EMISSION REDUCTIONS. BUDGET IMPACTS, AND ECONOMIC EFFECTS

The Action Plan targets multiple emission reduction opportunities in all major areas: energy demand in the residential, commercial, industrial and transportation sectors, energy supply, methane and other gases, and forestry. A broad portfolio of policy actions is more likely to succeed than a narrow one. Some programs called for here will work better than expected, while others may fall short of their estimated impact, but a portfolio approach reduces the risk that any specific program that does not live up to expectations will cause a substantial shortfall of emission reductions. Table 1 shows the impact of the Action Plan on emissions, the Federal budget, and the economy.

Emission Reductions

As shown on Figure 2, the Action Plan will return net U.S. greenhouse gas emissions to 1990 levels by the year 2000. The combined impact of all actions reduces emissions from projected levels by 108 MMTCE. Net carbon emissions are likely to be slightly higher -- about 2 percent above their 1990 levels. The rate of increase in HFC emissions is cut in half. Offsetting these gains in emissions are further reductions in methane and nitrous oxide emissions.

Federal Budget Impact

Between 1994 and 2000, the Administration will spend roughly $1.9 billion on the actions outlined in this plan, largely through redirecting federal funds. However, two elements in the plan increase net revenues over the same period and thus contribute to deficit reduction. A reform in the tax treatment of employer-paid parking will bring in $2.2 billion over the period from commuters who choose to take the cash value of this fringe benefit. In addition, giving private developers an opportunity to invest in efficiency upgrades at federal hydroelectric facilities and market the incremental generation will bring in $500 million in lease payments. As a package, this Action Plan helps reduce the Federal budget deficit.

Economic Impact

Many of the programs outlined here will encourage individuals and firms to invest in energy saving equipment or other technologies that yield significant cost savings over the long term. Comparing the magnitude of these investments with the value of energy savings indicates the overall cost-effectiveness of the Action Plan. While investing over $60 billion in greenhouse gas emission reductions between 1994 and 2000, individuals and firms realize over $60 billion in energy savings between 1994 and 2000, and realize continued returns in the form of an additional $207 billion in energy savings between 2001 and 2010. By stimulating investments

Figures on the table are given in constant (real) 1991 dollars, but are not discounted. Discounting future savings will tend to lower the apparent cost-effectiveness of many of the options, but the effect of that adjustment will depend on the discount rate used and the time profile of investment and cost savings. It is not possible to determine how much of this expenditure represents

new investment and how much represents a shift in the composition of investment from a

macroeconomic perspective.

Figure 2

Note: Carbon reported as sources less sinks. Forest sinks are 130 MMT in 1990 and 147 MMT in 2000.

in cost-effective opportunities for greenhouse gas emission reductions, the Action Plan can increase the long-term profits for American business and help consumers save money.

ENERGY DEMAND ACTIONS

In 1990, the United States consumed nearly 85 quadrillion Btus of energy, which produced 1,367 million metric tons (MMTs) of carbon. Fossil energy consumption is responsible for more than 85 percent of U.S. greenhouse gas emissions.

Investing in energy efficiency is the single most cost-effective way to reduce CO2 emissions. The Action Plan combines an array of public/private partnerships to stimulate the deployment of existing energy-efficient technologies and accelerate the introduction of more advanced technologies. These programs will cut CO2 emissions while enhancing productivity at home and our competitiveness abroad. It is an aggressive agenda, and it is backed up with the resources necessary to get the job done.

Technical studies have consistently shown that profitable energy efficiency investments exist in residential, commercial, and industrial sectors, yet many of these opportunities go unrealized. This observation neither refutes the technical studies nor suggests that people or firms behave irrationally -- energy analysts have identified the information, regulatory, financial and institutional barriers that impede this investment. Many private sector efforts successfully address these barriers. For example, utility sponsored conservation programs and energy service companies are able to exploit opportunities for profitable energy savings.

Programs that enhance and accelerate these trends can help reduce greenhouse gas emissions and increase U.S. competitiveness. The Action Plan is a comprehensive strategy that applies innovative solutions to these investment barriers - from financial reforms in residential mortgages to agreements between motor manufactures and users. This plan will align market forces with the environmental imperative to reduce greenhouse gas emissions.

In the past, many Federal programs have been a confusing patchwork of competing activities that were not coordinated effectively with utility or state and local efforts. By expanding existing successful programs, combining them with new and complementary initiatives, and linking programs with state, local, and private sector efforts, the Action Plan will maximize the energy-saving impact of Federal programs.

CASE STUDY

ELI LILLY & COMPANY TO SAVE $3 MILLION EACH YEAR

WITH GREEN LIGHTS

Green Lights encouraged us to seek additional opportunities to prevent pollution
that also give a good return on our investment. EPA's 'work-together' approach
and its recognition that industry needs a reasonable return on capital makes the
Green Lights program ideal for us the partnership approach and ability to
custom-tailor implementation plans result in far greater savings than the most
ambitious regulations.

Randall L. Tobias
Chairman and CEO
Eli Lilly and Company

Eli Lilly and Company of Indianapolis was one of the original partners in the EPA Green Lights program. Lilly already had an aggressive corporate energy-saving program when they joined the program. After joining Green Lights, Lilly found that many of the company's specifications and guidelines did not incorporate the latest lighting technology - and that many outside firms attempting to design cost-effective solutions often ignored the long-term savings potential of efficient lighting. According to the company, Green Lights helped identify better alternatives and achieve maximum savings from energy-efficient lighting. As a result of its partnership with EPA, Lilly expects its annual savings to rise to $3 million, three times more than originally anticipated.

After saving $23,500 in annual lighting costs from a $33,800 energy-efficient lighting project in a building that was already under construction, Lilly reviewed other construction projects for similar revisions. Lilly then extended its lighting upgrade work to existing facilities and now has more than 1 million square feet of Green Lights projects either completed or underway. Almost twice that amount is scheduled for upgrades in 1994.

Lilly is currently working with EPA on its new Energy Star Buildings program designed to promote energy-efficient heating, cooling and air handling. Lilly has found that, by minimizing the production of waste heat from lighting, efficient lighting systems allow air conditioning and ventilation systems to be operated more efficiently and economically. Lilly and EPA are currently using one of the firm's buildings as a demonstration site for energy-efficient air banding systems.