seeking voluntary agreements with major energy-intensive industries and energy providers to yield further emissions reductions.

As the sectoral consultations are still at an early stage, it would be premature and difficult to incorporate emissions reductions from consultations into the illustrative modeling analysis. Based on the effectiveness of these approaches in the past, these consultations could produce a significant amount of cost-effective action in the coming decade.

Federal Energy Plan

In October, 1997, the President called for a series of steps to reduce energy use in Federal buildings, transportation fleets, and other equipment purchases, and to promote the use of renewable energy sources. As the nation's largest single energy user, the federal government spends nearly $8 billion each year for power to operate facilities, vehicles and industrial equipment, and over 90% of this energy derives from fossil fuels. Long-term savings in cost and energy use can be secured by making sure that purchases for federal facilities, transportation, and systems operations emphasize energy efficiency and that energy-intensive equipment be retrofitted wherever feasible. In addition, the federal government can expand the procurement of renewable and less carbon-intensive fuels.

Ancillary Benefits of Greenhouse Gas Emissions Reductions in the United States

Reductions in fossil fuel combustion typically lead to reductions in conventional air pollutants. These include sulfur dioxide (SO,), nitrogen oxides (NO,), particulate matter and volatile organic compounds. These reductions in emissions can have important implications for environmental quality and public health.

To estimate the ancillary benefits for the United States of the Kyoto Protocol, we employed the methods that were used for the Regulatory Impact Analysis (RIA) that the Environmental Protection Agency published in July 1997 for the revised national ambient air quality standards (NAAQS) for particulate matter and ozone. First, the DRI model was used to simulate the changes in fossil fuel combustion by region and economic sector that the Kyoto Protocol would bring about." These changes in fuel

21 DRI/McGraw-Hill U.S. Energy Model.

consumption were then used by Pechan Associates, an EPA contractor, to estimate changes in emissions of local air pollutants.22

Identification of the baseline from which to estimate emission reductions attributable to a carbon control strategy is complicated by the gradual transition to full attainment of the new NAAQS. In particular, states and emission sources could respond to a carbon control strategy by either replacing or maintaining NAAQS-related emission controls. Because of this uncertainty, ancillary benefits are treated as a range.

If ancillary benefits of carbon mitigation make the NAAQS-related emissions controls unnecessary, substantial costs for controlling pollution will be avoided. Reasonable estimates of the cost-savings per ton are approximately $1,620 for NO, and $700 for SO2, based on current information about the specific technologies likely to be avoided at utilities and large industrial sources. (These estimates are derived from the estimates of the incremental costs of tighter regional caps on NO, and SO, emissions that were developed for the NAAQS RIA.) Given these unit values, the value of these cost-savings for sulfur dioxide is about $360 to $600 million per year, and for NO, is about $370 to $610 million per year. Adding these together gives cost savings of about $0.74 to $1.2 billion per year.

If carbon mitigation partially supplements, rather than displaces, NAAQS-related controls, valuing the ancillary health and welfare benefits requires (1) an estimate of the changes in air quality, and (2) an estimate of the value in dollars of such changes. For this analysis we employed the methodologies and tools used for the NAAQS RIA of July 1997. However, we note that in this area, as others, there is substantial uncertainty surrounding the appropriate methodology. The academic literature is in flux and provides a number of possible approaches.

Since the measure of air quality responsible for most of the quantifiable benefits is the abatement of fine particulate matter, we do not quantify changes related to ozone, and concentrate instead on fine particles (PM25). Reducing PM, concentrations yields a wide variety of benefits. Our analysis indicates that the reductions in PM25 attributable to carbon mitigation that corresponds to the $14/ton case would lead to between $1.1 billion and $5.7 billion in benefits annually. Similarly, the reductions in PM2, attributable to carbon mitigation in the $23/ton case would lead to between $1.8 and $9.4 billion in benefits. Although these plausible ranges appear large, they are consistent with prior estimates, e.g., in the NAAQS RIA, and reflect a variety of uncertainties in the nature of the health effects.

In this scenario, there are additional ancillary benefits in the form of avoided NAAQS-related air pollutant control costs. Specifically, for the two pollutants

22 See E.H. Pechan and Associates 1997a, b.

governed by cap and trade programs (SO, and NO,, avoided control costs total about $450 million in the $14/ton case and about $740 million in the $23/ton case. Total annual ancillary benefits for this valuation approach range from about $1.6 billion to $6.2 billion for the $14/ton case and from about $2.5 billion to $10.0 billion for the $23/ton case.

Thus as a conservative estimate, a quarter of the costs of the Kyoto agreement are offset by these ancillary benefits, although there is substantial uncertainty about these estimates.

It should be noted that the level of ancillary benefits from carbon mitigation increases with the extent of domestic mitigation and decreases to the extent that mitigation is based on purchasing international emissions allowances. In general the magnitude of these ancillary benefits depends on the type of regulation of air quality and emissions of local air pollutants, as well as baseline local air quality.

Greenhouse gas mitigation strategies will result in additional reductions of other air pollutant emissions, including several that have not been quantified (see Table 7). In particular, greenhouse gas mitigation strategies will result in additional reductions in heavy metals, acetaldehyde, formaldehyde, organic aromatics, polycyclic aromatic hydrocarbons (PAH), and chlorinated dioxins and furans. These substances are capable of producing a wide array of health and environmental effects, including some forms of cancer. Exposure to these substances at some concentrations can cause effects in addition to cancer, these may range from respiratory problems to reproductive and developmental effects. Further, although reductions in nitrogen and sulfur dioxide emissions were quantified in dollar terms, the estimated values exclude the mitigation of adverse impacts on agricultural and forestry yields, aquatic and terrestrial ecosystems, and recreational fishing.

In conducting this analysis, the Administration has not attempted to quantify the benefits of mitigating the risks of climate change. While several economists have estimated the damages of global warming under a doubling of atmospheric concentration (Cline 1992; Fankhauser 1993; Nordhaus 1994), they all assumed an endpoint -- an atmospheric concentration, and subsequently, an increase in global temperature. However, the Kyoto Protocol only stipulates an emissions path through 2012. To calculate the benefits of averting climate change-induced damages, it is necessary to know the emissions path for many years beyond 2012. Thus while the benefits of getting started on the Kyoto path to reducing greenhouse gas emissions may be quite large over time, we cannot estimate these benefits without knowing where the path goes in the years after the Kyoto compliance period.

Cline (1992) assessed the economic damages from warming associated with two temperature increases: 2.5° C (4.5° F) and 10° C (18° F). He presented the former temperature change as the likely effect of a doubling of the atmospheric carbon dioxide concentration and the latter temperature change as the result of "very long

term warming." Under the scenario where the temperature increases 4.5° F, Cline found that the annual damage to the United States would be about 1.1% of GDP, or about $89 billion in today's terms.23 Cline's "very long term warming" scenario resulted in economic damages of about 6% of GDP.

Cline's estimates of annual economic damage of global warming take account of the following categories of impact: agriculture, forest loss, species loss, sea-level rise (including costs of constructing dikes and levees, wetlands loss, and drylands loss), electricity requirements, non-electric heating, human amenity, human life, human morbidity, migration, hurricanes, construction, leisure activities, water supply, urban infrastructure, and air pollution. Cline provides only qualitative assessments for several categories. In addition, he found that non-electric heating expenditures decline with global warming, so this is actually considered a benefit, not a cost, associated with warming.

The economic damage under a doubling of the atmospheric carbon dioxide concentration found by Cline is not significantly different in magnitude from the results of Nordhaus (1994) and Fankhauser (1993). Nordhaus estimated that a temperature increase of 5.4° F would result in annual costs of about 1% of GDP. Fankhauser found that under the same 5.4° F temperature increase the annual costs of warming would be about 1.3% of GDP for the United States, and 1.5% of GDP worldwide. However, the similarity among the aggregated estimates of these three researchers masks both the differences in their methodologies and the true uncertainty associated with long-term forecasts of the damages from given increases in global warming. Different researchers account for different categories of damages, and even within the same category, they may estimate different effects. More importantly, the estimates are all fundamentally based on extrapolations from current and past experience, and may not fully incorporate effects that will become apparent only with future experience.

International Impacts Associated with Reducing Greenhouse Gas Emissions

Just as in the United States, all Annex I countries would benefit significantly from effective implementation of the Kyoto Protocol's flexibility mechanisms. Further, Non-Annex I countries would accrue three kinds of benefits: 1) under international trade with binding targets slightly below business as usual and the CDM, they will enjoy economic gain from trade in emissions allowances; 2) reductions in carbon

23 Cline's original estimate is quoted in 1990 dollars. The figure given above translates the Cline estimate into 1997 terms by scaling it to 1997 GDP.