available for solar-heated swimming pools. The cap is $2,000 for the photovoltaic systems and $1,000 for the solar water heating systems. Transportation Tax Credit for Electric Vehicles and Fuel Cell Vehicles. Under current law, the Tax Credit for Highly Fuel-Efficient Hybrid Vehicles. The proposal would provide Industry Tax Credit for Combined Heat and Power Systems. A new tax credit of 8 percent would be provided for qualified combined heat and power systems larger than 50 kilowatts, installed between 2000 and 2002. Qualified systems would produce at least 20 percent thermal and at least 20 percent electrical or mechanical power. Systems with electrical capacity higher than 50 megawatts would need at least 70percent total efficiency, and smaller systems would need at least 60-percent efficiency. 5 Tax Credit for Wind Generation. Under current law, a tax credit of 1.5 cents per kilowatthour, which is adjusted for inflation from a 1992 base, is provided for systems placed in service after December 31, 1993, and before July 1, 1999. The proposal would extend this credit to systems placed in service before July 1, 2004. Tax Credits for Biomass Generation. Under current law, a tax credit of 1.5 cents per kilowatthour, which is adjusted for inflation from a 1992 base, is provided for systems using dedicated energy crops placed in service after December 31, 1992, and before July 1, 1999. The proposal would extend the credit to systems placed in service before July 1, 2004, extend the definition of biomass systems eligible for the credit to include certain forest-related, agricultural, and other biomass sources, and provide a new 1.0-cent-per-kilowatthour tax credit, which is adjusted for inflation from a 1999 base, for biomass-fired electricity generated at coal plants using biomass co-firing through June 30, 2004. Table I presents the impacts of the tax credits in terms of energy savings and reductions in carbon emissions, relative to the AEO99 reference case, which assumes current law. The carbon savings include only those incremental changes in emissions, relative to the reference case. Where possible, an estimate of the tax revenue implications is provided and compared to the Administration estimates. The year 2010 is the focus because it is the midpoint of the first compliance period in the Kyoto Protocol. Some of the technologies covered by the tax credits are likely to penetrate even without the credits and are included in the reference case; however, the credits are applied to both the units that are added because of the credits and the units that would be added without the credits, which become unintended beneficiaries of the tax credits. For ELA, both revenue impacts are presented. Table 1. Summary of Selected Climate Change Technology Initiatives Impacts, 2010 "For the wind and biomass tax credits, the change represents the reduction in fossil energy use for electricity generation. Reductions in carbon emissions from electricity are calculated by displacing marginal generating plants. Reductions are relative to the CCTI reference case which is similar to that in Energy Information Administration, Annual Energy Outlook 1999. DOE/EIA-0383(99) (Washington, DC, December 1998). For wind and biomass, the expenditure savings are for expenditures on fossil fuels for electricity generation. "Total revenue impacts for all three wind and biomass programs. Treasury does not disaggregate the revenues into the individual programs. Revenue impacts are for 2000 through 2004 although the proposed tax credit for photovoltaic systems extends through 2006. "The revenue impacts can only be estimated for natural gas heat pumps-$21.6 million without unintended beneficiaries and $61.6 million with unintended beneficiaries * Assumes a portion of the commitments of the photovoltaic installations under the Million Solar Roofs program. Excludes Federal govemment installations. Cogenerated electricity substitutes for purchased electricity, and total site use increases due to additional natural gas consumption. The range results from the possibility that additions currently planned for 1999 or 2003 may be moved to take advantage of the tax credit. In 2010, the 'ax credits for buildings, industrial, and transportation would reduce primary energy consumption by 31.6 trillion Btu, or 0.03 percent, relative to baseline consumption of nearly 111 quadrillion Btu. In addition, the tax credits for wind and biomass generation would reduce fossil energy consumption for electricity generation by 71.9 trillion Btu, or 0.06 percent of the total. In the reference case, carbon emissions are projected to reach 1,790 million metric tons in 2010, which would be reduced by 3.1 million metric tons, or 0.17 percent, as a total of the individual 7 impacts of the tax credits, reflecting lower energy consumption and a shift in the mix of energy fuels. Although the investment tax credits reduce the initial cost of purchasing the applicable equipment in the buildings, transportation, and industrial sectors, the analysis assumes that consumers will continue to make decisions as indicated by ELA's analysis of historical trends. Consumers are typically reluctant to invest in more expensive technologies with long payback periods to recover the incremental costs. In addition, energy efficiency is only one of many attributes that consumers consider when purchasing new energy-equipment or buildings. Tax credits of longer duration and/or higher value could encourage greater penetration of the technologies by making them more economically competitive to consumers. The timing of the tax credits is also a key factor in their impacts. For example, the tax credit for combined heat and power systems applies only to systems installed between 2000 and 2002. Since 18 to 36 months are required to plan, design, and install new capacity, there is not much opportunity for incremental investments in the systems. As another example, in the AEO99 reference case, biomass gasification is assumed to be commercially available in 2005; however, since the credit expires in 2004, there is no opportunity to take advantage of the credit. Only a small quantity of capacity, based on current technology, and demonstration plants for biomass gasification will qualify for the credit. Similarly, the tax credit for fuel cell vehicles extends only through 2006, when the technology is assumed by ELA to become commercially available. Table 2 shows the impacts of the tax credits in 2002 to 2004, which increase through that time period as the more advanced technologies become available and gradually penetrate the market. However, the total impact on carbon emissions is less in 2010 than in the earlier years because of the buildings equipment and biomass co-firing tax credits. Tax credits for energy-efficient buildings equipment have a larger impact on carbon emissions in the earlier years which is reduced as the credits expire because, as some of the new, more efficient equipment begins to retire, it is replaced by equipment of lower efficiency. The more efficient equipment is no longer economic without the tax credit. The impact of the co-firing tax credit is also reduced when the credit expires. The co-firing tax credit is a production tax credit that leads to more generation 57-713 99-3 from biomass in coal plants when the credit makes biomass fuel competitive with coal. The transportation tax credits have a small impact in the earlier years because of the limited availability of eligible technologies. Following 2010, the impacts of the tax credits generally remain stable or decline through 2020. For example, the energy-efficient new homes and combined heat and power credits encourage some incremental investment during the period of the tax credits which have a sustained impact on energy consumption and carbon emissions. Table 2. Summary of Selected Climate Change Technology Initiative Impacts, 2002-2004 2002 2004 In Energy Btu) Reduction 2003 (million metric tons) Reduction Reduction (million metric tons) "For the wind and biomass tax credits, the change represents the reduction in fossil energy use for electricity generation. Reductions in carbon emissions from electricity are calculated by displacing marginal generating plants. "Reductions are relative to the CCTI reference case which is similar to that in Energy Information Administration, Annual Energy Outlook 1999, DOE/EIA-0383(99) (Washington, DC, December 1998). Cogenerated electricity substitutes for purchased electricity, and total site use increases due to additional natural gas consumption. Efficiency Standards Appliance efficiency standards can lead to significant reductions in energy consumption and carbon emissions by accelerating the penetration of more efficient technologies. The example 9 |