of the reductions (Figure ES5). The delivered price of coal to generators in 2010 is higher by between 153 and nearly 800 percent in the carbon reduction cases relative to the reference case. As a result, coal-fired generation, which accounts for about half of all generation in 2010 in the reference case, has a share between 42 percent and 12 percent in 2010 in the carbon reduction cases. To replace coal plants, generators build more natural gas plants, extend the life of existing nuclear plants, and dramatically increase the use of renewables in the more stringent reduction cases, particularly biomass and wind energy systems, which become more economical with higher carbon prices.

Assuming that carbon emissions from the generation of electricity are shared to each of the end-use demand sectors, based upon their consumption of electricity, the industrial and residential end-use demand sectors account for most of the carbon reductions, and the transportation sector accounts for the least (Figure ES6). In response to higher energy prices, consumers have an Incentive to reduce demand for energy services, switch to lower-carbon energy sources, and invest in more energy-efficient technologies.

Because coal is the most carbon-intensive of the fossil fuels, delivered coal prices are most affected by the carbon prices (Figure ES7). Higher electricity prices reflect the increased costs of fossil fuels for generation and the incremental cost of additional investments, although the increase is mitigated by generation from renewables and nuclear power, because their fuel prices are not affected by carbon prices. Although the average carbon content of petroleum products is higher than that of natural gas, the percentage increase in the price of natural gas is higher than that of petroleum. Higher prices for petroleum are partially offset by lower world oil prices, and Federal and State taxes on gasoline also serve to mitigate the percentage increase.

Total carbon emissions from the industrial sector are lower by between 7 and 28 percent in 2010 in the carbon reduction cases, relative to the reference case. Total Industrial output is lower because of the impact of higher energy prices on the economy. As energy prices increase, industrial consumers accelerate the replacement of productive capacity, invest in more efficient technology, and switch to less carbon-intensive fuels. In 2010, industrial energy intensity is reduced from

7.6 thousand British thermal units (Btu) per dollar of output in the reference case to between 7.4 and 7.1 thousand Btu in the carbon reduction cases.

In both the residential and commercial sectors, higher energy prices encourage investments in more efficient equipment and building shells and reduce the demand for energy services. Total carbon emissions in the residential sector are reduced by 11 percent in the 1990+24% case and by 45 percent in the 1990-7% case, relative to the reference case. Because of reduced demand for energy and improved end-use efficiencies, total energy use in 2010 ranges from 145 to 173 million Btu per household in

the carbon reduction cases, compared with 184 million Btu per household in the reference case. Space heating and cooling account for the largest share of the change in energy demand; however, energy demand for a variety of miscellaneous appliances, such as computers, televisions, and VCRs, is also reduced.

In the commercial sector, total carbon emissions are lower by between 12 and 51 percent in the carbon reduction cases, compared to the reference case. Total energy use per square foot of commercial floorspace, which is 206 thousand Btu in 2010 in the reference case, is reduced to between 148 and 192 thousand Btu across the

cases. Similar to the residential sector, most of the reduction occurs for space conditioning-heating, cooling. and ventilation; however, more efficient lighting and office equipment and reduced miscellaneous electricity use-for example, for vending machines and telecommunications equipment-also contribute to lower energy consumption.

The average price of gasoline in 2010 across the carbon reduction cases is between 11 and 53 percent higher than the projected reference case price. Carbon reductions in the transportation sector in 2010 range from 2 to 16 percent, primarily as the result of reduced travel and the purchase of more efficient vehicles. The relatively low carbon reductions for transportation result from the continued dominance of petroleum, although some increase in market share is projected for alternative-fuel vehicles. Improvements in average fuel efficiency are slowed by vehicle turnover rates. Although new car efficiency in 2010 improves from 30.6 miles per gallon in the reference case to between 32.0 and 36.4 miles per gallon in the carbon reduction cases, total light-duty fleet efficiency rises only from 20.5 miles per gallon to between 20.7 and 21.7 miles per gallon. The impact of carbon prices on the economy lowers light-duty vehicle and airline travel and freight requirements while inducing some efficiency Improvements.

Impacts by Fuel

In order to achieve carbon emission reductions, the slate of energy fuels used in the United States is projected to change from that in the reference case (Figure ES8).

1995 2000 2010 Source: Office of Integrated Analysis and Forecasting. National Energy Modeling System runs KY BASE.D080396A and FD09ABV.00803988

Because of the higher relative carbon content of coal and petroleum products, the use of both fuels is reduced, and there is a greater reliance on natural gas, renewable energy, and nuclear power. Although the use of petroleum declines relative to the reference case, it increases slightly as a share because most petroleum is used in the transportation sector, where fewer fuel substitutes are available.

Because of the high carbon content of coal, total domestic coal consumption is significantly reduced in the carbon reduction cases, by between 18 and 77 percent relative to the reference case in 2010 (Figure ES9). Most of the reductions are for electricity generation, where coal is replaced by natural gas, renewable fuels, and nuclear power; however, demand for industrial steam coal and metallurgical coal is also reduced because of a shift to natural gas in industrial boilers and a reduction in industrial output. Coal exports are also lower in the carbon reduction cases, by between 21 and 32 percent, due to lower demand for coal in the Annex I nations.

Although total U.S. coal production is reduced, the average minemouth coal price rises in the carbon reduction cases, by between 3 and 28 percent in 2010, because a larger share of production is from higher-cost eastern coal mines that tend to serve the remaining markets. Production of western coal is further discouraged by the higher cost of fuels used for rail transportation and by reduced incentive for investment in new mines, which are primarily in the West. Because of lower coal production, coal mine employment in 2010 is projected to be 15 to 63 percent lower than in the

reference case; however, employment in the energy industry related to the production of natural gas and renewable fuels is likely to increase.

Petroleum consumption is lower in all the carbon reduction cases than in the reference case, by between 2 and 13 percent (Figure ES10). Because most of the petroleum is used for transportation, between 68 and 82 percent of the total reduction is in the transportation sector, as travel and freight requirements are reduced and higherefficiency vehicles are used. Because of lower petroleum demand in the United States and in other developed countries that are committed to reducing emissions under the Kyoto Protocol, world oil prices are lower by

between 4 and 16 percent in 2010, relative to the reference case price of $20.77 per barrel. In 2010, net crude oil and petroleum product imports are lower by a range of 3 to 22 percent relative to the reference case. Consequently, the dependency of the United States on imported petroleum is reduced from the reference case level of 59 percent to as little as 53 percent in 2010.

In 2010, natural gas consumption is higher than in the reference case, by a range of 2 to 12 percent across the carbon reduction cases (Figure ES11). Increased use of natural gas in the generation sector is only partially offset by reductions in the end-use sectors. Later in the forecast period, continued growth in natural gas

consumption for electricity generation is mitigated by the increasing use of renewables and nuclear power, particularly in the more stringent carbon reduction cases. As a result, in 2020, natural gas use does not necessarily increase with higher levels of carbon reductions. As the result of higher demand, the average wellhead price of natural gas in 2010 is higher in all the carbon cases than in the reference case, by a range of 2 to 30 percent. Although meeting the levels of production that may be required will be a challenge for the industry, sufficient natural gas resources are available. The potential increases in both drilling and pipeline capacity are within levels achieved historically (or about to be achieved) and are not likely to be a constraint, given appropriate incentives and planning.

Nuclear power, which produces no carbon emissions, increases with carbon reduction targets by between 8 and 20 percent in 2010, relative to the reference case (Figure ES12). Although no new nuclear plants are assumed to be built in the carbon reduction cases, extending the lifetimes of existing plants is projected to become more economical with higher carbon prices. In the more stringent carbon reduction cases, most existing nuclear plants are life-extended through 2020, in contrast to the gradual retirement of approximately half of the nuclear plants projected in the reference case.

Consumption of renewable energy, which results in no net carbon emissions, is projected to be significantly higher with carbon reduction targets (Figure ES13). Across the carbon reduction cases, renewable energy consumption increases by between 2 and 16 percent in 2010 and by between 9 and 70 percent in 2020. Most of

Sources: History: Energy Information Administration, Annual Energy Review 1997, 00E/EIA-0384(97) (Washington, DC, July 1998). Projections: Office of Integrated Analysis and Forecasting, National Energy Modeling System runs KYBASE 0080398A, FD24ABV.D0803988, FD1998.D0803988, FD09ABV. b0803988 FD 1990 008000 FD03BLW 00603988, and FD07BLW. D0803988

this increase occurs in electricity generation, primarily with additions to wind energy systems and an increase in the use of biomass (wood, switchgrass, and refuse). In the carbon reduction cases, the share of renewable generation is as much as 14 percent in 2010, compared with 10 percent in the reference case, increasing to as high as 22 percent in 2020, compared with 9 percent in the reference case. Because additional renewable technologies become available and economical later in the forecast period, the share of renewable generation continues to increase through 2020.