Figures (Continued) 33. Projected Stocks of Ground-Source Heat Pumps, 1995-2020. 34. Average Residential Sector Energy Prices, 1995-2020... 35. Projected Energy Expenditures in the Residential Sector, 1995-2020. 36. Changes From Reference Case Projections of Energy Intensity for Residential Water Heating in Three Sensitivity Cases, 1995-2020 37. Changes From Reference Case Projections of Residential Energy Consumption in Three Sensitivity Cases, 1995-2020 38. Index of Commercial Sector Delivered Energy Consumption, 1970-2010.. 39. Commercial Sector Carbon Emissions, 1990, 1996, and 2010.. 40 40 41 42 42 45 45 40. Real Prices for Delivered Energy in the Commercial Sector by Fuel, 1970, 1980, 1996, and 2010 41. Index of Delivered Energy Intensity in the Commercial Sector, 1970-2020.. 45 46 46 49 51 52 53 53 53 54 42. Delivered Energy Use and Electricity-Related Losses in the Commercial Sector, 1970, 1980, 1996, and 2010... 43. Projected Fuel Expenditures in the Commercial Sector in Low and High Technology Cases, 1996-2020 44. Index of Industrial Sector Energy Prices, 2000-2020.. 45. Index of Delivered Energy Consumption in the Industrial Sector, 1970-2020 46. Industrial Sector Carbon Emissions, 1990, 1996, and 2010.. 47. Industrial Sector Energy Consumption by Fuel, 1970, 1980, 1996, and 2010. 48. Projected Energy Intensity in the Industrial Sector, 1995-2020. 49. Projected Change in Industrial Sector Energy Intensity, 1996-2010. 50. Structural and Efficiency/Other Effects on Industrial Energy Intensity, 1980-1985, 1980-1996, and 1996-2010.. 51. Change From Projected Reference Case Energy Expenditures in the Industrial Sector for Alternative Carbon Reduction Cases, 2010 52. Natural-Gas-Fired Cogeneration and Biomass Consumption in the Industrial Sector in Alternative Carbon Reduction Cases, 2010 53. Light-Duty Vehicle Energy Intensity, 1996 and 2010 54. Carbon Emissions in the Transportation Sector, 1990, 1996, and 2010. 55. Fuel Consumption in the Transportation Sector, 1970-2020 56. Light-Duty Vehicle Travel, 1970-2020. 57. Projected New Car and Light Truck Fuel Economy, 2010. 58. Projected Shares of Automobile Sales by Size Class, 2010. 59. Projected Reductions From Reference Case Projections of Car and Light Truck Horsepower in the Carbon Reduction Cases, 2010 and 2020 60. Projected Fuel Consumption in the Transportation Sector by Mode in the Reference Case, 2010 61. Projected Fuel Consumption in the Transportation Sector by Fuel Type, 2010 62. Projected New and Stock Aircraft Fuel Efficiency, 2010 63. Projected New and Stock Freight Truck Fuel Efficiency, 2010 64. Projected Reductions From Reference Case Projections of Transportation Sector Fuel Consumption in High and Low Technology Sensitivity Cases, 2010 67. Projections of Carbon Emissions From the Electricity Supply Sector, 1996-2020. 68. Projected Reductions in Carbon Emissions From the Electricity Supply Sector, 1990-3% Case, 1996-2020.. 69. Electricity Generation by Fuel, 1990+9% Case, 1949-2020 70. Electricity Generation by Fuel, 2010 71. Projections of Coal-Fired Electricity Generation, 2000-2020 72. Operating Costs for Coal-Fired Electricity Generation Plants, 1981-1995. 73. Projections of Coal-Fired Generating Capacity, 2000-2020 74. Electricity Generation Capacity by Fuel, 2010... 75. Projections of Natural-Gas-Fired Electricity Generation, 2000-2020 76. Natural-Gas-Fired Electricity Generation, 1990-3% Case, 1996-2020. 77. Projections of Natural-Gas-Fired Electricity Generation Capacity, 2010. 78. Projections of Nonhydroelectric Renewable Electricity Generation, 2000-2020. 79. Projections of Wind-Powered Electricity Generation Capacity, 2000-2020.. 80. Projected Shares of Most Economical Wind Resources Developed by Region, 1990-7% Case, 1996-2020... Figures (Continued) 81. Estimated Biomass Resource Availability and Projected Generating Capacity in 2020 by Region. 82. Projections of Nuclear Electricity Generation, 2000-2020. 83. Projections of Nuclear Electricity Generation Capacity, 2000-2020 84. Projected Changes in Electricity Sales Relative to the Reference Case, 2000-2020. 85. Projections of Electricity Prices, 1996-2020... 86. Projected Electricity Prices in Regulated and Competitive Electricity Markets, 2000-2020 87. Projected Carbon Prices in Regulated and Competitive Electricity Markets, 2000-2020. 88. Projected Percentage of Time for Different Plant Types Setting National Marginal Electricity Prices, 2010 and 2020 89. Projected Percentage of Time for Interregional Trade Setting Marginal Electricity Prices, 2020. 90. Projections of Average Heat Rates for Natural-Gas-Fired Power Plants in High and Low Technology Cases, 1996-2020. 91. Projected Electricity Prices in High and Low Technology Cases, 1996-2020. 92. Projections of Nuclear Generating Capacity in the 1990-3% Nuclear Sensitivity Case, 2000-2020 93. Natural Gas Consumption, 1996-2020.. 94. Increases in Natural Gas Production, 1983-1984 and 2005-2006. 95. Index of Natural Gas Reserve-to-Production Ratios, 1990-2020 96. Natural Gas Wellhead Prices, 1970-2020. 97. Delivered Natural Gas Prices in the Residential Sector, 1970-2020 98. Petroleum Consumption, 1970-2020. 99. Lower 48 Crude Oil Reserve Additions, 1990-2020. 100. Net Expenditures for Imported Crude Oil and Petroleum Products, 1974-2020 101. Consumption of Ethanol in the Transportation Sector, 1992-2020. 102. Gasoline Prices in the Transportation Sector, 1990-2020 103. Retail Gasoline Prices by Region, Average of All Grades, 1996 and 2010 104. Projected Wholesale Gasoline Margins, 1996-2020. 105. U.S. Coal Production, 1970-2020 106. Western Share of U.S. Coal Production, 1990-2020. 107. Average U.S. Minemouth Coal Prices, 1970-2020. 108. Coal Prices to Electricity Generators, 1970-2020 109. Coal Mine Employment, 1970-2020.. 110. Projected Annual Costs of Carbon Reductions to the U.S. Economy, 2008-2012. 111. Projected Annual Growth Rates in Potential and Actual GDP, 2005-2010 112. Projected Annual Growth Rates in Potential and Actual GDP, 2005-2020 113. Projected Dollar Losses in Potential GDP Relative to the Reference Case, 1998-2020. 114. Average Carbon Reductions and Projected Carbon Prices, 2008-2012. 83 88 88 88 89 90 90 90 91 92 92 92 96 97 98 102 102 104 104 105 106 107 108 109 111 112 113 113 114 122 122 122 123 123 124 125 125 126 126 127 128 128 128 115. Comparison of Average U.S. Economic Losses Projected by the NEMS and DRI Models, 2008-2012. 116. Projected Changes in Wholesale Price Index for Fuel and Power Relative to the Reference Case, 1998-2020 117. Projected Changes in Producer Price Index Relative to the Reference Case, 1998-2020 129 125. Projected Changes in Potential and Actual U.S. Gross Domestic Product in the 1990-3% Case Relative to the Reference Case, 1998-2020 130 126. Projected Changes in Potential and Actual U.S. Gross Domestic Product in the 1990+24% Case Relative to the Reference Case, 1998-2020 130 127. Projected Changes in Real Consumption in the U.S. Economy Relative to the Reference Case, 1998-2020.. 130 128. Projected Changes in Real Investment in the U.S. Economy Relative to the Reference Case, 1998-2020. 129. Consumption and Investment Growth Rates 130 132 130. Projected Changes in U.S. Federal Funds Rate in the 1990-3% Case Relative to the Reference Case Under Different Fiscal Policies, 1998-2020 133 Figures (Continued) 131. Projected Changes in U.S. Federal Funds Rate in the 1990+9% Case Relative to the Reference Case Under Different Fiscal Policies, 1998-2020.. 133 132. Projected Changes in U.S. Federal Funds Rate in the 1990+24% Case Relative to the Reference Case Under Different Fiscal Policies, 1998-2020 133 133. Projected Changes in Potential and Actual U.S. Gross Domestic Product in the 1990+9% Case Relative to the Reference Case Under Different Fiscal Policies, 1998-2020.. 133 134. Projected Changes in Real Consumption in the U.S. Economy Relative to the Reference Case, 1998-2020, Assuming a Social Security Tax Rebate 134 135. Projected Changes in Real Investment in the U.S. Economy Relative to the Reference Case, 1998-2020, Assuming a Social Security Tax Rebate 136. Projected Sectoral Growth Rates in Real Economic Output in the 1990+9% Case, 2005-2010 137. Projected Sectoral Growth Rates in Real Economic Output in the 1990-3% Case, 2005-2010.. 138. Projected Sectoral Growth Rates in Real Economic Output in the 1990+24% Case, 2005-2010 134 135 136 136 Executive Summary Greenhouse Gases and the Kyoto Protocol Over the past several decades, rising concentrations of greenhouse gases have been detected in the Earth's atmosphere. It has been hypothesized that the continued accumulation of greenhouse gases could lead to an increase in the average temperature of the Earth's surface and cause a variety of changes in the global climate, sea level, agricultural patterns, and ecosystems that could be, on net, detrimental. The Intergovernmental Panel on Climate Change (IPCC) was established by the World Meteorological Organization and the United Nations Environment Programme in 1988 to assess the available scientific, technical, and socioeconomic information in the field of climate change. The most recent report of the IPCC concluded that: "Our ability to quantify the human influence on global climate is currently limited because the expected signal is still emerging from the noise of natural variability, and because there are uncertainties in key factors. These include the magnitudes and patterns of long-term variability and the time-evolving pattern of forcing by, and response to, changes in concentrations of greenhouse gases and aerosols, and land surface changes. Nevertheless, the balance of evidence suggests that there is a discernable human influence on global climate. "1 The text of the Framework Convention on Climate Change was adopted at the United Nations on May 9, 1992, and opened for signature at Rio de Janeiro on June 4. The objective of the Framework Convention was to "... achieve... stabilization of the greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system." The signatories agreed to formulate programs to mitigate climate change, and the developed country signatories agreed to adopt national policies to return anthropogenic emissions of greenhouse gases to their 1990 levels. emissions for the period beyond 2000, and to negotiate quantified emission limitations and reductions for the third Conference of the Parties. On December 1 through 11, 1997, representatives from more than 160 countries met in Kyoto, Japan, to negotiate binding limits on greenhouse gas emissions for developed nations. The resulting Kyoto Protocol established emissions targets for each of the participating developed countries-the Annex I countries2-relative to their 1990 emissions levels. The targets range from an 8-percent reduction for the European Union (or its individual member states) to a 10-percent increase allowed for Iceland. The target for the United States is 7 percent below 1990 levels. Although atmospheric concentrations of greenhouse gases are thought to have the potential to affect the global climate, the Protocol establishes targets in terms of annual emissions. Non-Annex I countries have no targets under the Protocol, but the Protocol reaffirms the commitments of the Framework Convention by all parties to formulate and implement climate change mitigation and adaptation programs. Should the Protocol enter into force, the emissions targets for the developed countries would have to be achieved on average over the commitment period 2008 to 2012. The greenhouse gases covered by the Protocol are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. The aggregate target is based on the carbon dioxide equivalent of each of the greenhouse gases. For the three synthetic greenhouse gases, countries have the option of using 1995 as the base year. Several provisions of the Protocol allow for some flexibility in meeting the emissions targets. Net changes in emissions by direct anthropogenic land-use changes and forestry activities may be used to meet the commitment, but they are limited to afforestation, reforestation, and deforestation since 1990. Emissions trading among the Annex I countries is also allowed. No rules for trading were established, however, and the Conference of the Parties is required to establish principles, rules, and guidelines for trading at a future date. According to estimates presented by the Energy Information The first and second Conference of the Parties in 1995 2Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, European Community, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine, United Kingdom of Great Britain and Northern Ireland, and United States of America. Turkey and Belarus are Annex I nations that have not ratified the Convention and did not commit to quantifiable emissions targets. Administration (EIA) in its International Energy Outlook 1998,3 there may be 165 million metric tons of carbon permits available from the Annex I countries of the former Soviet Union in 2010. Greenhouse gas emissions for those countries as a group are expected to be 165 million metric tons below 1990 levels in 2010 as a result of the economic decline that has occurred in the region during the 1990s. Additional carbon permits may also be available, depending on the "carbon price" that is established in international trading. Joint implementation projects are permitted among the Annex I countries, allowing a nation to take emissions credits for projects that reduce emissions or enhance emissions-absorbing sinks, such as forests and other vegetation, in other Annex I countries. The Protocol also establishes a Clean Development Mechanism (CDM), under which Annex I countries can take credits for projects that reduce emissions in non-Annex I countries. In addition, any group of Annex I countries may create a bubble or umbrella to meet the total commitment of all the member nations. In a bubble, countries would agree to meet their total commitment jointly by allocating a share to each member. In an umbrella arrangement, the total reduction of all member nations would be met collectively through the trading of emissions rights. There is potential interest in the United States in entering into an umbrella trading arrangement with Annex I countries outside the European Union. In 1990, total greenhouse gas emissions in the United States were 1.618 million metric tons carbon equivalent. Of this total, 1,346 million metric tons, or 83 percent, consisted of carbon emissions from the combustion of energy fuels. By 1996, total U.S. greenhouse gas emissions had risen to 1,753 million metric tons carbon equivalent, including 1,463 million metric tons of carbon emissions from energy combustion. EIA's Annual Energy Outlook 1998 (AEO98) projects that energy-related carbon emissions will reach 1,803 million metric tons in 2010, 34 percent above the 1990 level. Because energyrelated carbon emissions constitute such a large percentage of the Nation's total greenhouse gas emissions, any action or policy to reduce emissions will have significant implications for U.S. energy markets. At the request of the U.S. House of Representatives Committee on Science, EIA performed an analysis of the Kyoto Protocol, focusing on the potential impacts of the Protocol on U.S. energy prices, energy use, and the economy in the 2008 to 2012 time frame. The request specified that the analysis use the same methodologies and assumptions employed in the AEO98, with no changes in assumptions about policy, regulatory actions, or funding for energy and environmental programs. Methodology The international provisions of the Kyoto Protocol, including international emissions trading between Annex I countries, joint implementation projects, and the CDM, may reduce the cost of compliance in the United States. Guidelines for those provisions, however, remain to be resolved at future negotiating meetings, and rules and guidelines for the accounting of emissions and sinks from activities related to agriculture, land use, and forestry activities must be developed. The specific guidelines may have a significant impact on the level of reductions from other sources that a country must undertake. Reductions in the other greenhouse gases may also offset the reductions required from carbon dioxide. A fact sheet issued by the U.S. Department of State on January 15, 1998, estimated that the method of accounting for sinks and the flexibility to use 1995 as the base year for the synthetic greenhouse gases may reduce the target to 3 percent below 1990 levels. A similar estimate was cited by Dr. Janet Yellen, Chair, Council of Economic Advisers, in her testimony before the House Committee on Commerce, Energy and Power Subcommittee, on March 4, 1998.7 Because the exact rules that would govern the final implementation of the Protocol are not known with certainty, the specific reduction in energy-related emissions cannot be established. This analysis includes cases that assume a range of reductions in energy-related carbon emissions in the United States. Each case was analyzed to estimate the energy and economic impacts of achieving an assumed level of reductions. A reference case and six carbon emissions reduction cases were examined in this report. The cases are defined as follows: • Reference Case (33 Percent Above 1990 Levels). This case represents the reference projections of energy markets and carbon emissions without any enforced reductions and is presented as a baseline for comparisons of the energy market impacts in the reduction cases. Although this reference case is 3Energy Information Administration, International Energy Outlook 1998, DOE/EIA-0484(98) (Washington, DC, April 1998). *Energy Information Administration, Emissions of Greenhouse Gases in the United States 1996, DOE/EIA-0573(96) (Washington, DC, October 1997). "Energy Information Administration, Annual Energy Outlook 1998, DOE/EIA-0383(98) (Washington, DC, December 1997). *See web site www.state.gov/www/global/oes/fs_kyoto_climate_980115.html. 1See web site www.house.gov/commerce/database.htm. |