Howard

Gruenspecht,

Deputy

Administrator,

Energy

Information

Administration,

"EIA

Analysis

of

the

loW

Climate

Security

Act

of

2007,"

PowerPoint

Presentation

to

the

Edison

Electric

Institute

(May

7,

2008).

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

L-W Climate Security Act of 2007

Edison Electric Institute

~.

Howard Gruenspecht

Deputy Administrator, EIA

May

Energy Information Administration

Official Energy Statistics from the

U.

S.

Government

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

~

·la~~~:;~Y

Information

Administration

•

•

•

•

•

•

•

•

•

•

•

S. 2191 Title I Cap and Trade Provisions

The cap covers 87% of inventoried GHG emissions in 2006: most CO , methane, and nitrous oxide related to energy production and

use, plus several classes of fluorinated gases. The HFCs used as sUbslitutes for ozone depleting substances are regulated under a

separate Title X cap.

Exempt sources include non-energy CO

2

,

methane and nitrous oxide from agriculture, and methane from coal mining, landfills, and

waste management.

Natural gas and petroleum GHG emissions regulated upstream (producers and importers submit allowances), while coal-related CO

2

emissions regulated downstream (consumers submit allowances)

Some of the allowance obligation may be satisfied by offsets:

15 percent domestic (including bio-sequestration) and 15 percent

international (only allowances from comparable programs)

Allowances are tradable and can be banked for future use. Borrowing is allowed but limited.

Quantity of allowances issued per year declines gradually from 2012 to 2050.

2012

5775 million metric tons CO

2

equivalent = 7% below the 2006 level

2030

3860"

= 39% below 2006 level

2050

1732"

= 72% below 2006 level

73.5% of the 2012 allowances are distributed for free as incentives and for transition assistance, some directly to covered entities,

and the remainder

is auctioned: the auction share grows from 26.5% in 2012 to 69.5% in 2031, then is unchanged through 2050.

Proceeds from allowance auctions and sales by non-covered recipients, including state governments, are used to fund technology

development programs, promote energy efficiency, offset consumers' energy bills, and fund international forestry protection.

Bonus allowances are provided for plants with carbon capture and sequestration (CCS). The bonus starts at 4.5 per ton sequestered

in 2012, falls to 0.9 per ton sequestered in 2030, and ends in 2039 at 0.5 per ton sequestered. The bonus pool is limited to 4 percent

of total allowances.

5% of allowances are set aside as incentives for bio-sequestration (as

an offset alternative and supplementary program).

Provisions not addressed

in analysis:

Title

III

- Section 3902 allocation of allowances to new entrant fossil fuel-fired power generating facilities

Title X - Control of Hydrofluorocarbon Consumption

Title

XI - Section 11003, Low Carbon Transportation Fuel Standard

1

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Analysis Cases

Case Name

Assumptions

Reference

•

Updated

AE0200B

Reference case, which includes H. R. 6, the Energy Independence and Security Act of

2007, and assumes a continuance of other current laws and regulation

•

Non-C0

2

emissions growth based on the Environmental Protection Agency "with measures" and "voluntary

technology adoption" cases

Policy Cases

S. 2191 Core

•

Cap and trade policy from Title I capping the emissions of Group I greenhouse gases (carbon dioxide,

methane, nitrous oxide, sulfur hexafluoride, and perfluorocarbons) and Group

II gases

(hydrofluorocarbons) emitted from HCFC production)

•

Key low-emissions technologies, including nuclear and coal with carbon capture and sequestration (CCS),

are developed and deployed in a timeframe consistent with the emissions reduction requirements without

encountering any major obstacles, even with rapidly growing use

on a very large scale.

•

Bonus credit incentives for CCS

•

Non-energy GHG abatement supply, as a function of allowance costs, derived from information provided by

the Environmental Protection Agency

•

The Title X program for hydrofluorocarbons not emitted from HCFC production is not represented

No International Offsets

S. 2191 Core case with the compliance option from international offsets assumed to be unavailable

S. 2191 High Cost

S. 2191 Core case with assumed higher costs for key electricity generating technologies

•

CCS, nuclear and biomass plant costs 50 percent higher than in S. 2191 Core case

S. 2191 Limited Alternatives

S. 2191 Core case with assumed limits on several carbon reduction technologies for electric power generation

and limits

on LNG imports:

•

CCS not available by 2030

.

•

Nuclear and biomass power plant additions limited to

AE0200B

Reference case level

•

LNG imports limited to

AE0200B

Reference case level

S. 2191 Limited

I

No Int'l

Combines the assumptions in the Limited Alternatives and No International Offsets cases.

S. 1766 Update

Updated evaluation of the Low Carbon Economy Act of 2007 (S. 1766) using AE02008 Reference case

assumptions. Key assumptions include:

•

S. 1766 cap and trade policy

•

S. 1766 bonus credit incentives for CCS

•

S. 1766 technology accelerator payment (TAP) price establishes a limit on the allowance price, growing at

5 percent per year

in real dollars

~

·la~~~:;;Y

Information

Administration

2

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Key Findings

•

Impacts depend on the availability and costs of low-carbon electricity technologies,

such as nuclear and CC8, the prospects for their rapid deployment on a significant

scale, and the availability of international offsets. Allowance prices and energy price

increases are

much higher in cases when these options are assumed more costly or

unavailable.

- One key question: the degree to which current energy infrastructure cost

increases reflect a temporary "bubble" or a permanent shift.

•

Between 80% and 90%

of CO

2

reductions through 2030 are achieved through the

electricity-related reductions, requiring a rapid expansion of low- and no- carbon

generation.

•

The reduction in GOP from reference case levels in the 8.2191 cases is between 0.3%

and 0.9% in 2020 and between 0.3% and 0.8% in 2030. The reduction in real

consumption is between 0.4% and 1.2% in 2020 and between 0.5% and 1.1 % in 2030.

The range

of GOP and consumption impacts reflects alternative assumptions about

the availability of low-carbon electricity technologies.

•

Manufacturing impacts are significantly higher than GOP impacts. Total

manufacturing output is 1.5% to 5.4% lower than the Reference case in 2020 and 3.0%

to 9.5% lower in 2030.

~

·la~~",;~;~Y

Information

Administration

3

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Additional Insights

• Besides changing the projected mix of new electricity generation capacity, the

5.2191 program significantly increases the total amount of new electric

capacity that must be added between now and 2030.

- This outcome reflects the retirement of many existing coal-fired power

plants that would be expected to continue operating beyond 2030 absent

GHG limitation requirements.

• Both technical and acceptance barriers to key technologies can be directly

influenced by policy design choices.

• Although not reflected in the Reference Case, public and industry awareness

of climate change as a major policy issue can potentially impact energy

investment decisions even if no specific policy change actually occurs.

- Since policy impacts are measured in terms of the difference between

cases that incorporate policy changes and the Reference Case baseline,

the use of modeling adjustments to reflect such an effect would generally

be to reduce, rather than increase, the estimated impact of a given policy

response on delivered energy costs.

• Post-2030 emissions targets may be very challenging because opportunities

for further reductions in the power sector are limited.

~

·la~~';;:;~Y

Information

Administration

4

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Projected Allowance Prices

(2005 dollars per metric ton carbon dioxide equivalent)

52191 Core

-52191 High Cost

-51766

-

52191 No International

~

52191 Limited

I

No International

-

-- -

I

$180 I

i

$160 I

w

I

$140

I

'CI.

-"

I

$120I

~"

I

$100 I

,,~I

$80i

$60

:$r

)I( ?IC

~

~

~~

1""

~

$40

$20

$0I

I

I

I

i

J

I

I

I

I

I

2012

2014 2016

2018 2020

2022 2024

2026 2028

2030

Allowance prices vary significantly with assumptions about the cost and

availability

of low-carbon generating technologies and

OffS~~ei'.doe.gO'

5

elc

Ener~~ Info~mation

AdministratIon

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Energy Prices

2030 Delivered Coal Costs (2006 $ per million Btu)

2030 Motor Gasoline Pump Prices (2006 cents per gallon)

346

!~

5~~

5~~

~

~::Ji

~~J

~~

~J

5

~

B

J

250

:~

245

ati

I

~

I

,----,

~

I

~

I

Frl

200

150

100

50

o

• A1I0111alCeCosl

~~

.. e

..

~~

~::J

5~1

1)j:e

~~~I

1)j

~

1)j

::J _

B

5

~

DCoaI

j

$16.00

$16.00

+-'================

$14.00 +----------------

$12.00 +----------------

$10.00

I

•

$6.00

I

$6.00

I

$4.00

+------1

$2.00

$0.00

2030 Delivered Natural Gas Prices (2006$ per million Btu) •

6

~

·la~~O~~;~y

Information

Administration

Among the S. 2191 cases, the delivered price

of coal in 2030 in 2006 dollars, including

allowances, increases dramatically,

with

increase ranging from 405 percent to 804

percent.

• The delivered price

of natural gas in 2030 in

2006 dollars, including allowances, also

increases, with increase ranging from

34

percent to 107 percent.

• The increase in the retail price of gasoline in

2030 in the

S. 2191 cases varies from 41 cents

per gallon

to 101 cents per gallon (17 percent

to 41 percent).

~~

"~I

..

~~!

~~

$ll""!---------r

'-"'L.--./"'

"6,

~ii

5(j

~

• A11CMa'lCe

Cost

~~

~!

5

~

8

$ll69\---l$ll81

DNmJralGas

j

$24.00 j I

I

::

$8.00

1----------I_t---=--=-a=I

$4.00

$0.00

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

2030 National and Regional Electricity Price Impacts

• Reference

•

S. 2191 No International

-

0

30

• S.

2191 Limited Alternatives

CO

0

-

('II

0

...

::J

25

.s::

-

-

m

0

I

20

~

15

:i!

...

Ql

10

a.

-

I:

III

5

Ql

0

0

us

1 2-TX 3

4

OS. 2191 Core

• S.

2191 High Cost

OS. 2191 Limited

I

No International

56-NY 7 8-FL 9

10

11

12 13-

CA

Regions that rely on coal and

competitive power markets

generally see the largest

electricity price impacts

~

·la~~~:;~Y

Information

Administration

7

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

2030 Energy-Related CO

2

Emissions

(million metric tons)

10,000

o Electric Power

• Transportation

o Industrial

• Buildings

9,000I

I

I

8,000

I

I

I

1,174

2,948

2,344

4,000

2,000

7,000 I

I

6,000

5,000

3,000

1,000

o

II

1

I

I

!

I

'1i1U

I

I

ZZ

l

I

II

I I!!I

2006

Reference

52191 Core

52191 No

International

52191 High

Cost

52191

Limited

Alternatives

52191

Limited

I

No

International

• The electric power sector dominates energy-related CO

2

emission reductions in all 8.2191 cases.

• Other sectors

playa relatively small role, except in cases with the highest allowance prices.

~

·la~~~:;~Y

Information

Administration

8

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

2030 Electricity Generation by Fuel

(billion kilowatthours)

6,000 I

I

D Coal without CCS

• Renewables

• Coal With CCS

D Natural Gas

.• Nuclear

.OiVOther

1,794

1,558

897

812

I

I

703

530

2,839

806

I

,~

0"

I

I

I

I

I

, ........

I

c===

4,000 i I

I

Ir-----

5,000 i

I

I

I

741

1-----..=..,----,

'

~,

=,------;'

===~==~=-

I

3,000

2,000

1,000 t-i 1

,988

2006

Reference

82191 Core

82191 No

82191 High 82191 Limited 82191 Limited

International

Cost

Alternatives

I

No

International

-Coal generation declines significantly in all cases, while nuclear, renewables, and coal with CCS grows.

-Natural gas generation more than doubles

if nuclear, renewables and coal with CCS are limited.

~1

-a~~~:;~Y

Information

Administration

9

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Cumulative Electric Capacity Additions,2007-2030

(gigawatts)

700 I

I

DCoal no CCS

• Renewables

• Coal with

CCS

D Natural Gas/Oil

• Nuclear

600

1

iii

113

500

1

1

400 +1-------

300

+1-------1

200

100

o

I

I

I;

9

i

Reference

52191 Core

52191 No International

52191 High Cost

52191 Limited

Alternatives

52191 Limited

I

No

International

Additions of coal plants without CCS are virtually eliminated in the S. 2191 cases.

When nuclear, renewables and coal with CCS are all available at an economical cost, these

technologies are used

for new capacity and to replace existing conventional coal plants.

When the capital

costs of these options are higher or other alternatives are limited, more natural gas

plants are added.

~~la~~";;:;~Y

Information

10

Administration

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

140

Fuel Cost For Current Coal and CC Gas

wi

Carbon Value

o

100

o

N

-

80

::I:

3: 60

::E

...

Q)

40

c..

W- 20

Existing CC wI $1 0 gas

Existing

CC wI $7 aas

'al

70

80

90

100

~

40

50

60

Carbon Value

($lton

C02)

10

20

30

o 1-1

-~-~-~~-~-~-~-~-~~-~-~

o

Nuclear, Biomass

CC

--~.

1

~

~

o

CD

140

o

~

..

:::l

120

~

100

=

~

80

~

Ql

E

180

160

ITotal Levelized Costs -- New Plants in 2025 (AE02007 costs) w/Carbon

Val~

..

8.

40

~

20

o

+I---,---~----,-~---,---~~---,---~----,-~-~-~~---,---~----,-~-~-----,

o

10

20

30

40

50

60

70

80

Carbon Value ($/ton

C02) in 2025; 5%annual growth after 2025

90

100

~

·la~~O~~;~y

Information

Administration

11

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Real GDP And Consumption

Cumulative Change in Real GDP 2009-2030 (billion 2000 $)

Undiscounted

Discounted

2030

"".f

~et"~<f ~<f",,"

~,

o

2020

500J

Real GDP (billion 2000 $)

~I

~$$###'

~'

~'

~'

~'

~'

~'

2lXXXl

1ססoo

1500J

o

1

1

-500

-$2,196

-2(XX)

-1500

-1a:x>

-2500 ...J.I

-'

I

052191

Core

•

52191 No Inlemalional

I

.52191 H!t> Cost

.52191 United AhemaIives

052191 Unitedl No InIemaIionaI

• Refaa ICe

• 52191 No InIemaIionaI

• 52191

United AhemaIives

052191

Core

• 52191 H!t> Cost

o 52191 Unitedl No l..-national

2030

/ .I

.rl

.l'

l .I

Real Consumption (billion 2000 $)

~

.l

,,<$"0

"f "f

..f'

"f

~

~

~

~

~

2020

o

5000

15000

10<XX>

-$1,=

-500

-1<XX>

-1500

-2000

l1J

-2500

I

..

-$2.335

Cum. Change in Real Consumption 2009-2030 (billion 2000 $)

o

1

1

Undiscounte~~

...

1

1

Discounted

1

1

~

·la~~~;;;Y

Information

Administration

12

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Vicki

Arroyo,

Director

of

Policy

Analysis,

Pew

Center

on

Global

Climate

Change,

"Primer

on

Lieberman-Warner

Climate

Security

act

(S.

2191)

-

as

Reported

out

of

Senate

EPW

Committee,"

PowerPoint

Presentation

(May

2008),

<

www.pewclimate.org/docUploads/Arroyo-

PPT.pdf

>.

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Lieberman-Warner Climate Security Act of 2007 (5. 2191)

• October 18, 2007 -

Introduced by Senators Lieberman and Warner

• November 1, 2007

- Reported out of Senate Subcommittee by

vote

of 4-3

• December 5, 2007

- Reported out of Senate Environment and

Public Works Committee

to the full Senate by vote of 11-8

• First time bill requiring economy-wide reductions in

GHG

emissions has been reported out of committee in the Senate or

the House

• Modeling runs discussed here based on this version

• May 19, 2008

- Summary of new version released

• June 2008

- Consideration by the full Senate?

2

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

""-!

~)

• Covered sectors represent over 87% of total U.S. emissions

- Downstream

on coal (power plants and industries using over 5,000

tons of coal per year)

- Upstream (producers

and importers) on natural gas, petroleum, or

coal-based liquid or

gas fuels (assuming no sequestration or

destruction)

- Manufacturers or importers of

>

10K t/C0

2

e of GHGs (e.g., SF

6

,

PFCs) assuming no sequestration/destruction

- Facilities that emit

HFCs

(>

10K tons) as byproduct of HCFC

production (note: separate cap for HFC consumption)

But. ..

- Many industrial process emissions are not covered (e.g., cement,

lime,

and aluminum production) totaling roughly 104 MtC0

2

e (1.4%

US emissions)

-

Emissions from agriculture, landfills, etc. not covered - 826 MtC0

2

e

(11

°10

US emissions)

3

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

---'

follows:

1~OI

I

~

~

o

12000

1990 levels

-Historical U.S. emissions (EPA, 1990-2005)

- Business-as-usual projection (AE02007)

- Business-as-usual projection (AE02008)

- Lieberman-Warner

w

E4000

~8000

~

~

~

~

~

-"

~

-'"

-'"

-"8000

~

'"

-

2012:

4%

-

2020:

19%

-

2050:

71%

Reductions in total

U.S. emissions would

depend on the growth

u

~oooo

in uncovered sectors,

use of offsets, etc.

•

2000

o

I--~--~--~--~-

~

1~

~

~

~o

~

~

M

~

~

~

~

~

Year

4

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

00

"""

f....::J~'C..I

• Trading - Anyone can buy, hold, sell, and retire emission

allowances

•

Banking - Unlimited banking of allowances

• Borrowing -

15% of annual compliance obligation can be

borrowed from future years (10% interest rate)

• Offsets

-15% of annual compliance obligation can be met

by domestic offsets

• International

Emission Allowances - 15% of annual

compliance obligation

can be met by credits from foreign

trading programs of "comparable integrity

and stringency"

•

Carbon Market Efficiency Board (CMEB) - Authorized to

increase offsets, borrowing, adjust loan periods and interest

rates

5

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

• Total available allowances (targets) decline in each year

- 2012: 5,775

MtC0

2

e

- 2020: 4,924

MtC0

2

e

- 2030: 3,860

MtC0

2

e

-

2050: 1,732 MtC0

2

e

• Initial allocation

in 2012

- Freely allocated allowances: 73.5%

- Auction: 26.5%

6

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

• Freely allocated allowances in 2012

(0/0

of total allowances)

- Fossil fuel-fired power plants: 19%*

-

Energy intensive manufacturing: 10%*

-

Companies that took early action: 5%*

- Bonus allowances for CCS: 4%*

- Petroleum importers and refiners: 2%*

- HFC producers and importers: 2%*

- Rural electric cooperatives: 1

%

*

- Electricity consu mers (rebates/efficiency): 9%

- Natural gas consumers: 2%

- States and tribes: 11

%

- Set aside for agriculture, forestry sequestration: 5%

- Fund program to reduce methane from landfills and coal mines: 1

%

- International forest protection: 2.5%

*these phase out by 2031

7

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

e.J

--'

7,000,000,000 I

I

6,000,000,0001

I

~

Ql

N

8

5,000,000,000

-

-

rn

Ql

Co)

4,000,000,000

r::

nl

~

o

3,000,000,000 _

«

~

,g

nl 2,000,000,000

~:;===:;

"m

>

C-

«

1,000,000,000

O

I"'-~

,

,

, iii iiiiii iii ,i iiiiii i

i

20122014 20162018 20202022 202420262028 20302032 203420362038 20402042 20442046 20482050

Earlyauctions

• Rural Electric Cooperatives

.CCS

• Electricityconsumers

• International forest protection

• States exceeding targets

• Mass Transit

Year

o

Annual auction

o

HFC Producers

• Industrial Sector

o

Local Distribution Companies

• Landfills and Coal Mines

o

Energy savings

o

Early action

o

Petroleum-based Fuel Producers

o

Electric Power Sector

o

Domestic ago and forestry

o

StatesfTribes

o

Energy efficient buildings

8

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

• Establishes Climate Change Credit Corporation (CCCC)

• Distribution of auctions revenue

(0/0

of auction revenue)*

Energy technology deployment: 52%

Energy consumers: 18%

Worker training program: 5%

U.S. adaptation: 18%

International adaptation and national security: 5%

- Advanced energy research: 2%

*Proceeds from the auction are first used to fund EPA and other agency activities required by S. 2191

and

to ensure adequate funds for Bureau of Land Management (capped at $300 million) and

Forest Service (capped

at $800 million) emergency firefighting programs

9

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

• Appliance efficiency (water heaters, space

heatingjAC)

• Building efficiency (updating bldg. codes)

Note: Some overlap with EISA

10

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

"'"

• Separate declining cap on consumption and

importation

of HFC

- Starts in 2010 and declines 70% by 2050

- Combination

of free allocation and auction of

allowances in early years

- Transitions

to 100% auction by 2031

- May not

be traded with larger cap-and-trade

program

11

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

• Low carbon fuel standard

-

5% reduction in lifecycle GHG emissions by 2010

-

10% reduction by 2020

• Recycling and emission reduction program

• Servicing

of motor vehicle air conditioners

12

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *

---

Vicki Arroyo

Director of

Policy Analysis

Pew Center on Global Climate Change

VArroyo@pewclimate.org

www.pewclimate.org

13

Electronic Filing - Received, Clerk's Office, October 1, 2008

* * * * * PCB 2009-021 * * * * *