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lower than for central power stations. Increased CHP reduces purchased power requirements and leads to lower emissions from central-station electricity producers. Because additional natural gas is required for CHP, higher site emissions result. The net carbon reduction is the difference between the reduced central-station emissions and the increased site emissions. For presentation purposes, the net change in carbon emissions is attributed to the industrial sector. The CCTI tax incentive has the potential to reduce carbon emissions by 0.15 million metric tons per year-less than 0.1 percent of the 512 million metric tons of industrial carbon emissions projected for 2002. There may, however, be additional reductions in other pollutants that would contribute to the environmental benefits of the projects.

The results presented above could be altered significantly if a variety of institutional barriers that impede CHP projects could be reduced. For example, EPA has encouraged States to provide CHP plants with set-aside allowances in their proposed NO, trading program.47 One result of reduced institutional impediments could be a greater willingness to invest in CHP projects with longer payback periods, because the required payback period incorporates the potential for unforeseen complications and delays due to existing institutional arrangements, as well as the strictly financial aspects of a project. To assess the effects of this possibility, a sensitivity analysis was conducted assuming that a much longer (approximately doubled) payback period would be acceptable. The sensitivity analysis indicated that as much as 645 megawatts of additional new CHP capacity could be induced. In this situation, net carbon reductions of 0.5 million metric tons could occur.

The cost of the CHP tax incentive program would be higher if nontraditional cogenerators (merchant plants) were able to qualify for the credit. Nontraditional cogenerators are facilities built mainly to sell power. Because their production of useful thermal energy is typically small relative to their power output, the total system efficiency of merchant units is below the minimum threshold specified in the CCTI proposal. In NEMS, merchant facilities are treated as simple electricity power plants rather than as cogenerators; however, they could have a more significant impact if some regulatory burdens and uncertainties were reduced. For example, establishing a uniform Interconnection standard could lead to more additions of merchant power plant capacity, as well as more traditional cogeneration capacity.

Because the proposed investment tax credit would expire in 2002, no additional induced change is projected after 2002. It is possible, however, that a "momentum" effect could lead to some additional inducement even after the tax credits expire (Table 13). In 2010, carbon emissions are projected to be 0.15 million metric tons (less than 0.1 percent) lower than in the reference case.

Finally, the analysis indicates that there could be a high ratio of unintended beneficiaries for this program. The projected ratio of unintended beneficiaries (capacity that would be added in the absence of the credit) to induced capacity additions is more than 4 to 1, in part because of the short time frame for the proposed credit. It takes 18 to 36 months to plan, design, and install new CHP capacity and perhaps much longer for district energy systems, and most of the facilities that would qualify for the credit would also be installed without it. Further, the proposed tax credit would shorten the payback period for investments in new CHP capacity by less than 3 months—a marginal benefit that is unlikely to affect the economic decision for most firms.

"U.S. Environmental Protection Agency. Office of Atmospheric Programs, Office of Air and Radiation, Guidance on Establishing an Energy Efficiency and Renewable Energy (EE/RE) Set-Aside in the NOx Budget Trading Program (Washington, DC, March 1999).

Table 13. Projected Effects of the CCTI Tax Credit for Traditional Combined Heat and Power (CHP) Systems, 2005, 2010, and 2020

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Note: Carbon emissions for the CCTI case cannot be taken directly from an integrated NEMS run because of the interaction effects. Source: Energy Information Administration, National Energy Modeling System runs AEO99R.D033099A and CCTITAX.D033099A.

Transportation

Background

Sales of alternative-fuel vehicles (AFVs) and advanced vehicle technology (AVT) vehicles are expected to make up approximately 4 percent of all U.S. light-duty vehicle (LDV) sales in 1998.48.49 More than 58 percent of those sales are alcohol flexible vehicles, which can run on any combination of alternative fuel and gasoline, and 41 percent are AFVs that use either compressed natural gas (CNG) or liquid petroleum gas (LPG). The remaining 1 percent are electric vehicles.

The electric vehicles currently available (Table 14) average 17 to 30 percent higher fuel efficiency than comparable conventional gasoline vehicles. Whereas conventional gasoline vehicles achieve only about 18 to 28 percent efficiency in combustion, electric vehicle motors have almost no loss in thermal efficiency. On the other hand, approximately 66 percent of the primary energy used to produce electricity is lost in production and transmission.

Table 14. Electric Vehicles Currently Available in U.S. Markets and Announced Dates of
New Production Prototypes

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*The Toyota Prius hybrid electric vehicle, already being marketed in Japan, will be available to U.S. buyers in 2000. Sources: Electric Vehicle Today and Alterative-Fuels Today (various issues, 1999).

Energy Information Administration, Annual Energy Outlook 1999, DOE/EIA-0383(99) (Washington, DC, December 1998). AFVs are vehicles that use alternative fuels (other than gasoline or diesel fuel). AVT vehicles use advanced vehicle technologies but consume conventional fuels (examples include gasoline-electric hybrids, diesel-electric hybrids, and gasoline fuel cells). LDVs include all passenger cars, minivans, sport utility vehicles, and pickup trucks.

Hybrid electric vehicles are just beginning to enter the marketplace. For example, the Toyota Prius, scheduled for introduction in the U.S. market in 2000, uses a gasoline engine and regenerative braking to restore power to an electric battery that runs the vehicle motor. It has been advertised as having reached 66 miles per gallon (mpg) in the Japanese fuel efficiency test cycle, but in the U.S. Federal test procedure (FTP) cycle it has been rated at only 50 to 55 mpg.

Fuel cell vehicle technology is still in the early stages of development. Only a few test vehicles-buses in the Chicago Transit Authority fleet-have been sold, and some mechanical problems with those have been reported. Fuel cell vehicles have the potential to increase fuel economy relative to conventional gasoline vehicles by some 72 percent with gasoline as a fuel, 84 percent with methanol, and 100 percent with hydrogen.

Tax Credits for Electric, Electric Hybrid, and Fuel Cell Vehicles

The CCTI proposes the following tax initiatives for LDVs:

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For qualifying electric and fuel cell vehicles, the current 10-percent tax credit, subject to a $4,000 cap, would be extended at its full level through 2006. The credit currently is scheduled to be phased down beginning in 2002 and eliminated by 2005.

• For qualifying electric hybrid vehicles, graduated tax credits are proposed:

$1,000 for each vehicle purchased after December 31, 2002, and before January 1, 2005, that is 33 percent higher in fuel efficiency than a comparable vehicle in its class

$2,000 for each vehicle purchased after December 31, 2002, and before January 1, 2007, that is 66 percent higher in fuel efficiency than a comparable vehicle in its class

$3,000 for each vehicle purchased after December 31, 2003, and before January 1, 2007, that is twice as high in fuel efficiency as a comparable vehicle in its class

$4,000 for each vehicle purchased after December 31, 2003, and before January 1, 2007, that is three times as high in fuel efficiency as a comparable vehicle in its class.

In order for hybrid vehicles to qualify they must have regenerative braking and an energy storage system that will recover at least 60 percent of the energy used in braking from 70 to 0 mph.

All qualifying vehicles must meet or exceed all emissions requirements for gasoline vehicles.

Analytical Approach

The NEMS transportation module represents conventional gasoline vehicles (including direct injection gasoline technology and 58 other fuel-saving technologies), diesel turbo direct injection, alcohol (both methanol and ethanol) flexible fueled and dedicated vehicles, gaseous (both CNG and LPG) dedicated and bi-fuel vehicles, electric vehicles, electric hybrid (gasoline and diesel) vehicles, and fuel cell vehicles (methanol, hydrogen, and gasoline reformers). Each AFV/AVT technology is evaluated within each of the 12 EPA size classes for both cars and light trucks. For this analysis, the following consumer purchase criteria were evaluated:50 (1) vehicle price, (2) cost of driving per

50 Consumer purchase (market penetration) criteria were based on the U.S. Department of Energy's National Alternative-Fuel Vehicle Survey and were implemented in the NEMS transportation module by EIA's Office of Integrated Analysis and Forecasting in coordination with the U.S. Department of Energy. Office of Transportation Technologies, and Argonne National Laboratory.

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mile (fuel price divided by fuel efficiency), (3) vehicle range, (4) top speed. (5) acceleration, (6) multiple fuel capability. (7) maintenance cost, (8) luggage space, and (9) fuel availability.

It was assumed that there would be no new requirements or additional costs for catalysts, engine design changes, or advanced reformulated fuels to meet EPA vehicle emissions standards. If stricter EPA standards are passed, they could lower the market penetration rates and carbon emissions reductions projected in this analysis.

The following assumptions were made in modeling the CCTI analysis case:

•All electric vehicles and fuel cell vehicles were provided with a $4,000 vehicle price reduction relative to the reference case price through 2006. The date of commercial availability for fuel cell vehicles was changed from 2010 in the reference case to 2006.51

• All electric hybrid vehicles were provided with the tax incentives specified in the CCTI proposal, based on the average fuel efficiency of a comparable gasoline vehicle in each EPA size class. Gasoline-electric hybrids were assumed to be commercially available by 2001 and diesel-electric hybrids by 2005 (both the same as in the reference case).

Results and Discussion

The results for the CCTI analysis case show an early increment in sales of electric vehicles-8,620 total sales in 2002, compared with 8,260 in the reference case. By 2010, however, the projected sales are approximately the same in the two cases at about 299,280 units (Table 15). Sales of fuel cell vehicles, which are assumed to be available at the very earliest by 2006, are projected to total approximately 870 units in 2006, rising to 4,630 in 2010 and 18,430 in 2020 in the CCTI case. Projected sales of hybrid vehicles-particularly, gasoline-electric hybrids—are significantly higher in both cases (at more than 871,000 vehicles) than are sales of either electric vehicles or fuel cell vehicles. Hybrids are anticipated to be available in U.S. markets by 2000, and the technology allows for vehicle characteristics that are similar to those of conventional gasoline vehicles—especially the most important consumer purchase criterion, vehicle price (see discussion below). $2

Total AFV/AVT sales in the CCTI case represent 6.2 percent of all LDV sales in 2010 (Table 15). Moreover, most of the projected sales also occur in the reference case. Because the proposed CCTI tax incentives would be in effect only through 2006, no significant additional accumulation of AFV/AVT vehicles is projected, even by 2010. Consequently, projected LDV fuel consumption in the CCTI case does not differ significantly from that in the reference case (Table 16). The difference in 2005 is less than 0.5 trillion Btu, consisting almost entirely of a reduction in gasoline consumption. The difference in 2010 is only 0.77 trillion Btu (0.002 percent of total transportation fuel consumption). and in 2020 it is just 0.71 trillion Btu. As a result, the reduction in projected carbon emissions from transportation energy use in the CCTI case relative to the reference case is only about 0.003 million metric tons in 2010representing just 0.0004 percent of total carbon emissions for the transportation sector (Table 17). In 2020, the CCTI case results in a reduction of 0.01 million metric tons of carbon.

"According to the Partnership for a New Generation of Vehicles (PNGV) program, the earliest possible availability date for a production prototype fuel cell vehicle would be 2004. Chrysler has announced that a production prototype will be available by 2004. Inherent in the 2006 date is a 2-year period to convert production prototypes to actual production vehicles and to modify production lines and facilities.

Only in the State of California may manufacturers meet up to 60 percent of the Low Emission Vehicle Program's Zero-Emission Vehicle (ZEV) mandates with sales of electric hybrid vehicles. However, electric hybrid vehicles receive no more than approximately 30 to 80 percent of one ZEV credit. For example, the Toyota Prius would receive 0.32 ZEV credits. Therefore, electric hybrid sales could be higher in California.

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Source: Energy Information Administration, National Energy Modeling System runs AE099TRN.D040699A and AE099TRN. D0406998.

Table 16. Light-Duty Vehicle Fuel Consumption by Fuel Type, 1997-2020

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Distillate Fuel

6.93

Methanol

Ethanol

Compressed Natural Gas ..

Liquefied Petroleum Gas

Electricity

Hydrogen

7.43
1.17 31.21
0.53 17.76
30.00
11.91 108.78 108.77 172.82
20.97 60.38 60.37 104.38
0.29 3.10 3.12 40.38
0.00
0.00

6.95

12.48

31.20

50.91

17.75

Total

12.68 46.90 47.46 170.09 171.06 50.75 75.95 75.71 108.45 108.24 29.90 50.81 50.65 74.06 73.92 172.73 234.07 233.94 294.28 294.17 104.30 154.50 154.37 199.21 199.11 40.82 83.44 83.97 147.48 147.57 0.00 0.00 0.00 0.03 0.03 0.12 0.12 13,944.59 15,749.26 15,749.25 16,720.61 16,720.12 18,090.53 18,089.76 19,598.34 19,597.63 Source: Energy Information Administration, National Energy Modeling System runs AE099TRN.D040699A and AE099TRN. D0406998.

Table 17. Transportation Sector Carbon Emissions by Fuel Type, 1997-2020 (Million Metric Tons)

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Source: Energy Information Administration, National Energy Modeling System runs AE099TRN.D040699A and AEO99TRN. D040699B.

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