These high technology adoption assumptions leave the U.S. far short of achieving a 1990 emissions level, and the assumptions are intended to be highly optimistic. The first assumption is a substantial cost reduction in new technologies and efficiency improvements in building shells of 50 percent. In the Reference Case, the housing stock shell efficiency in the year 2015 is 14 percent higher for heating than in the year 1993 and 11 percent higher for cooling (EIA, 12/96,p. 22). The technical assumption of a 50 percent efficiency increase in building shells is intended to be optimistic, and not necessarily economically feasible. The second assumption is that the advanced technologies will achieve a substantial market penetration. Investors may continue to require high hurdle rates as they always have and these technologies may not obtain a significant market share. The EIA does not portray these assumptions as realistic, but as setting an upper technological limit to energy efficiency. As stated by Kydes (1997, p. 12):

In the extreme, the limits to energy intensity decline... can be determined by assuming that the best available technologies are selected, irrespective of energy or equipment costs...

This analysis indicates that even if new technologies are developed and obtain significant market share, carbon emissions will continue to increase. Thus, the aggressive adoption of new technologies will not enable the U.S. to achieve a 1990 emissions level by the year 2015, and indeed will not even stabilize emissions at current levels.

Conclusion: Under highly optimistic assumptions about the cost, efficiency and market penetration of new technologies, energy use and carbon emissions will increase in each sector and the gap between emission levels and the 1990 emissions level will widen.

This conclusion is based on EIA data and on the EIA's reported results of their NEMS modeling analysis. The implications of the EIA's analysis are consistent with the results of the reinventing nuclear scenario discussed above. The nuclear scenario indicated that a proposed emissions target could not be met even if a carbon emissions free fuel captured 100 percent of the market for capacity additions. The NEMS modeling analysis produces the same conclusion with respect to each of the sectors, but from a different approach. In the NEMS analysis,new and old technologies are defined in terms of their energy efficiency. New technologies account for an increasing share of the energy using capital stock over time. Still, energy use continues to increase over time, even when optimistic technology assumptions are considered. The conclusion of each of the analyses is that the capital stock will not turn over fast enough to attain the proposed emission reduction targets.

V. Final Comments

An important component of the climate change policy debate concerns the economic costs of achieving a target greenhouse gas emissions reduction by the year 2015 or the year 2010. This paper addressed this issue by depicting the scale of the task and then considering some possible policy actions to attain and maintain target emission levels. The conclusion is that reducing the use of fossil energy enough to achieve the proposed emission reduction targets would be enormously costly. The required reduction in energy use is unprecedented in U.S. history. Even during the energy crisis, only four years were characterized by rapidly rising real energy prices and declines in GNP. In contrast, the proposed climate policy goals would probably require a continuous decline in energy use over a several year period and then either a constant energy use or even additional future declines. These conclusions follow from an analysis that considers four key variables to explain the historical and projected levels of carbon emissions: the carbon-energy ratio, autonomous energy use, the price of energy and GDP growth. These key variables cannot be changed enough at a reasonable cost to attain and maintain the proposed emission reduction targets.

The policy options considered here are separate and independent, whereas policy options could be imposed jointly and would interact. In the reference case, there is a significant decline in (carbon free) nuclear units and their replacement with fossil fueled plants. This trend affects every possible climate policy in a most unfavorable way. A policy must first compensate for the loss of the nuclear units and then progress to reduce emissions.

Advocates of stringent emissions reductions emphasize the importance of technological change. However, the increased use of advanced technologies does not lead to sufficient reductions in emissions. The high technology results require the stringent assumption that technical improvements apply specifically to energy-using technologies. However, technical improvements also can affect the supply of energy by decreasing the costs of exploration, development and distribution. For instance, technologies that enhance the rate of oil recovery or improve the productivity of coal miners would increase the use of fossil energy and hence carbon emissions. Tech

tivity of labor and capital and thereby increase GDP. Higher GDP produces an increase in energy use and greater carbon emissions. The view that technical improvements will reduce carbon emissions requires the restrictive assumption that such improvements characterize only energy use, not energy supply.

Proponents of stringent emission reductions emphasize fuel switching as an important policy. The preferred fuel switch is from coal to natural gas in the electricity utility sector. This switch is encouraged by technical improvements in natural gas plants in the form of increased heat rates, that translate into reduced cost of generating electricity. These technical improvements would have partially offsetting effects on carbon emissions. One effect of lower electricity costs would be to encourage the earlier retirement of nuclear plants, many of which are already "stranded costs." The displacement of nuclear plants by new - even highly efficient – natural gas would increase carbon emissions. A second effect of reduced electricity prices is to increase in the amount of electricity demanded and the corresponding increase in emissions. Lower electricity prices also reduce the effectiveness of energy conservation programs. Thirdly, the economic success of new conventional natural gas plants would continue to discourage market acceptance of the renewable technologies. Many of these technologies are well along in the development process and declining energy prices from conventional sources have relegated several renewable technologies to small niche markets. The continued cost declines in conventional fossil fueled technologies would retard the market acceptance of fossil free technologies and their reduction in carbon emissions.

One of the hard lessons of life that we learn at an early age is that if we want something, we have to give up something else in order to get it. Economists have formalized this simple point by stating that if we want something we have to be willing to pay for it. Achieving climate policy goals are no exception. We can achieve these goals in modeling frameworks, and perhaps they are even technically feasible. If we are to achieve these goals in reality, we have to be willing to pay for them and the price is very high,