainty should also be noted. First, deriving annual stock change estimates from standing stock estimates would increase uncertainty further. Second, estimates projected from historical data using econometric models will be less certain due to the unknown uncertainty of the assumptions made in the econometric models. Estimates for all years after 1992 are projected from 1992 data. Additionally, certain lands have not been included in these stock estimates.

Weather (+ or -)

Energy use for heating and cooling is directly responsive to weather variation. The updated baseline assumes thirty-year average values for population-weighted heating- and cooling-degree days. Figure 4-6, which compares average population-weighted heating and cooling-degree days with actual values for 1990, an unusually mild year, illustrates the importance of interannual weather variation for energy use and emissions. Under average weather conditions, primary energy consumption for heating and cooling in 1990 would have been 1.1 percent higher than its actual value, raising carbon emissions by roughly 16 MMTCE.

Unlike other sources of uncertainty, for which deviations between assumed and

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actual trends may become apparent over time, the effect of weather on energy use and emissions in any particular year is revealed only in that year. For the United States, a swing in either direction of the magnitude experienced in 1990 could raise or lower emissions by plus or minus 20 MMTCE relative to a year with average weather. While small relative to total emissions, a change of this magnitude is significant relative to the aim of returning emissions to their 1990 level. Some European countries, which also experienced low levels of energy use and emissions in 1990 due to mild winter weather, have opted to compare 1990 and 2000 emissions levels on a "climate-adjusted"

basis in their first national communications.

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Q9.

A9.

What is the actual reduction in emissions within the borders of the United States would have to be to meet the U.S. obligation as outlined in the treaty and what data uncertainties still exist with respect to calculating this number?

It is impossible to state what percentage of reductions will be required or met within the United States. The inclusion of emissions trading, joint implementation, and the Clean Development Mechanism in the Protocol allows U.S. companies to seek out the lowest cost reductions regardless of their location. Enactment of the President's recent budget and tax proposals will also provide a significant down payment on eventual U.S. obligations, and could further lower reduction requirements.

Q10. Article 6.1(d) of the Kyoto Protocol states that "The acquisition of emission reduction units shall be supplemental to domestic actions for the purposed of meeting the commitments under Article 3 [of the Protocol]"

Q10.1 What does this mean?

A10.1 The term supplemental is not defined in the Protocol. We have interpreted it to mean that reductions from trading can be added to those from domestic actions in meeting the Protocol's commitments.

Q10.2 Since Russia and the Ukraine will be substantially below their emission targets in the Protocol, they can sell large amounts of emissions credits. Why should the American public be willing to underwrite the transfer of what could be billions of dollars to those nations so the United States could reach its emissions reduction targets?

A10.2 Nobody in the United States is in any way required to buy CO2 reductions from Russia or anywhere else. The market-based mechanisms provided in the Protocol are purely voluntary and available as a means of reducing costs consistent with the targets set by the Protocol.

Q10.3 What is the Administration assuming about the proportion of our reductions that can be met through these means, and what is the limit acceptable within the terms of the Protocol?

A10.3 We have not made any assumption about the proportion of reductions that will be met through emissions trading. The Protocol does not set any limits on this aspect of achieving reductions.

International Emissions Trading and the Costs of Kyoto Protocol Compliance

Q11. On page 4 of your written testimony, you state:

"A number of studies have suggested that the costs of compliance can be significantly reduced if flexible implementation is permitted.”

Please provide for the record a copy of each of the studies referred to in your statement"

All. An excellent summary of a number of economic studies is contained in a report by Repetto and Austin, The Costs of Climate Protection: A Guide for the Perplexed (attached). This report was issued by the World Resources Institute in 1997.

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