Depend on Many Assumptions
• The amount prices must rise is uncertain. Accounting procedures and international trading rules for greenhouse gases are not finalized. Forecasting technological change and public response to it under various pricing scenarios is an inexact science. The more stringent the need for domestic emission reductions, however, the more costly the adjustment process will be.
EIA undertook this study in response to a request by the
Chairman and Ranking Minority Member of the House
Committee on Science that it analyze impacts of the
Protocol (which the President has not yet submitted to the
U.S. Senate for ratification) on U.S. energy use, prices,
and the general economy in the 2008-2012 time frame.
That is when this country is supposed to reach an average
level of net greenhouse gas emissions 7 percent lower
than they were in 1990-having shown demonstrable
progress toward that goal by 2005. At the Committee's
request, ELA assumed that actions begin in 2005.
EIA was asked to do the study for several reasons. More than 80 percent of the human-originated greenhouse gas emissions are energy-related. EIA's National Energy Modeling System (NEMS) is perhaps the most complete, integrated, regional computer model available to simulate all elements of U.S. energy supply and demand in the context of the full U.S. macroeconomy. NEMS presents year-by-year projections over a 20-year horizon, accounting for capital stock turnover and the availability and penetration of specific energy-consuming technologies. Its annual "Reference Case" assumes no change from existing laws and regulations, and so it provides a base from which to evaluate policy options or alternative assumptions.
EIA analyzed six cases to investigate the uncertain range
of impacts which could result from the Kyoto Protocol.
Differences among the cases analyzed arise
from three facts: 1) The Protocol gives credit for
"CO,-equivalent" reductions in five gases other than
CO-methane, nitrous oxide, and three synthetic
gases-as well as for certain actions that take carbon out
of the atmosphere (such as preserving or extending
forests); 2) participating developed countries are allowed
to sell excess "permits" (e.g., because of economic
problems since 1990 in the participating countries of the
former Soviet Union, they may have about 165 million
metric tons of carbon permits easily available); and
3) support for effective programs in other countries can
earn permits. Details of this last process (called "Joint
Implementation" among developed countries and the
"Clean Development Mechanism," or CDM, for
developing countries) are unsettled.
EIA's six cases cover a range of reductions in energy-linked
carbon emissions from an annual average of 122 million
metric tons below the expected baseline emissions
(1990+24% Case) to 542 million metric tons (1990-7%
Case) in 2008-2012. In the 1990+24% Case, domestic
actions may furnish about one-fifth of all reductions, with
the rest coming from international activities (including
trading), offsets of other gases, and carbon sinks in the
U.S., while the 1990+9% Case assumes that nearly
60 percent of the reductions result from such domestic
initiatives as fuel-switching, improved technology, and
cutbacks in energy use. EIA did not separately calculate
the contributions of international activities, offsets or sinks
for any case. The 1990-3% Case assumes all reductions
are from domestic actions, with a 4 percentage point
contribution from sinks and offsets from other gases. In
the 1990-7% case, all reductions must come from
domestic energy-related reductions.
The Kyoto Protocol does not specify targets for greenhouse gases after the period 2008-2012. At the Committee's request, EIA held the target for energyrelated carbon emissions in the commitment period constant to 2020, the end of the forecast horizon. Targets following the 2008-2012 period will be a topic at future negotiating sessions.
To reduce carbon emissions, EIA assumes that a "carbon price" is added to the price of delivered energy fuels based on their carbon content. For example, coal prices rise more than petroleum and natural gas prices; and