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Changes in EIA Projections for Energy Use and Carbon Emissions for 2020

Q2.

A2.

The projections future energy use and carbon emissions in Annual Energy Outlook 1998 are higher than the projections made by EIA a year ago in Annual Energy Outlook 1997. What are the reasons for the higher estimates?

Although the Annual Energy Outlook 1998 (AEO98) provides projections of energy and carbon emissions to the year 2020, the Annual Energy Outlook 1997 (AEO97) only had a forecast horizon of 2015. Therefore, the following discussion of changes in AEO98 will focus on the year 2015.

Projected carbon emissions in 2015 are 5 percent higher in AEO98 than in AEO97—1,888 million metric tons compared with 1,799 million metric tons due to higher energy consumption and slower penetration of renewables. About one-third of the increase is attributable to increased electricity demand, which increases coal-fired generation. Higher petroleum demand for transportation contributes more than one-half of the increased emissions in AEO98.

Higher consumption estimates are partially due to higher economic growth. The gross domestic product in AEO98 grows by 2.1 percent through 2015, compared with 1.9 percent in AEO97, and the growth in manufacturing is also higher. Projected prices are generally lower in AEO98, contributing to higher consumption. In AEO98, the average minemouth price of coal is projected to be 12 percent lower in 2015, compared to AEO97 due to more recent data showing a greater impact of productivity on mining costs and price, lower costs for western surface mines, and a higher share of production for lowercost western coal. Average electricity prices are 13 percent lower in AEO98 than in AEO97 for 2015, due to lower coal prices and assumptions on the restructuring of the electricity industry. AEO98 assumes lower operating and maintenance costs as indicated by recent data, lower capital costs and improved efficiency for coal- and gas-fired generation technologies, lower general and administrative costs, early retirement of higher cost nuclear units, changes in the financial structure of the industry, and transition to competitive prices in California, New York, and New England, which are the States and regions with specific announced restructuring plans.

In AEO98, projected world oil prices are about the same as in AEO97. The average wellhead price of natural gas in AEO98 is projected to be 9 percent higher in 2015 than in AEO97 as a result of a lower assessment of the effects of technology to expand the oil and gas resource base, higher drilling costs as indicated in more recent data, and higher projected demand for natural gas. Despite the higher natural gas prices, aggregate energy prices are projected to be lower in AEO98 than in AEO97.

In 2015, total energy consumption in AEO98 is projected to be 4 percent-4.7 quadrillion Btu-higher than in AEO97. Transportation demand is projected to be 8 percent—2.6 quadrillion Btu-higher. Recent data indicate increased light-duty vehicle travel, particularly by older age groups and women, and slower growth in efficiency of light-duty

vehicles because of continuing consumer preference for improved performance and larger vehicles over efficiency. Jet fuel demand is projected to be 17 percent higher in 2015, reflecting an ongoing trend of more air travel, combined with slower sales of the more efficient wide-body aircraft. In AEO98, residential and commercial demand is projected to be higher by a total of 1.5 quadrillion Btu (4 percent) in 2015, partly as the result of lower projected electricity prices. Except for refrigerators and room air conditioners for which additional efficiency standards were issued in 1997, penetration of more efficient technologies occurs more slowly than in AEO97. In the residential sector, there are also more mobile homes, a more disaggregated representation of end uses, and greater use of the more traditional heating technologies as indicated by recent data. Commercial floorspace increases at a faster rate than in AEO97 early in the projection period, contributing to higher demand in AEO98. Industrial sector demand is projected to be 2 percent, or 0.6 quadrillion Btu, higher in 2015, with higher expected growth in some of the more energy-intensive industries partially offset by more rapid efficiency improvements.

Higher projected demand for electricity leads to more coal-fired generation in AEO98. Assumptions concerning the restructuring of the electricity industry are favorable to the less capital-intensive natural gas technologies, but the projection for coal-fired generation is still higher than in AEO97 due to lower coal prices, lower capital costs for coal-fired generating technologies, and higher electricity demand.

Interagency Analysis Team (LAT)

Q3.

A3.

Q4.

A4.

Are you familiar with the group called the Interagency Analysis Team, the IAT, that, during 1997 until the end of May, was chaired by former Under Secretary of Commerce Everett Ehrlich?

Yes, we are familiar with Interagency Analysis Team (IAT), chaired by Everett Ehrlich through the end of May 1997.

What is your understanding of the purposes of the IAT?

The Interagency Analysis Team (IAT) was formed by the Administration as a response to the need for continuing analysis of greenhouse gas emissions reduction cases in preparation for the Kyoto meetings. Initially the IAT comprised five groups looking at the following areas: modeling; industrial analysis; implementation; technology; and international linkages. Each group had two leaders; one from the Department of Energy and one from the Environmental Protection Agency. The purpose of the modeling group, the only group that EIA was asked to indirectly support through DOE's Office of Policy and International Affairs, was to analyze energy-economic impacts of greenhouse gas emission limitations using different types of models-computable general equilibrium models (both domestic and international) as well as larger-scale macroeconomic

Q5.

Was EIA, as such, and not merely indirectly through DOE, a member of the IAT?

A5.

Q6.

A6.

Q7.

A7.

EIA was not a formal member of the IAT process. EIA provided support to the DOE
Office of Policy and International Affairs in the IAT process.

Did EIA, directly or indirectly through the Department of Energy, provide the IAT with analyses of the energy or economic implications to the United States of alternative emissions reduction requirements and alternative domestic policies to achieve those reduction requirements?

If so, please provide two copies of such analysis for the record.

Yes, the EIA did provide the IAT, working with and through the Department of Energy, analyses of the energy and economic implications to the United States of alternative greenhouse gas emissions reduction scenarios. EIA's work related to analyzing specific greenhouse gas emission reduction paths and targets and possible Federal Reserve policies. Results were provided to the DOE sponsor as work progressed. The overall analysis was documented as a Service Report to the DOE sponsor. The work used the assumptions of the DOE sponsor, the Office of Policy and International Affairs, and these are documented in the Service Report. Two copies of the Service Report are attached. (A copy of the Service Report is contained in Appendix 1.)

Does the IAT still exist?

If the answer is yes:

Q7.1 Are the IAT's functions and objectives the same as they originally were, and, if not, what is your understanding of any differences?

Q7.2 What departments and agencies are members of the IAT?

Q7.3 Is EIA a member in its own capacity, as distinguished from indirectly through DOE?

Q7.4 Who is in charge of the IAT?

Alternatively, if the answer is no:

Is there any interagency body within the Executive Branch that has the responsibility to analyze the energy or economic implications to the United States of the emissions reduction requirements specified in the Kyoto Protocol for the United States and alternative domestic policies to achieve those reduction requirements?

To our knowledge, the IAT no longer exists. We do not know of any formally commissioned interagency body within the Executive Branch that has the responsibility to

Q8.

analyze the energy or economic implications to the United States of emissions reduction requirements specified in the Kyoto Protocol for the United States and alternative domestic policies to achieve those reductions. However, the Chair of the President's Council of Economic Advisors has testified on the economic effects of the Kyoto Protocol.

My understanding is that in May of 1997, the IAT produced a preliminary, draft study of the energy and economic implications of alternative emissions-reduction requirements that were, or likely would be, under consideration in the international climate-change negotiations.

Q8.1. Are you or any EIA staff familiar with that study?

A8.1. Yes, EIA is familiar with that study.

Q8.2. Do what extent did you (or any qualified EIA staff) agree or disagree with its findings and conclusions?

A8.2. EIA did not take a position on the findings of the IAT draft study. However, several EIA staff read the draft report and provided technical comments on the study. The principal issues were:

• Key technological issues in greenhouse gas mitigation, which include the availability of advanced technologies and their cost and performance characteristics, the determinants of consumer behavior, the physical lifetime of equipment, the potential for retrofits and their potential impacts on the economy, were not adequately addressed in the IAT draft paper. In our opinion, the results of DOE's Office of Policy and International Affairs model runs, using MARKAL-Macro, which have more technological detail than other models used in the IAT process, while included in the draft report, were not sufficiently highlighted. The study, and most of the models relied upon for the study results, did not give sufficient attention to the role of technologies and the constraints imposed by capital stock aging and turnover.

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Insufficient caveats regarding the Second Generation Model (SGM) were made. For example, the statement made in the draft IAT report that the SGM model maintains vintaged capital stock is only true for the electricity sector. The rest of the model, particularly the demand representation, does not represent explicit technologies, their cost and performance, or equipment aging and lifetimes; the model assumes that capital is malleable and is easily transferable from one part of the economy to another. Consequently, the demand response to prices is largely based on an assumption that cannot easily or transparently be related to the characteristics of technology change or

Q9.

A9.

The draft study results relied heavily on the assumed actions of the Federal Reserve, as represented in the DRI model, to mitigate the impacts of greenhouse gas emission reductions on the U.S. economy. The DRI macroeconomic model allowed the use of a Federal Reserve reaction representation which attempted to capture the response of the monetary authority to changes in unemployment and the rate of inflation. The model assumed that the Federal Reserve was very responsive to unemployment, inflation and energy prices and this feature appeared to have a significant impact on the economic results presented.

• The model runs underlying Figure 9 citing NEMS-DRI simulations did not use the same version of the DRI macroeconomic model that was presented in the rest of the paper, making the comparison difficult.

The sensitivity analysis presented in the IAT paper on the “leakage” issue -- the loss of industry overseas due to expected increases in domestic energy costs by U.S. energy intensive industries, does not add very much valuable information on this issue because the DRI depiction of U.S. trade flows and exchange rates are too aggregated to capture micro-level impacts on specific energy intensive industries.

My understanding is that the IAT abandoned its efforts to develop a final study of the energy and economic implications of alternative emissions-reduction requirements that were, or likely would be, under consideration in the international climate-change negotiations. I also am told that one or more senior Administration officials testified before a Congressional Committee that such effort was “futile,” or words to that effect.

What is your understanding or belief as to the real reasons the IAT never published a final study?

We do not know why the report was not published.

Information Available to the Administration When President Clinton Announced the U.S. Proposal to Commit to a Binding Emissions Target of 1990 Levels between 2008 and 2012

Q10. In his speech at the National Geographic Society on October 22, 1997, President Clinton stated: “First, the United States proposes at Kyoto that we commit to the binding and realistic target of returning to emissions of 1990 levels between 2008."

What is your understanding of the identity of the analyses that were relied on by the
Administration when the President announced that proposal, insofar as energy and

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