environmental legislation will raise their costs slightly, they are expected to continue operating for the foreseeable future. However, they are also major carbon dioxide emitters. Table 17 in our report illustrates that relative to the most efficient new natural gas plants, existing coal plants produce more than twice as much carbon per unit of electricity. Even new advanced coal plants produce approximately twice the carbon dioxide emissions that new gas plants produce. As a result, any effort to significantly reduce U.S. carbon emissions will have a negative impact on powerplants using coal and the coal industry that supplies them. The severity of the impact will depend on the level of domestic carbon reduction required to comply with the Kyoto Protocol. If an international carbon trading system can be developed and permits are available at relatively low cost, the impact on the coal industry will be lessened. If new coal powerplants can be made more efficient through improved technology or cogeneration, the impact could also be lessened. However, markets for cogeneration are limited and coal technology improvements would need to be very large for coal technology to compete with natural gas technology. As a result, if the United States complies with the Protocol mainly through domestic carbon emissions reductions the impact on the coal industry could be quite severe, despite the heat-rate improvements for new conventional and advanced coal generation equipment. Our analysis illustrates the sensitivity of coal use to the level of domestic carbon reduction required. In the least stringent case analyzed, the 1990+24% case, U.S. coal production is 20 percent below the reference case level in 2010 and 42 percent below it in 2020. The level of production in this case in 2020 is approximately 76 percent of 1996 coal production. However, in the most stringent case, the 1990-7% case, U.S. coal production is 76 percent below the reference case level in 2010 and 90 percent below it in 2020. The level of production in this case in 2020 is approximately 14 percent of the coal produced in 1996. The table below illustrates the full range of cases examined. Major Uncertainties in the EIA Projections Q7. What are the major uncertainties in the EIA projections? A7. This analysis, as well as the others of the Kyoto Protocol, all have similar uncertainties. The final interpretation and implementation of the Kyoto Protocol, particularly relating to international emissions trading, the joint implementation and clean development mechanism provisions, land use and forestry activities, and the opportunity to reduce emissions of greenhouse gases other than carbon dioxide Specific actions and policies, and their timing, that may be undertaken by the United • The timing and effectiveness of carbon reduction programs and the amount of adjustment time allowed The baseline growth of energy consumption and carbon emissions in the United States which may be significantly affected by both short and long-run phenomena such as macroeconomic growth and world political events Development of technology which could change the availability, costs, and operating characteristics of the technology options considered and the related abatement costs The amount and speed at which consumers respond to higher energy prices • Public acceptance of less-carbon intensive options such as nuclear generation and renewable technologies • The type of fiscal or monetary policy that may be implemented Further Studies of Kvoto Impacts That Might Be Undertaken Q8. What further studies of Kyoto impacts might be undertaken after the upcoming meetings in Buenos Aires? A8. The Buenos Aires negotiations focused on development of a workplan for determining the operational details of emissions trading, including potential limitations on its use, the clean development mechanism, and joint implementation. All of these can have a significant impact on the international carbon price and the opportunity for the United States to undertake international activities in addition to making domestic reductions. Once the operational details of some of these provisions are more clearly formulated, an analysis of their impact on international markets for carbon permits and the associated carbon price provisions of the Kyoto Protocol, it does provide the most extensive analysis of the impacts on the U.S. energy system and the economy. Given the poor quality of the data, particularly in developing countries, no model has a significant advantage in addressing how and to what extent the implementation issues related to the Kyoto Protocol could result in tradable carbon emission credits for the U.S. or for the rest of the industrialized countries. In the domestic energy arena, analyses of the impact that specific policies have on reducing carbon emissions could be undertaken. Sensitivity of EIA Projections to Recycling of Carbon Permit Revenues Q9. The EIA study assumes that carbon permit revenues are recycled to the U.S. economy through either a lump sum personal tax rebate or through a social security tax rebate. It would appear, however, that in the case of international emissions trading, a considerable amount of these revenues would go overseas and would not be recycled U.S. economy. What would be the impact on your analysis if all, or a significant portion of these revenues were not recycled? A9. The macroeconomic analysis in the EIA study considers both domestic revenues, which are recycled back to the U.S. economy, and the cost of purchasing permits on the international market. In order to determine the amount of permits that are purchased internationally, we first assume that the amount of credit for sinks and offsets from other greenhouse gases is 4 percent of what U.S. carbon emissions were in 1990, making the binding target 1,292 million metric tons in the 2008-2012 period, as in the 1990-3% case. In the cases that are less stringent than the 1990-3% case, the difference between the carbon emissions target and the 1,292 million metric tons level is assumed in the macroeconomic analysis to be covered by permits purchased abroad. Thus, the number of carbon permits purchased from the U.S. government domestically remains constant; only the price at which they are available varies across the cases. The carbon permit revenues remaining within U.S. borders for each case are then calculated as the estimated carbon permit price for that case times the level of carbon emissions in the 1990-3% case (1292 million metric tons). The international revenue flow for a particular case is the difference between the total emissions for that case and those in the 1990-3% case, times the estimated carbon permit price in the particular case examined. In the 19907% case and the 1990-3% case, all revenues are assumed to remain in the United States. For example, in the 1990+9% case, an estimated average of $186 billion (in 1992 dollars) is collected domestically for each year in the 2008-2012 period (1292 million metric tons times the estimated carbon price of $144 per ton). This amount is available for recycling back to the U.S. economy. In this case, estimated payments to purchase international permits total $23 billion (160 million metric tons times the estimated worldwide carbon percent) of the total funds collected (domestic and international). The estimated $23 billion payment abroad for the purchase of international permits can be compared to the estimated $74 billion projected in the 1990+9% case for the expenditure of net oil and petroleum imports in 2010. The purchase of permits overseas is, on balance, positive for the U.S. economy, when compared with the case in which there is no international trade. While there is a transfer of funds overseas, it is offset by the presumption that it is cheaper to reduce emissions overseas. This is the standard result from trade theory, where consumers can purchase from the least expensive source. This is demonstrated by the lower estimate carbon permit price of $144 per metric ton in the 1990+9% case compared to the estimated $263 per metric ton in 20103 (in 1992 dollars) in the 1990-3% case. Although a portion of the potential carbon permit revenues goes overseas, the total economic cost of carbon mitigation is estimated to be about $90 billion lower in the case where more trading occurs. The positive effects of the lower price of carbon thus far outweigh any negative effects of transferring funds overseas. Sensitivity of EIA Projections to Economic Growth Rate Changes Q10. What is the sensitivity of the EIA projections to the Nation's economic growth rate? How would the projections change if the GDP growth is either higher or lower? A10. In the EIA analysis, projected U.S. energy consumption and carbon emissions are highly sensitive to the assumed rate of economic growth. In the reference case of the analysis, estimated real gross domestic product (GDP) grows at an average annual rate of 1.9 percent between 1996 and 2020. To help bracket the inherent uncertainty in our estimates, alternative economic growth rates of 1.3 and 2.4 percent were also analyzed relative to the case in which carbon emissions were allowed to increase up to 9 percent above the 1990 levels by the 2008 to 2012 time period. In the 1.3 percent annual economic growth case, the estimated carbon price is $128 per metric ton in 2010, $35 less than the estimated reference case level of $163 per metric ton, and total estimated energy consumption is lower by 2.2 quadrillion Btu from a reference projection of 99.6 quadrillion Btu. In the 2.4 percent annual economic growth case, the estimated carbon price is $215 per metric ton in 2010, and total estimated energy consumption is 2.2 quadrillion Btu higher. Sensitivity of EIA Projections to Faster or Slower Rates of Technology Improvement Q11. What is the sensitivity of the EIA projections to faster or slower rates of technology improvement? How would the projections change if the rate of technology improvement is either higher or lower? All. In the EIA analysis, projected U.S. energy consumption and carbon emissions are highly sensitive to assumptions about the availability, adoption, and characteristics of new energy-using equipment and buildings. These new technologies tend to be more energy efficient and may use less greenhouse gas-intensive resources; however, it should be noted that greater energy efficiency may be partly offset by increased demand for energy services, such as more travel, larger homes, larger televisions, or more appliances. To help bracket the inherent uncertainty in our estimates, the EIA analysis considered a low and high technology case relative to the case in which carbon emissions were allowed to increase up to 9 percent above the 1990 levels by the 2008 to 2012 time period. In the reference case, the assumptions of the availability and characteristics of new technology are based on our judgements and those of independent outside engineering experts as the most likely trends for technology development. In the high technology case, experts in technology engineering provided estimates of the impacts of increased research and development on the years of introduction, costs, market potential, and efficiencies of various advanced technologies. The low technology case assumed that all future equipment choices would be made from the equipment available in 1998, with new building shell and industrial plant efficiencies held at 1998 levels. The overall stock of the equipment would still improve in the low technology case as new, 1998-style equipment is assumed to replace retiring equipment and meet increasing energy demand. In the "high technology" case, the estimated carbon price in 2010 is $121 per metric ton, compared to an estimated $163 per metric ton with reference technology assumptions, and estimated total energy consumption is 2.1 quadrillion Btu lower than the reference projection of 99.6 quadrillion Btu. In the low technology case, the estimated carbon price is $243 per metric ton in 2010, and estimated total energy consumption is 1.5 quadrillion Btu higher. Sensitivity of EIA Projections to Assumptions of Nuclear Power Q12. What is the sensitivity of the EIA projections to either the case of an accelerated phaseout of nuclear power or, alternatively, to the resumption of nuclear power plant construction? A12. Our analysis indicates that efforts to reduce carbon emissions would be expected to lead to greater contributions from nuclear power than would otherwise be the case. In the 6 main cases examined, estimates of higher fossil fuel prices lead to higher nuclear generation from existing plants. This occurs because with relatively high estimated carbon permit |