Q19.2 Public Benefit Trust Fund as Part of Electric Utility Industry Restructuring The ACEEE Study's second strategy is “public benefit trust fund as part of electric utility industry restructuring." The Study states: "Our strategy is to create a national public benefits trust fund “Our analysis estimates the incremental investment in and The ACEEE Study claimed that this strategy would avoid 69 million metric tons of carbon emissions by 2010 and 111 million metric tons by 2020. Further, the Study claimed that net present value of costs and savings for measures installed during 1999-2010 would be $86 billion and $124 billion, respectively, for a net benefit of $38 billion (ACEE Study, page xi). Please comment on the ACCEE Study's methodology, assumptions, and findings with respect to this strategy. A19.2 EIA has not performed a detailed analysis of the Federal Public Benefits Fund (FPBF) as proposed in the Comprehensive Electricity Competition Act. However, we reviewed the analysis provided in the ACEEE report, “Approaching the Kyoto Targets: Five Key Strategies for the United States,” and believe that ACEEE may seriously overstate the incremental benefits of such a program. First, it is unclear whether the FPBF will provide any incremental money over what utilities have traditionally spent on such programs. It is our understanding that one major purpose of the State and Federal public benefit funds being enacted or proposed is to provide a funding mechanism in the competitive market for to generate additional efficiency savings. As stated in the ACEEE report (page 11), in 1995 electric utilities spent $6 to $7.5 billion on public purpose programs. Under a competitive market regime, these expenditures may diminish. The fund proposed by ACEEE together with matching State programs would amount to between $7 and $8 billion (ACEEE, page 42) per year, nearly the same amount that has been spent historically. Since regulated utilities have been supporting these programs for many years we assumed they would continue to do so even as markets become more competitive; therefore, their impact is already included in our baseline demand numbers. No additional efficiency improvements beyond the trends already reflected in our projections would be expected unless the funds grew in size. Furthermore, we believe ACEEE's energy savings estimate due to the FPBF is overstated. The FPBF of $3-$4 billion annually—of which $1.77 to $2.36 billion (59 percent) is assumed to go to efficiency programs is similar to what utilities have reported spending on demand-side-management (DSM) programs over the last 10 years. However, the reported energy savings from these programs in 1996 (including the savings from programs put in place in earlier years) was only 62 billion kilowatthours - much lower than the estimated 500+ billion kilowatthour savings (11 percent) by 2020 reported by ACEEE. Also, in the Department of Energy's analysis of the Comprehensive Electricity Competition Act, DOE estimated that the demand for electricity would only be 2.4 percent below its reference case level in 2010, much lower than the 7 percent estimated by ACEEE. Because the Administration's analysis contains a number of offsetting factors, only a portion of the 2.4 percent demand reduction is due to the FPBF. We believe the ACEEE estimates of the emissions reductions from the FPBF also are probably overstated. The ACEEE calculated the emissions savings by multiplying the demand reduction attributed to the FPBF by the average fossil plant emissions rate for each substance emitted. However, this is likely to overstate the impact. The major source of the key emissions are existing coal plants. While these plants are relatively high emitters they are very economical to operate. As a result, if the FPBF did lead to lower demand for electricity, the reduction in generation would not be expected to come mostly from existing coal plants. In fact, lower demand would probably lead to reduced construction and use of new natural gas-fired plants. If the reduction in generation did come from foregone construction of natural gas-fired power plants, the estimated emissions savings would be cut by more than half. DOE estimated that the Comprehensive Electricity Act would reduce greenhouse gas emissions in 2010 by a total of 25-40 million metric tons of carbon equivalent, and only about one-third of this amount is due to the FPBF. This Administration estimate is much lower than the 69 million The estimated energy cost savings also appear to be overstated. The ACEEE estimated the annual energy cost savings by multiplying the forecast reduction in electricity consumption by the estimated retail price of electricity. However, the retail price includes the costs of transmission and distribution services. It is unclear whether ACEEE's estimated reduction in demand would have any impact on transmission and distribution service costs. In some areas - where there is a lot of congestion on the transmission and distribution lines - there may be some transmission and distribution cost savings, but in many areas it is likely to be zero. As a result, a better estimate of the energy cost savings would be to use only the energy (i.e., generation) portion of the price times the estimated reduction in the demand for electricity. Doing this would reduce the ACEEE estimated cost savings by about half. Q19.3 Vehicle Efficiency Improvement The ACEEE Study's third strategy is “vehicle efficiency improvement.” The "Our vehicle fuel economy strategy combines mutually "This strategy will stimulate widespread adoption of (ACEEE The ACEEE Study claimed that this strategy would avoid 108 million metric tons of carbon emissions by 2010 and 222 million metric tons by 2020. Further, the Study claimed that net present value of costs and savings for measures installed during 1999-2010 would be $50 billion and $119 billion, Please comment on the ACCEE Study's methodology, assumptions, and findings with respect to this strategy. A19.3 While it is possible to achieve the ACEEE's new fleet vehicle efficiency standards, which require an increase of 1.5 miles per gallon (mpg) annually between 19992010 and 1.7 mpg annually between 2011-2020, meeting these standards would be expensive and force adjustments in consumer expectations. What makes this goal particularly difficult is the growing market share of new light trucks (pick-ups, minivans, and sport utility vehicles), with a current CAFÉ of 20.2, compared to new automobiles, with current CAFÉ of 27.5, making the average new vehicle mpg in 1977 about 23.8 (as light trucks make up about half of the new light-duty vehicle sales). Thus, the ACEEE proposal would require an increase in the new fleet average fuel economy of 18.2 mpg to meet the proposed standard of 42 mpg in 2010. Reaching these fleet efficiency levels using ACEEE's proposed key advanced technologies, the diesel-electric hybrid vehicle and the fuel cell vehicle, would require these vehicles to be a major portion of new vehicle sales by 2010 and generally would require a reduction in the share of the market captured by lower-mpg sport-utility vehicles and minivans. To achieve the required efficiency improvements for the post-2010 period, ACEEE assumes that the Partnership for a New Generation of Vehicles (PNGV) goal of tripling current fuel economy will be achieved with no reduction in comfort, safety, convenience, or affordability. According to the annual review of the PNGV program by the National Research Council (NRC), tripling the current fuel economy (i.e., the 80 mpg goal of PNGV) is probably not achievable by 2006. Currently, there are no new technologies that could triple today's fuel economy and only the electric hybrid and fuel cell vehicles are likely in our view to achieve twice the conventional fuel economy. However, while it is not likely to reach this goal within a decade, it may be possible to reach this stretch goal by 2020 with appropriate advances in technology. To evaluate the impact of the ACEEE proposed CAFE standards on carbon dioxide emissions, we examined a hypothetical case where the 42 mpg standard was reached in 2010 and the 59 mpg standard was reached in 2020 assuming that the technology would be available to reach these levels and the consumers would purchase vehicles meeting these standards. Because of more optimistic stock turnover assumptions in the ACEEE analysis, their estimated carbon emissions reductions are 12 million metric tons higher in 2010 and 60 million metric tons higher in 2020 than the EIA estimates. Although consumers may be encouraged to purchase new highly efficient vehicles in the future, current stock turnover trends indicate that after 10 years, 75 percent of the original automobile sales remain in 'National Research Council, Review of the Research Program of the Partnership for a New Generation of 1977). the existing vehicle fleet, and 81 percent of the original light truck sales remain the existing fleet.8 Because we assumed the higher CAFE standard to be met in our analysis, we did not incorporate other potential effects such as consumers retaining their current vehicles longer as we experienced when CAFE was first instituted. Nor does our analysis evaluate the trade-off of consumers' foregoing other technology gains (such as increased horsepower). Either of these factors could influence the estimated impacts of higher CAFE standards. The ACEEE study also differs from other studies by using lower cost estimates for meeting the new higher CAFE standards. According to a National Research Council (NRC) study done in 1992, a 5 mpg gain in new vehicles would cost approximately $500 to $1250 per vehicle per year. Extrapolating this finding and using vehicle sales from the Annual Energy Outlook 1998 and an 8 percent real discount rate, total costs would be approximately $69 billion to $173 billion for a 5 mpg gain and result in a 28.8 mpg new fleet average. This compares with the ACEEE estimated total cost of $50 billion for a 18.2 mpg improvement above the current 23.8 mpg (for a total of 42 mpg new fleet average). Thus, it is likely that ACEEE's cost estimates are understated. Because the only currently known technologies that can achieve fuel efficiencies high enough to result in a CAFÉ of 42 mpg in 2010 are the electric hybrid with an estimated 63 mpg in 2010 and the fuel cell vehicle with an estimated 56 mpg in 2010, the ACEEE study is implicitly relying on other advanced technologies (such as alternative-fuel vehicles) to meet much of the proposed higher CAFÉ standards. While they do include some technological improvements to conventional technologies in their analysis, they do not address such issues as reductions in horsepower, fuel delivery infrastructure, ability of manufacturers to re-tool capacity, vehicle size and comfort, and other factors associated with such a substantial change. EIA believes these other effects will significantly reduce consumer willingness to purchase these vehicles. The EIA Report indicates the limitations of relying extensively on alternative fuel vehicles (AFVs) to reduce carbon dioxide emissions. In the EIA Study, although alternative-fuel consumption as a share of total transportation fuel in 2010 is the same or slightly higher in the carbon reduction cases than in the reference case, alternative-fuel consumption in absolute terms is lower than the reference case. This occurs because of the following three reasons: 'U.S. Department of Energy, Transportation Energy Databook: Edition 17, (Washington, DC, August National Research Council, Automotive Fuel Economy: How Far Can We Go?, National Academy Press, |