COMMITTEE ON SCIENCE U.S. HOUSE OF REPRESENTATIVES Hearing on The Road from Kyoto—Part 1: Where Are We, Where Are We Going, and How Do We Get There? Wednesday, February 4, 1998 Post-Hearing Questions Mr. Michael L. Marvin The Business Council for Sustainable Energy Post-Hearing Questions Submitted by Chairman Sensenbrenner Department of Energy Five-Laboratory Study Underestimate of the Level and Q1. Al. On page 5 of your testimony you stated that the Department of Energy "five lab study does not consider emissions trading, either domestic or international, nor does it evaluate the potential role of Joint Implementation initiatives. We believe, therefore, that the study underestimates the level, and overstates the costs, of reductions that are possible given our current technological capacity.” What is your estimate of the underestimate of the level and overstatement of the costs of carbon emission reductions that are possible given our current technological capacity? The Department of Energy Five-Laboratory study estimated that the cost of carbon per tonne would be between $25 and $50. As the Council's testimony stated, the FiveLaboratory study did not consider the impact emissions trading might have on the costs of carbon in the United States, nor did it consider the role of sequestration. The Council believes that the inclusion of trading and other market-based mechanisms into the study's analysis would have substantially lowered the study's cost of carbon per ton estimate. Evidence of this overestimate was confirmed in Dr. Janet Yellen's, Chair of the White House Council of Economic Advisors, testimony delivered on March 4 to the House Commerce Committee. Yellen testified that emissions trading among Annex I countries could "reduce the cost to the United States of achieving its targets for 2008-2012 emissions by about half relative to a situation in which trading was not available.” Further, Yellen stated that the inclusion of developing countries in a trading program could further reduce the costs to the United States. Yellen's testimony estimated the price of emissions in the range of $14 to $23 per ton of carbon equivalent; again, this gives zero value to the role of sequestration. Yellen's figures assume simulations conducted with the Second Generation Model of Energy Innovations Study Q2. A2. On page 5 of your testimony you also stated: "Another major study, Energy Innovations, released last year by the Tellus Institute and others also supports the Council's position. In that study, a number of costeffective, achievable policy initiatives were suggested. Taken together, the report estimates these policy options could lead to a reduction of nearly seven quads of energy use by the year 2000 and more than 15 quads by 2010. The effects on carbon emissions also would be substantial. In 1990, U.S. carbon emissions totaled 1,338 million metric tons. By following this innovative approach, the report notes that emissions could be reduced to 1,207 million metric tons—almost ten percent below 1990 levels by 2010. “Just as importantly, these reductions can be achieved while saving American households $530 per year, creating 800,000 new jobs, and reducing our oil imports by 20 percent (all by 2010)." Please elaborate on that how U.S. carbon emissions could be reduced to 1,207 million metric tons "while saving American households $530 per year, creating 800,000 new jobs, and reducing our oil imports by 20 percent (all by 2010)." The BCSE did not author the Energy Innovations study. Please refer the question to the Cost of Inaction Q3. A3. On page 7 of your testimony you state that “it is important to consider the economic consequences of inaction to provide a more comprehensive understanding of how climate change and the Kyoto Protocol might affect our country." Please elaborate on the “costs of inaction.” The costs of inaction on climate change refer the costs associated with what the potential adverse effects of climate change on agriculture, populations, forestry and human infrastructure. According to the IPCC, the specific threats include severe storms and draughts that could negatively impact communities and agriculture; and human health related impacts, including increases in the transmission of vector-borne infectious diseases and increases in cardio-respiratory mortality and illnesses, among others. If the projected environmental damage were to occur, i.e. draughts, strong storms, disease, etc., the U.S. economy would incur costs to remedy or re-build after such events. The costs to repair or restore property, or treat sick individuals whose illnesses result, at least in part from climate change, is what the Council terms as the 'cost of inaction." For additional information, the Council suggests that the Committee contact the United Nations Environmental Program; Redefining Progress, the lead organization for the "Economists' Statement on Climate Change, which was signed by over 2,500 economists; and the "Global Insurance Initiative” developed by the insurance industries. Unresolved Issues in the Kyoto Protocol Q4. There are many unresolved issues in the Kyoto Protocol, and many obligations and responsibilities that are ambiguous or unclear. Q4.1. In your opinion, what are the most important issues that need to be dealt with in the year ahead, and resolved in the 4" Conference of the Parties in Buenos Aires in November of this year? A4.1. The market-based flexibility measures are the most important issues to be negotiated and resolved during the upcoming climate change negotiations. These include, emissions trading, Joint Implementation and the Kyoto-born Clean Development Mechanism. The Council does not expect these issues to be resolved in full during COP-4. However, the Council is eager to work with Members of Congress, in a constructive manner, to explore what these mechanisms might look like and how they should be governed. The Council's goal in such a process would be to ensure that the implementation tools that are developed are costeffective, promote the utilization of clean energy technologies (natural gas, renewable energy and energy efficiency) and are responsive to the needs of the private sector. Q4.2. What will be, or should be, the U.S. strategy and positions on these? A4.2. The Council cannot speak for what the U.S. position will be in terms of these issues. However, the Council believes that the U.S. should work with industry to structure flexibility mechanisms that are cost-effective, flexible, transparent, decentralized and that give the private sector the most autonomy to use the regime. As a Council member recently remarked, “government's job (in terms of structuring the flexibility mechanisms) is to set clear rules and get out of the way." Q4.3. What major decisions do you expect in Buenos Aires? A4.3. On March 16, Ambassador Raúl Estrada-Oyuela, Chairman of the climate change Potential for Carbon Emissions Reductions: Adoption of Residential Model Energy Codes Q5. On page 5 of your prepared testimony you made reference to the Business Council for Sustainable Energy and the Alliance to Save Energy joint study entitled It Doesn't Have to Hurt. On page 16 of that study the following is stated: "The added cost of building the typical new single-family home to meet the MEC is $1,161. But the better insulated home saves 9.9 million Btu in fuel at an annual savings average of $122 per year. "If the added construction cost is financed through the mortgage (at an added cost of $10 per month on average) and potential fuel price increases are taken into account, a quick payback is possible. Taking into account the mortgage financing, the average time to positive cash flow for single-family new home buyers is just 1.8 years. It is 2.2 years for multi-family homebuyers. Each MEC-compliant singlefamily home will avoid emitting 0.24 tons of carbon per year. "Table 1 shows the potential aggregate costs and benefits of the MEC for homeowners in states that currently don't adhere to the code. Full adoption of the updated MEC by all states will result in 0.096 quads of energy savings and almost 3 million tons of carbon savings. The cost of a ton of carbon saved is actually a negative $121.78—in other words, the carbon savings are free. The present value of the energy savings over the 30-year anticipated life of the home are greater than the added cost of building the home to the updated code, making the cost of a ton of carbon a free by-product of the adoption of the better codes." A5. = Notes: The cost of a ton carbon saved is determined by the formula: [(IC + PVe)/Tc]/[d/(1-(1+d)-n)] where IC incremental cost, PVe equals the present value of energy savings, Te = tons carbon saved, d = the discount rate, and n = useful life. The discount rate equals 6 percent in all calculations. Numbers in parentheses indicate negative values. Source: Opportunity Lost, Alliance to Save Energy, forthcoming Please present in detail the assumptions—including assumptions of future energy costs and calculations verifying the above quoted claims. Assumptions and Calculations: (1) Incremental Cost The total added first year costs for single-family (SF) and multi-family (MF) homes to bring new homes built in states that have not adopted the 1993/95 Model Energy Code (MEC) up to the current MEC would be $720 million and $37 million, respectively. These costs are estimated for 1994, given data on home construction costs and cover 31 states for SF homes and 30 state for MF homes. These total costs reflect the estimated incremental costs to bring 716,400 SF and 125,590 MF new homes constructed per year up to code. We assumed this number of homes would be built each year over the time period 1998 - 2010, or 13 years. Multiplying the $720 million and $37 million by 13 years results in the estimated incremental costs displayed in the column “Incremental Cost” in Table 1 of It Doesn't Have To Hurt ($9.36 |