Foreword. This report, Global Warming: The Economic Cost of Early Action, National Impacts, provides a detailed analysis of the national economic, industry and energy sector impacts of a proposed plan to achieve the Administration's goal of reducing carbon emissions to the 1990 level by the year 2010. The economic and energy price impacts on consumers are discussed in separate chapters of this report. In addition, the impact on regional economies is summarized in the last chapter of this report. A separate report entitled Global Warming: The Economic Cost of Early Action, State Impacts, describes the state and regional economic impacts of the proposed plan. In addition, fact sheets describing the impact on individual states are available. GLOBAL WARMING: THE ECONOMIC COST OF EARLY ACTION Contributors Global Warming: The Economic Cost of Early Action was prepared for the American Petroleum Institute by WEFA, Inc. Mary Novak was the Project Manager. The following WEFA economists contributed to the preparation of this study. Energy Services Mary Novak Ron Denhardt John Dean Lilly Teng Richard Simons U.S. Macro Economic Services Kurt Karl Daniel Bachman Regional Economic Services Ross DeVol Perry Wong James Diffley Aran Ryan Industry Services Priscilla Trumbull Mohsen Bonakdarpour World Services Peter Jaquette GLOBAL WARMING: THE ECONOMIC COST OF EARLY ACTION I. Executive Summary Despite the uncertainty about the significance of global warming and the expected high costs of plans to reduce carbon emissions, the Administration has proposed a framework for a potential agreement to reduce greenhouse gas emissions. Given that carbon The Proposed Plan to Reduce Carbon Emissions: There has been considerable debate about whether increasing Despite the uncertainty about the significance of global warming and the expected high costs of plans to reduce carbon emissions, the Administration has proposed a framework for a potential agreement to reduce greenhouse gas emissions. The Administration has embraced the potential target of reducing GHG emissions to 1990 levels by 2010 and stabilizing emissions at that level. More severe constraints on GHG emissions are on the table. To assist in achieving the Administration's target, the State Department has proposed inter-participating-country tradable emission permits as a mechanism for reducing carbon emissions. While potentially improving economic efficiency, the establishment of a program to allow countries to take advantage of inter-country trading, banking and borrowing over the next decade is unlikely. First, there is a lack of infrastructure for the administration of such a program. Second, changes of such magnitude take a significant amount of time to implement The objective of this study is to establish the minimum cost to the economy of adopting one of the least onerous of the current proposals to limit GHG emissions — stabilization at the 1990 level by 2010. For this analysis, WEFA has assumed intra-country tradable permits at the first point of purchase. Analytically, the intra-country tradable permits are similar to a carbon tax or fee. As a fee/tax directly associated with the emission to be controlled represents the marginal cost of abatement, it theoretically is the least cost means of reducing carbon emissions. Given that carbon permit fees/taxes are the most efficient means of reducing carbon emissions, the results measure the minimum economic impact of imposing a carbon emission abatement policy. THE ECONOMIC COST OF LIMITING CARBON EMISSIONS Carbon emissions are projected to be 27% above 1990 levels by 2010 and 46% above by 2020. Reaching and Maintaining the 1990 Emissions Despite projected improvements in energy efficiency of more than twice Achieving a dramatic reduction in carbon emissions would require substantial investments by both consumers and businesses. These investments would require the diversion of funds from education, health care and new productive equipment. Achieving a dramatic reduction in carbon emissions would require substantial investments by both consumers and businesses to improve energy efficiency and to substitute low-carbon energy sources for higher carbon energy sources. Because energy-using equipment and facilities have a long life, a great deal of equipment would be replaced long before it would have been without carbon permit fees. These investments would require the diversion of funds from savings and/or investments, which would have provided other benefits such as education, health care, or new productive equipment, etc. Consumers would invest in improvements to the thermal integrity of their homes and more energy efficient appliances. Businesses would invest in more energy efficient capital equipment and the improvement of process efficiency. Finally, utilities would replace coal fired power plants with fuels that have no or low carbon emissions. GLOBAL WARMING: THE ECONOMIC COST OF EARLY ACTION |