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FOIA Number: 2017-1095-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Council of Economic Advisers
Series/Staff Member:
Michele Jolin
Subseries:
OA/ID Number:
23905
FolderID:
Folder Title:
[Climate Change Issues] [Folder 1] [4]
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Section:
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S
21
2
3
1
090522AD.WPD
Page 1
MEMORANDUM
DRAFT
TO:
Distribution
SUBJECT:
Nordhaus's arguments against strict action.
Executive Summary and Key Findings
Nordhaus finds that the optimal policy, given the current state of knowledge and ignoring
uncertainty, is to do very little in the short term (a $6/ton tax in 2005) and only marginally
more in the long term. While his mild long-term policy suggestion helps to inform the
basis of his short term recommendations, Nordhaus only intends to propose a short-term
strategy and emphasizes that policies should change as we learn more.
Recognizing wide-ranging uncertainties and the possibility of calamity, Nordhaus
investigates optimal policy choices over a reasonable distribution of possible states of the
world. He shows that while the median optimal carbon tax is on the order of $6/ton in
2005, the mean optimal carbon tax is somewhat larger, at $18/ton in 2005.
His conclusions are viewed with skepticism by some critics, who believe some or all of the
following: he overstates control costs, he understates control benefits, and his choice of a
positive pure rate of time preference is indefensible. Others find his results and
methodology more robust.
Introduction
In a 1994 book1, Nordhaus calculates an optimal policy response to the problem of
climate change. A distinguishing feature of this work is that it aims to uncover a truly optimal
policy - that is, one that maximizes net benefit as opposed to one that merely minimizes the cost
of achieving an ad hoc CO2 concentration target.
Basic Results
Ignoring uncertainty and with a best guess of costs and benefits (based on a wide purview of
existing studies) Nordhaus finds that the optimal policy is to do close to nothing. With the
optimal policy, carbon taxes rise from $6 per ton in 2005 to $20 per ton (1989 dollars) in 2100.
Global average temperature under this policy increases 3.2°C - only 0.2°C less than in the
baseline case. On net, the world economy under this scenario enjoys a small net benefit relative to
the baseline case. See Table 1.
Restricting emissions of greenhouse gases to 1990 levels, on the other hand, inflicts relatively
large net costs. Carbon taxes rise to $400/ton in 2100, and the increase in global average
temperature is limited to only 2.4°C - a full degree less than in the baseline.
090522AD.WPD
Page 2
Given that the optimal policy is much closer to doing nothing than to restricting to 1990 levels, it
appears that literally doing nothing in the short term is superior to current proposals oriented on
1990 emissions levels.
Table 12
Global Net Benefit3
Carbon Tax ($/ton)
NPV
Annualized
NPV as % of PV
2005
2055
2105
($billions)
($billions)
of baseline output
Optimal Policy
271
11
0.04
6
15
21
(no uncertainty)
Restrict to 1990
- 7,069
- 283
- 0.98
50
230
400
levels
Stabilize at 1.5°C
- 40,980
- 1,639
- 5.94
200
700
800
increase
It is worth emphasizing that Nordhaus's result is not simply a matter of delaying controls. While
the typical cost-minimization exercise also shows that carbon emissions should be allowed to
follow a near-baseline path at first, Nordhaus's result goes further: he finds that relatively little
should be done even over the long term. In his optimal scenario, carbon concentrations are
allowed to grow without apparent bound.
Incorporating uncertainty, Nordhaus's results change though the basic message of modest
short-term measures does not.
Nordhaus examines how the optimal policy changes when key parameter values vary from
his best guess and finds that the mean optimal policy calls for higher carbon taxes than he
finds for the best-guess case. The mean optimal policy calls for a carbon tax of $18/ton in
2005 and $53/ton in 2045.
The "mean" result differs from the "best guess" result because the distribution of
outcomes is skewed so that favorable climate change scenarios are similar to the
best-guess case and occur with high probability while extremely unfavorable scenarios
occur with low probability.
Nordhaus finds that only 2% of possible scenarios the least favorable would call for a
carbon tax in 1995 of over $100/ton.
Basis for Results
Nordhaus's results derive from three key assumptions:
that the costs of reducing carbon emissions are relatively high;
that the benefits of carbon control (in the form of averted damages) are relatively low; and
that the social rate of discount is greater than zero.
090522AD.WPD
Page 3
Critics have attacked Nordhaus on all three points, and it is worth examining each point in greater
detail.
1. Costs
The cost of reducing carbon emissions is determined by the responsiveness of the economy to a
given level of carbon-control effort. For example, if a $10 carbon fee elicits a large response in
terms of lower carbon emissions, the cost of carbon control will be low. Conversely, if a $10
carbon fee elicits a small response, program cost will be high.
The impact on the economy of a carbon-control program in Nordhaus's model is determined by
two key assumptions - one concerning the "static" response, given current technologies and
carbon use, the other concerning the "dynamic" response, reflecting induced changes in carbon
use and advances in technology.
Nordhaus bases his assumption about static responses on existing empirical studies. His
assumptions here are not particularly contentious.
Nordhaus attempts to capture dynamic responses by assuming that technology will
improve at about the same rate in the future as it has done in the past. Importantly, the
trend rate of improvement is not allowed to vary depending on the price of carbon permits
or the level of a carbon tax. Critics find fault with this approach, since his model thus
assumes that carbon taxes will in no way accelerate the development of non-carbon
technologies - in stark contrast to the "technologist" view.
Nordhaus notes that his results are sensitive to assumptions about technology, but he does not
document the extent of that sensitivity in isolation from other uncertainties.
2. Benefits
The benefits of carbon control are determined by the magnitude of damages averted -- that is,
damages that would have occurred in the absence of a control program. Nordhaus calculates that
these damages would be relatively modest. For example, he estimates that a 3°C temperature
increase results in only a 1.3 percent loss of output per year.
Some critics feel that damages averted will be greater than Nordhaus assumes. They note that
SO2 and particulate emissions will be reduced, biodiversity will be better maintained, and negative
health effects will be avoided.
In a survey of experts, Nordhaus finds that the median cost prediction for a 3°C rise in
temperature is 1.9 percent of output annually 40% higher than his own. The mean prediction is
much higher, at 3.6 percent.
3. The social rate of discount
090522AD.WPD
Page 4
Given that costs are borne up front and benefits accrue mainly in the distant future, assumptions
about the social rate of discount are crucial. Nordhaus assumes that the social rate of discount is
3 percent per year; this rate is sufficiently large as to significantly reduce the present value of the
distant and already modest benefits.
Many critics (mainly non-economists) feel that a social rate of discount greater than zero is
indefensible on ethical grounds. However, mainstream economists strongly endorse the approach
to discounting which Nordhaus uses and find it difficult to understand very low rates of time
preference in the context of observed behavior.
Nordhaus re-evaluates the optimal policy when the pure rate of time preference is only 1 percent
and finds that the optimal carbon tax in this case is considerably greater (see Table 2).
Table 2
Optimal Carbon Tax
($/ton)
Rate of Time Preference
1995
2045
2095
3%
5.3
13.7
21.0
1%
23.6
52.6
77.5
Conclusion
Nordhaus's analysis implies that little should be done either in the short term or in the long term.
His results hinge on assumptions about technology improvements, appropriate discount rates, and
the size of potential damages. Critics feel that Nordhaus may be:
overestimating mitigation costs because he ignores the possible influence of higher energy
prices in spurring the development of new technology; and
underestimating damages from climate change.
While both would tend to cause Nordhaus to be too lax in his policy recommendations, it is not
clear that such criticisms can be sustained far enough to overturn Nordhaus's basic point that
strict action is inappropriate in the short term. The discount rate issue, while crucial, is difficult to
settle.
9/18/97
Outputs
Modelers
Target
Timetable
Trading
Permit
Revenue
Burden
BAU
Paper Tons
AEEI
Ramp-up
Time Path
PDV (5%;
GDP in 2010
ID
Scenario
Model
Allocation
Recycling
Sharing
Emissions
or Corre-
2000-2050)
(deviation
Path
sponding
Foregone
from BAU)
Assumptio
Reductions
Consumption
n
SGM1
BAU
SGM,
Battelle
n/a
n/a
n/a
n/a
n/a
n/a
IAT
n/a
1.0
n/a
-->2050,
$121,650 billion
$9,185 billion
-->2100
(BAU
(BAU GDP)
MAGICC
(climate)
consumption)
-10% of
SGM,
Battelle
-10% 1990
stabilize in
Annex I
auction
lump-sum
no LDC
IAT
PT
1.0
no
-->2050,
$485 billion
$9,155 billion
SGM9
1990 in
MAGICC
emissions
2010
part.
-->2100
(-$30 billion)
(climate)
2010
level
-10% of
SGM,
Battelle
-10% 1990
stabilize in
domestic
auction
Tump-sum
no LDC
IAT
PT
1.0
no
-->2050,
$980 billion
$9,149 billion
SGM8
part.
-->2100
(-$36 billion)
1990 in
MAGICC
emissions
2010
only
(climate)
2010
level
SGM10
-10% of
SGM,
Battelle
-10% 1990
stabilize in
worldwide
auction
lump-sum
no LDC
IAT
PT
1.0
no
-->2050,
$50 billion
$9,171 billion
1990 in
MAGICC
emissions
2010
part.
-->2100
(-$14 billion)
(climate)
2010
level
SGM36
1990 in
SGM,
Battelle
1990
stabilize in
Annex I
auction
lump-sum
no LDC
IAT
PT
1.0
yes
-->2050,
$195 billion
$9,179 billion
2020
MAGICC
emissions
2020
part.
-->2100
(-$6 billion)
level
(climate)
SGM39
1990 in
SGM,
Battelle
1990
stabilize in
Annex I
auction
Tump-sum
no LDC
IAT
PT
1.0
in 2005
-->2050,
$230 billion
$9,172 billion
2010
MAGICC
emissions
2010
part.
-->2100
(-$13 billion)
level
(climate)
SGM3
1990 in
SGM,
Battelle
1990
stabilize in
Annex I
auction
lump-sum
no LDC
IAT
PT
1.0
no
-->2050,
$225 billion
$9,172 billion
(-$13 billion)
2010
MAGICC
emissions
2010
part.
-->2100
(climate)
level
SGM18
1990 in
SGM,
Battelle
1990
stabilize in
Annex I
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$255 billion
$9,172 billion
2010
MAGICC
emissions
2010
stabilizes
-->2100
(-$13 billion)
level
at 2030 in
(climate)
2030
SGM,
Battelle
1990
stabilize in
Annex I
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$260 billion
$9,172 billion
SGM21
1990 in
2010
MAGICC
emissions
2010
BAU to
-->2100
(-$13 billion)
level
2030,
(climate)
equal per
capita in
2050
SGM17
1990 in
1990
stabilize in
domestic
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$740 billion
$9,164 billion
SGM,
Battelle
2010
MAGICC
emissions
2010
stabilizes
-->2100
(-$21 billion)
only
level
at 2030 in
(climate)
2030
no LDC
IAT
PT
1.0
no
-->2050,
$665 billion
$9, 165 billion
SGM2
1990 in
SGM,
Battelle
1990
stabilize in
domestic
auction
Tump-sum
2010
MAGICC
emissions
2010
only
part.
-->2100
(-$20 billion)
level
(climate)
Battelle
1990
stabilize in
domestic
auction
Tump-sum
no LDC
IAT
PT
1.0
in 2005
-->2050,
$740 bilion
$9,164 billion
SGM38
1990 in
SGM,
2010
MAGICC
emissions
part.
-->2100
(-$21 billion)
2010
only
level
(climate)
PT
1.0
in 2005
-->2050,
$740 billion
$9,164 billion
SGM20
1990 in
SGM,
Battelle
1990
stabilize in
domestic
auction
lump-sum
LDC
IAT
2010
MAGICC
emissions
2010
only
BAU to
-->2100
(-$21 billion)
level
2030,
(climate)
equal per
capita in
2050
SGM40
1990 in
SGM,
Battelle
1990
stabilize in
worldwide
auction
lump-sum
no LDC
IAT
PT
T.0
in 2005
-->2050,
$5 billion
$9,180 billion
2010
part.
-->2100
(-$5 billion)
MAGICC
emissions
2010
level
(climate)
9/18/97
ID
Scenario
Model
Modelers
Target
Timetable
Trading
Permit
Revenue
Burden
BAU
Paper Tons
AEEI
Ramp-up
Time Path
PDV (5%;
GDP in 2010
Allocation
Recycling
Sharing
Emissions
or Corre-
2000-2050)
(deviation
Path
sponding
Foregone
from BAU)
Assumptio
Reductions
Consumption
n
SGM4
1990 in
SGM,
Battelle
1990
stabilize in
worldwide
auction
lump-sum
no LDC
IAT
PT
1.0
no
-->2050,
$5 billion
$9,180 billion
2010
MAGICC
emissions
2010
part.
-->2100
(-$5 billion)
level
(climate)
SGM22
1990 in
SGM,
Battelle
1990
stabilize in
worldwide
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$25 billion
$9,180 billion
2010
MAGICC
emissions
2010
BAU to
-->2100
(-$5 billion)
level
2030,
(climate)
equal per
capita in
2050
SGM19
1990 in
SGM,
Battelle
1990
stabilize in
worldwide
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$20 billion
$9,180 billion
2010
MAGICC
emissions
2010
stabilizes
-->2100
(-$5 billion)
level
at 2030 in
(climate)
2030
SGM35
1990 in
SGM,
Battelle
1990
stabilize in
domestic
auction
lump-sum
no LDC
IAT
PT
1.0
yes
-->2050,
$660 billion
$9,172 billion
2020
MAGICC
emissions
2020
only
part.
-->2100
(-$13 billion)
level
(climate)
SGM37
1990 in
SGM,
Battelle
1990
stabilize in
worldwide
auction
lump-sum
no LDC
IAT
PT
1.0
yes
-->2050,
-$1 billion
$9,183 billion
2020
MAGICC
emissions
2020
part.
-->2100
(-$2 billion)
level
(climate)
SGM6
1995 in
SGM,
Battelle
1995
stabilize in
Annex 1
auction
lump-sum
no LDC
IAT
CR
1.0
no
-->2050,
$380 billion
$9,175 billion
2010
MAGICC
emissions
2010
part.
-->2100
(-$10 billion)
level
(climate)
SGM5
1995 in
SGM,
Battelle
1995
stabilize in
domestic
auction
lump-sum
no LDC
IAT
CR
1.0
no
-->2050,
$425 billion
$9,174 billion
2010
MAGICC
emissions
2010
only
part.
-->2100
(-$11 billion)
level
(climate)
SGM7
1995 in
SGM,
Battelle
1995
stabilize in
worldwide
auction
Tump-sum
no LDC
IAT
CR
1.0
no
-->2050,
$30 billion
$9,179 billion
2010
MAGICC
emissions
2010
part.
-->2100
(-$6 billion)
level
(climate)
SGM33
1995 in
SGM,
Battelle
1995
stabilize in
Annex I
auction
lump-sum
no LDC
IAT
CR
1.0
yes
-->2050,
$410 billion
$9,176 billion
2020
MAGICC
emissions
2020
part.
-->2100
(-$9 billion)
level
(climate)
SGM32
1995 in
SGM,
Battelle
1995
stabilize in
domestic
auction
Tump-sum
no LDC
IAT
CR
1.0
yes
-->2050,
$445 billion
$9,176 billion
2020
MAGICC
emissions
2020
only
part.
-->2100
(-$9 billion)
level
(climate)
SGM34
1995 in
SGM,
Battelle
1995
stabilize in
worldwide
auction
lump-sum
no LDC
IAT
CR
1.0
yes
-->2050,
-$40 billion
$9,180 billion
2020
MAGICC
emissions
2020
part.
-->2100
(-$5 billion)
level
(climate)
SGM12
Peak in
SGM,
Battelle
2010 BAU
stabilize in
Annex I
auction
lump-sum
no LDC
IAT
PT
1.0
no
-->2050,
$55 billion
$9,185 billion
2015
MAGICC
emissions in
2040
part.
-->2100
($0 billion)
2015; 1990
(climate)
level in 2040
Tump-sum
no LDC
IAT
PT
1.0
in 2005
-->2050,
$75 billion
$9,185 billion
SGM30
Peak in
SGM,
Battelle
2010 BAU
stabilize in
Annex I
auction
2015
MAGICC
emissions in
2040
part.
-->2100
(0 billion)
2015; 1990
(climate)
level in 2040
SGM24
Peak in
SGM,
Battelle
2010 BAU
stabilize in
Annex I
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$75 billion
$9,185 billion
2015
MAGICC
emissions in
2040
stabilizes
-->2100
(0 billion)
2015; 1990
at 2030 in
(climate)
level in 2040
2030
9/18/97
ID
Scenario
Model
Modelers
Target
Timetable
Trading
Permit
Revenue
Burden
BAU
Paper Tons
AEEI
Ramp-up
Time Path
PDV (5%;
GDP in 2010
Allocation
Recycling
Sharing
Emissions
or Corre-
2000-2050)
(deviation
Path
sponding
Foregone
from BAU)
Assumptio
Reductions
Consumption
n
SGM27
Peak in
SGM,
Battelle
2010 BAU
stabilize in
Annex I
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$75 billion
$9,185 billion
2015
MAGICC
emissions in
2040
BAU to
-->2100
(0 billion)
2015; 1990
2030,
(climate)
level in 2040
equal per
capita in
2050
SGM11
Peak in
SGM,
Battelle
2010 BAU
stabilize in
domestic
auction
lump-sum
no LDC
IAT
PT
1.0
no
-->2050,
$235 billion
$9, 185 billion
2015
MAGICC
emissions in
2040
only
part.
-->2100
($0 billion)
2015; 1990
(climate)
level in 2040
SGM29
Peak in
SGM,
Battelle
2010 BAU
stabilize in
domestic
auction
lump-sum
no LDC
IAT
PT
1.0
in 2005
=>2050,
$270 billion
$9, 184 billion
2015
MAGICC
emissions in
2040
only
part.
-->2100
(-$1 billion)
2015; 1990
(climate)
level in 2040
SGM26
Peak in
SGM,
Battelle
2010 BAU
stabilize in
domestic
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$270 billion
$9, 184 billion
2015
MAGICC
emissions in
2040
only
BAU to
-->2100
(-$1 billion)
2015; 1990
2030,
(climate)
level in 2040
equal per
capita in
2050
SGM23
Peak in
SGM,
Battelle
2010 BAU
stabilize in
domestic
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$270 billion
$9,184 billion
2015
MAGICC
emissions in
2040
only
stabilizes
-->2100
(-$1 billion)
2015; 1990
at 2030 in
(climate)
level in 2040
2030
SGM25
Peak in
SGM,
Battelle
2010 BAU
stabilize in
worldwide
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
-$3 billion
$9,185 billion
2015
MAGICC
emissions in
2040
stabilizes
-->2100
(0 billion)
2015; 1990
at 2030 in
(climate)
level in 2040
2030
SGM31
Peak in
SGM,
Battelle
2010 BAU
stabilize in
worldwide
auction
lump-sum
no LDC
IAT
PT
1.0
in 2005
-->2050,
-$5 billion
$9,185 billion
2015
MAGICC
emissions in
2040
part.
-->2100
(0 billion)
2015; 1990
(climate)
level in 2040
SGM13
Peak in
SGM,
Battelle
2010 BAU
stabilize in
worldwide
auction
lump-sum
no LDC
IAT
PT
1.0
no
-->2050,
-$8 billion
$9, 185 billion
2015
MAGICC
emissions in
2040
part.
-->2100
($0 billion)
2015; 1990
(climate)
level in 2040
SGM28
Peak in
SGM,
Battelle
2010 BAU
stabilize in
worldwide
auction
lump-sum
LDC
IAT
PT
1.0
in 2005
-->2050,
$1 billion
$9,185 billion
2015
MAGICC
emissions in
2040
BAU to
-->2100
(0 billion)
2015; 1990
2030,
(climate)
level in 2040
equal per
capita in
2050
SGM15
+10% of
SGM,
Battelle
+10% 1990
stabilize in
Annex I
auction
Tump-sum
no LDC
IAT
PT
1.0
in 2005
-->2050,
$95 billion
$9,181 billion
1990 in
MAGICC
emissions
2010
part.
-->2100
(-$4 billion)
2010
level
(climate)
SGM14
+10% of
SGM,
Battelle
+10% 1990
stabilize in
domestic
auction
lump-sum
no LDC
IAT
PT
1.0
in 2005
-->2050,
$460 billion
$9,174 billion
1990 in
MAGICC
emissions
2010
only
part.
-->2100
(-$11 billion)
2010
level
(climate)
9/18/97
ID
Scenario
Model
Modelers
Target
Timetable
Trading
Permit
Revenue
Burden
BAU
Paper Tons
AEEI
Ramp-up
Time Path
PDV (5%;
GDP in 2010
Allocation
Recycling
Sharing
Emissions
or Corre-
2000-2050)
(deviation
Path
sponding
Foregone
from BAU)
Assumptio
Reductions
Consumption
n
worldwide
auction
Tump-sum
no LDC
IAT
PT
1.0
in 2005
-->2050,
$1 billion
$9,184 billion
SGM16
+10% of
SGM,
Battelle
+10% 1990
stabilize in
1990 in
MAGICC
emissions
2010
part.
-->2100
(-$1 billion)
2010
level
(climate)
MM1
BAU
Markal
DOE
n/a
n/a
n/a
n/a
n/a
n/a
IAT
n/a
~1.0
n/a
-->2025
n/a
$9,205 billion
(BAU GDP)
auction
lump-sum
no LDC
IAT
n/a
~1.0
n/a
-->2025
n/a
$9,137 billion
MM2
1990 in
Markal
DOE
1990
stabilize in
domestic
2010
emissions
2010
only
part.
(-$68 billion)
level
MM3
1995 in
Markal
DOE
1995
stabilize in
domestic
auction
lump-sum
no LDC
IAT
n/a
~1.0
n/a
-->2025
n/a
$9,152 billion
2010
emissions
2010
only
part.
(-$53 billion)
level
n/a
~1.0
n/a
-->2025
n/a
$9,197 billion
MM4
1990 in
Markal
DOE
1990
stabilize in
domestic
auction
lump-sum
no LDC
IAT
2020
emissions
2020
only
part.
(-$8 billion)
level
Peak in
Markal
DOE
2010 BAU
stabilize in
domestic
auction
lump-sum
no LDC
IAT
n/a
~1.0
n/a
-->2025
n/a
$9,201 billion
MM5
2015
emissions in
2040
only
part.
(-$4 billion)
2015; 1990
level in 2040
9/18/97
ID
Permit
Permit
Permit
Conc.
Conc.
Year Conc.
Change in
Change in
Emissions
Year
Intl. Trade of
Intl. Trade of
Date
File (h:\jaldy\)
Prices:
Prices:
Prices:
(ppmv) in
(ppmv) in
(550 ppmv)
Temp. (deg.
Temp. (deg.
Peak,
Returns to
Permits, U.S.,
Permits, U.S.,
Received
2010
2025
2050
2050
2100
Reaches 2x
C) from 1990
C) from 1990
mmtce
1990
2010
2050
Run
(Deviation
(Deviation
Pre-Ind. Level
in 2050
in 2100
(year)
(MMTCE), ($)
(MMTCE), ($)
from BAU)
from BAU)
(Deviation
(Deviation
(Deviation
from BAU)
from BAU)
from BAU)
SGM1
$0
$0
$0
502
711
2065
1.06
2.36
no peak:
n/a
n/a
n/a
08/21/97
cea90_~1.xls
2245
(2050)
SGM9
$91
$137
$238
481
645
2074
0.97
2.11
1637
never returns
-180,
-332,
08/21/97
cea90m_~1.xls
(-21)
(-66)
(+9)
(-0.09)
(-0.25)
(2005)
(-$16.4 billion)
(-$79.0 billion)
SGM8
$175
$304
$924
481
645
2074
0.97
2.11
1637
2010
n/a
n/a
08/21/97
cea90m_~1.xls
(-21)
(-66)
(+9)
(-0.09)
(-0.25)
(2005)
SGM10
$33
$37
$45
481
645
2074
0.97
2.11
no peak:
never returns
-332,
-845,
08/21/97
cea90m_~1.xls
(-21)
(-66)
(+9)
(-0.09)
(-0.25)
2060
(-$11.0 billion)
(-$38.0 billion)
(2050)
SGM36
$23
$86
$150
486
656
2072
0.99
2.16
no peak:
n/a
-180
-364
09/10/97
case20-1.xls
(-16)
(-55)
(+7)
(-0.07)
(-0.20)
1714
(-$4.14 billion)
(-$54.6 billion)
(2050)
SGM39
$41
$84
$149
486
656
2072
0.99
2.16
no peak:
never returns
-202,
-364,
09/10/97
case10~1.xls
(-16)
(-55)
(+7)
(-0.07)
(-0.20)
1714
(-$8.3 billion)
(-$54.2 billion)
(2050)
SGM3
$42
$84
$149
486
655
2072
0.99
2.15
no peak:
never returns
-202,
-364,
08/21/97
cea90_~2.xls
(-16)
(-56)
(+7)
(-0.07)
(-0.21)
1714
(-$8.5 billion)
(-$54.2 billion)
(2050)
SGM18
$39
$83
$150
478
565
2091
0.96
1.82
no peak:
never returns
-209,
-362,
08/27/97
case2.xls,
(-24)
(-146)
(+26)
(-0.10)
(-0.54)
1712
(-$8.2 billion)
(-$54.3 billion)
9/4/97 fax
(2050)
SGM21
$39
$83
$150
n/a
n/a
n/a
n/a
n/a
no peak:
never returns
-209,
-362,
08/27/97
case3.xls
1712
(-$8.2 billion)
(-$54.3 billion)
(2050)
SGM17
$108
$188
$582
476
564
2092
0.95
1.82
1550
2010
n/a
n/a
08/27/97
case2.xls,
(2000)
9/4/97 fax
(-26)
(-147)
(+27)
(-0.11)
(-0.54)
SGM2
$110
$191
$582
485
658
2072
0.99
2.16
1637
2010
n/a
n/a
08/21/97
cea90_~2.xls
(-17)
(-53)
(+7)
(-0.07)
(-0.20)
(2005)
SGM38
$108
$188
$582
484
656
2073
0.98
2.15
1550
2010
n/a
n/a
09/10/97
case10-1.xls
(-18)
(-55)
(+8)
(-0.08)
(-0.21)
(2000)
$188
$582
n/a
n/a
n/a
n/a
n/a
1550
2010
n/a
n/a
08/27/97
case3.xls
SGM20
$108
(2000)
$23
$33
486
656
2072
0.99
2.16
no peak:
never returns
-312,
-751,
09/10/97
case10-1.xls
SGM40
$16
(-16)
(-55)
(+7)
(-0.07)
(-0.20)
2101
(-$5.0 billion)
(-$24.8 billion)
(2050)
9/18/97
ID
Permit
Permit
Permit
Conc.
Conc.
Year Conc.
Change in
Change in
Emissions
Year
Intl. Trade of
Intl. Trade of
Date
File (h:\jaldy\)
Prices:
Prices:
Prices:
(ppmv) in
(ppmv) in
(550 ppmv)
Temp. (deg.
Temp. (deg.
Peak,
Returns to
Permits, U.S.,
Permits, U.S.,
Received
2010
2025
2050
2050
2100
Reaches 2x
C) from 1990
C) from 1990
mmtce
1990
2010
2050
Run
(Deviation
(Deviation
Pre-Ind. Level
in 2050
in 2100
(year)
(MMTCE), ($)
(MMTCE), ($)
from BAU)
from BAU)
(Deviation
(Deviation
(Deviation
from BAU)
from BAU)
from BAU)
SGM4
$16
$23
$32
486
655
2072
0.99
2.15
no peak:
never returns
-313,
-752,
08/21/97
cea90_~2.xls
(-16)
(-56)
(+7)
(-0.07)
(-0.21)
2102
(-$5.0 billion)
(-$24.1 billion)
(2050)
$23
n/a
n/a
n/a
n/a
n/a
no peak:
never returns
n/a
n/a
08/27/97
case3.xls
SGM22
$15
$0
2239
(2050)
SGM19
$15
$23
$110
478
565
2091
0.96
1.82
1883
never returns
-316,
-500,
08/27/97
case2.xis,
(-24)
(-146)
(+26)
(-0.10)
(-0.54)
(2040)
(-$4.7 billion)
(-$55.0 billion)
9/4/97 fax
SGM35
$71
$192
$582
484
656
2073
0.98
2.15
1550
2020
n/a
n/a
09/10/97
case20-1.xls
(-18)
(-55)
(+8)
(-0.08)
(-0.21)
(2000)
SGM37
$9
$24
$33
486
656
2072
0.99
2.16
no peak:
n/a
-246
-751
09/10/97
case20-1.xls
(-16)
(-55)
(+7)
(-0.07)
(-0.20)
2101
(-$2.21 billion)
(-$24.78
(2050)
billion)
SGM6
$74
$119
$202
483
648
2074
0.98
2.12
1637
never returns
36,
-122,
08/21/97
cea95_~1.xls
(-19)
(-63)
(+9)
(-0.08)
(-0.24)
(2005)
(+$2.7 billion)
(-$24.6 billion)
SGM5
$62
$131
$317
483
648
2074
0.98
2.12
1637
never returns
n/a
n/a
08/21/97
cea95_~1.xls
(-19)
(-63)
(+9)
(-0.08)
(-0.24)
(2005)
SGM7
$27
$32
$41
483
648
2074
0.98
2.12
no peak:
never returns
-131,
-593,
08/21/97
cea95_~1.xls
(-19)
(-63)
(+9)
(-0.08)
(-0.24)
2073
(-$3.5 billion)
(-$24.3 billion)
(2050)
SGM33
$57
$120
$203
482
648
2074
0.97
2.12
no peak:
n/a
20
-119,
09/10/97
case20~2.xls
(-20)
(-63)
(+9)
(-0.09)
(-0.24)
1599
($1.14 billion)
(-$24.16
(2050)
billion)
SGM32
$51
$131
$318
482
648
2074
0.97
2.12
1550
n/a
n/a
n/a
09/10/97
case20~2.xls
(-20)
(-63)
(+9)
(-0.09)
(-0.24)
(2000)
SGM34
$21
$33
$41
482
648
2074
0.97
2.12
no peak:
n/a
-122
-592
09/10/97
case20-2.xls
(-20)
(-63)
(+9)
(-0.09)
(-0.24)
2072
(-$2.56 billion)
(-$24.27
(2050)
billion)
SGM12
$0
$47
$155
491
n/a
n/a
1.02
n/a
1807
never returns
0, (n/a)
-367,
08/21/97
cea90_~1.xls
(-11)
(-0.04)
(2015)
(-$56.9 billion)
08/27/97
case6.xls,
SGM30
$11
$56
$153
489
658
2071
1.00
2.17
1755
never returns
-5,
-367,
(-13)
(-53)
(+6)
(-0.06)
(-0.19)
(2015)
(-$0.06 billion)
(-$56.2 billion)
9/4/97 fax
SGM24
$11
$56
$153
481
568
2089
0.98
1.84
1755
never returns
-5,
-367,
08/27/97
case4.xls,
(-21)
(-143)
(+24)
(-0.08)
(-0.52)
(2015)
(-$0.06 billion)
(-$56.2 billion)
9/4/97 fax
9/18/97
ID
Permit
Permit
Permit
Conc.
Conc.
Year Conc.
Change in
Change in
Emissions
Year
Intl. Trade of
Intl. Trade of
Date
File (h:\jaldy\)
Prices:
Prices:
Prices:
(ppmv) in
(ppmv) in
(550 ppmv)
Temp. (deg.
Temp. (deg.
Peak,
Returns to
Permits, U.S.,
Permits, U.S.,
Received
2010
2025
2050
2050
2100
Reaches 2x
C) from 1990
C) from 1990
mmtce
1990
2010
2050
Run
(Deviation
(Deviation
Pre-Ind. Level
in 2050
in 2100
(year)
(MMTCE), ($)
(MMTCE), ($)
from BAU)
from BAU)
(Deviation
(Deviation
(Deviation
from BAU)
from BAU)
from BAU)
SGM27
$11
$56
$153
n/a
n/a
n/a
n/a
n/a
1755
never returns
-5,
-367,
08/27/97
case5.xis
(2015)
(-$0.06 billion)
(-$56.2 billion)
SGM11
$0
$84
$559
489
n/a
n/a
1.01
n/a
1807
2040
n/a
n/a
08/21/97
cea90_~1.xls
(-13)
(-0.05)
(2015)
SGM29
$12
$99
$563
489
658
2071
T.00
2.17
1729
2040
n/a
n/a
08/27/97
case6.xls,
(-13)
(-53)
(+6)
(-0.06)
(-0.19)
(2015)
9/4/97 fax
SGM26
$12
$99
$563
n/a
n/a
n/a
n/a
n/a
1729
2040
n/a
n/a
08/27/97
case5.xls
(2015)
SGM23
$12
$99
$563
481
568
2089
0.98
1.84
1729
2040
n/a
n/a
08/27/97
case4 xls,
(-21)
(-143)
(+24)
(-0.08)
(-0.52)
(2015)
9/4/97 fax
SGM25
$4
$16
$111
481
568
2089
0.98
1.84
1893
never returns
-30,
-500,
08/27/97
case4.xls,
(-21)
(-143)
(+24)
(-0.08)
(-0.52)
(2030)
(-$0.1 billion)
(-$55.5 billion)
9/4/97 fax
SGM31
$4
$16
$33
489
658
2071
1.00
2.17
no peak:
never returns
-30,
-751,
08/27/97
case6.xls,
(-13)
(-53)
(+6)
(-0.06)
(-0.19)
2101
(-$0.12 billion)
(-$24.8 billion)
9/4/97 fax
(2050)
SGM13
$0
$14
$33
491
n/a
n/a
1.02
n/a
no peak:
never returns
0, (n/a)
-752,
08/21/97
cea90_~1.xls
(-11)
(-0.04)
2102
(-$24.8 billion)
(2050)
SGM28
$4
$16
$0
n/a
n/a
n/a
n/a
n/a
no peak:
never returns
n/a
n/a
08/27/97
case5.xls
2241
(2050)
SGM15
$17
$56
$113
489
662
2071
1.00
2.18
no peak:
never returns
-172,
-339,
08/27/97
casel.xls
(-13)
(-49)
(+6)
(-0.06)
(-0.18)
1824
(-$2.9 billion)
(-$38.3 billion)
(2050)
SGM14
$60
$128
$310
488
664
2071
0.99
2.18
1550
never returns
n/a
n/a
08/27/97
casel.xls
(-14)
(-47)
(+6)
(-0.07)
(-0.18)
(2000)
9/18/97
ID
Permit
Permit
Permit
Conc.
Conc.
Year Conc.
Change in
Change in
Emissions
Year
Intl. Trade of
Intl. Trade of
Date
File (h:\jaldy\)
Prices:
Prices:
Prices:
(ppmv) in
(ppmv) in
(550 ppmv)
Temp. (deg.
Temp. (deg.
Peak,
Returns to
Permits, U.S.,
Permits, U.S.,
Received
2010
2025
2050
2050
2100
Reaches 2x
C) from 1990
C) from 1990
mmtce
1990
2010
2050
Run
(Deviation
(Deviation
Pre-Ind. Level
in 2050
in 2100
(year)
(MMTCE), ($)
(MMTCE), ($)
from BAU)
from BAU)
(Deviation
(Deviation
(Deviation
from BAU)
from BAU)
from BAU)
SGM16
$7
$16
$25
489
662
2071
1.00
2.18
no peak:
never returns
-219,
-643,
08/27/97
casel.xls
(-13)
(-49)
(+6)
(-0.06)
(-0.18)
2128
(-$1.5 billion)
(-$16.1 billion)
(2050)
MM1
$0
$0
n/a
n/a
n/a
n/a
n/a
n/a
no peak:
n/a
n/a
n/a
08/26/97
8_26runl.wk4
2066
(2025)
MM2
$148
$192
n/a
n/a
n/a
n/a
n/a
n/a
1586
2010
n/a
n/a
08/26/97
8_26runl.wk4
(2005)
MM3
$136
$146
n/a
n/a
n/a
n/a
n/a
n/a
1600
n/a
n/a
n/a
08/26/97
8_26runl.wk4
(2005)
MM4
$0
$198
n/a
n/a
n/a
n/a
n/a
n/a
1749
2020
n/a
n/a
08/26/97
8_26runl.wk4
(2010)
MM5
$0
$99
n/a
n/a
n/a
n/a
n/a
n/a
1767
2040*
n/a
n/a
08/26/97
8_26runl.wk4
(2015)
revisions of Sectu 2
Joseph E. Aldy
09/04/97 04:00:15 PM
of 7x7 paper
Record Type: Record
To:
Jeffrey A. Frankel/CEA/EOP
CC:
Subject: Toman's write-up
Courtesy of Zach, here is Toman's IA write-up.
Appendy L
B
TOMAN_IA.WPI
TOMAN_IA.WPD
Page 1
2. Cost-benefit analysis in "Integrated Assessment" models
Integrated Assessment (IA) analyses try to bring together assessments of the physical,
ecological, economic, and social impacts of climate change with assessments of policies for
responding to climate change and their socioeconomic consequences. Generally speaking, the
models can be described schematically as linking economic decisions in the energy (and
agriculture) sectors that give rise to GHG emissions (and changes in carbbon sequestration),
models of atmospheric composition, climatic change, and changes in oceans, and models that
describe the potential impacts of climate change on health, natural resources, coantal areas,
and other factors of socioeconomic interest. Different components of various IA frameworks
are represented in differing degrees of detail and sophistication. A few models contain the
capacity to be used for a benefit-cost analysis, in which it is possible to evaluate changes in the
long-term path of GHG emissions that maximizes the net benefits of GHG control (these
benefits are the avoided damages of climate change less the costs of control). A larger
*
number of IA models can evaluate the benefits and costs of specified policies but are unable to
indicate what emissions reductions maximize net benefits. IA frameworks are inherently more
"top-down" in their characterization of economic decisionmaking, though some models
contain a fair amount of energy sector detail.
A very striking feature of IA models is that they tend to indicate the desirability - - from
the perspective of maximizing net benefits over time of emissions continuing to rise well
into the next century, if not beyond. (For a recent comparison of IA model results, see Manne
1996. [JEFF: Do you want cites of individual models too?]) By 2010, the models indicate
only small deviations downward from a business as usual (BAU) path (see also IPCC 1996b,
Chapter 10). In some cases the emissions do stabilize toward the middle of the next century,
but in other cases they continue rising (though more slowly than with business as usual) even
beyond 2100. These emissions paths clearly imply increases in atmospheric concentrations of
GHGs well beyond the kinds of targets that have been considered in current policy debates
(e.g., 550 ppm). One important consequence is that the models indicate costs of near-term
emissions stabilization well in excess of the avoided damage costs.
AS nepal in Ex,
A number of criticisms have been levelled at these IA results. These criticisms include:
Failure to consider the possibility of unlikely but catastrophic events that could result from
climate change (e.g., catastrophic sea level rise from melting of the Antarctic ice sheet,
runaway global warming from frozen methane releases, or relocation of the Gulf Stream -
see IPCC 1996a, Chapter ).
Failure to give adequate consideration to the scale of potential damages, even in the absence
of catastrophe. Cline (1992), for example, argues that damages are much higher than is
incorporated in most IA models (see also IPCC 1996a, Chapter 6 for various estimates).
One specific concern that has been raised is that the IA models do not account adequately
for the costs of a less stable climatic and ecological systems in the face of GHG
accumulations.
TOMAN_IA.WPD
Page 2
Failure to consider the adverse consequences of less aggressive abatement policies for future
generations - in the context of IA models themselves, the criticism is that discounting of
future generations' well-being is excessive. Cline (1992) also raises this concern, as does
Howarth (199_).
Failure to consider how uncertainty about all these effects affects the "optimal" decision (Pizer
1997).
Failure to consider how lack of early action will jeopardize the achievement of any
longer-term mitigation by signalling a lack of political will ([NEED CITE]), or how lack
of early action will retard induced technical progress that is needed to make mitigation
affordable (Grubb 1995).
Sensitivity analyses carried out with IA models suggest that at least some of these criticisms
(atacil
are not major concerns; others may be serious concerns, but empirical judgments are not
possible given the current state of knowledge. The Manne (1996) survey referred to above
considered scenarios in which the climate's sensitivity to accumulating GHGs was greater than
is typically assumed, or the the damages are larger (by a factor of almost 8) for a given change
in the atmosphere. In either case emissions should (from the perspective of maximizing net
benefits) be lower, but the extra degree of emissions reductions required by 2010 is significant
(on the order of 25 percent or more) only if climate damages are much higher than expected
(the sensitivity of the atmosphere to GHG emissions seems much less important in these
analyses). And even in this case, emissions still will be higher than 1990 levels unless the
atmosphere and the ecological-economic systems both are quite sensitive. (Broadly similar
conclusions follow if, instead of looking at higher damages, one looked at damages that grew
proportionately faster as atmospheric GHG concentrations grew [CETA cite]). Thus, the IA
models give little support for a policy of near-term emissions stabilization unless damages turn
out to be much higher than at least some experts expect.
It is also true that the results of IA models are sensitive to the choice of discount rate used
to compare consumption today and in the future. A very low discount rate will imply greater
weight on damages accruing over time to future generations, and thus the need for a more
aggressive abatement strategy. This tradeoff is influenced by the rate of economic growth,
since growth will make future generations better off and thus better able to afford and respond
to the damages of climate change (Schelling 1995). However, there are numerous economic
and ethical controversies surrounding the appropriate way to discount future damages in IA
models, and no clear consensus has emerged. One important point that is often ignored in this
debate is how much today's generation is willing to sacrifice to provide for the increased
protection of future generations through GHG abatement; this is a critical unknown since it is
today's generation that must necessarily must decide to pay the bill. All that can be said
analytically, therefore, is that intergenerational equity might be an argument for more
aggressive abatement.
Uncertainty about future damages or other influences on the costs and benefits of abatement
can make a difference. However, Pizer's (1997) analysis suggests that the most important
TOMAN_IA.WPD
Page 3
source of uncertainty concerns the nature of our preferences for consumption and
environmental protection. (Unlike the Manne (1996) analysis, Pizer considers the possibility
that damages may be lower as well as larger.) A recent paper by Gjerde et al (1997) considers
the risk of a sudden loss of economic output and well-being on the scale of the Great
Depression from climate change. While their analysis indicates more aggressive abatement
than other IA analyses without this risk, the introduction 0 the risk has little relative effect on
the desirable level of emissions reduction by 2010, and little effect for a number of years
thereafter (unless the loss is much larger even than the Depression).
This leaves the issues of political credibility and induced technical change. As for the latter,
it is true that sending a less strong signal to energy markets will slow up technical progress.
However, there is great uncertainty about how much of a loss this would be in practice, and
the loss would have to be greater than most models seem to indicate before the substantial
costs of near-term stabilization could be justified. This does not mean, however, that no
actions are justified on cost-benefit grounds to reduce emissions or stimulate technical
progress. Aside from initial steps to curb emissions growth, which signal the need for
technical change, longer-term measures to promote the development of new technology are
warranted. Political credibility is a more complicated issue to which we return below.
3. Estimates of optimal paths to stabilize GHG concentration levels
Much of the debate about GHG stabilization takes as given that simply allowing emissions
to continue to grow for a long period, albeit more slowly, puts the biosphere at too much risk
and is not credible politically. An alternative strategy [continue with current text]
Comments on political credibility to be inserted somewhere in the text
Political credibility arises frequently in the discussion of imtertemporally flexible
approaches to GHG mitigation. It is argued, that allowing emissions reductions to be deferred
to a more distant future invites noncompliance with our domestic obligations, and risks
sending a signal to countries not in line for immediate emissions targets that curbing emissions
is not a serious matter. Several other points do not seem to surface in this debate and are
important to put the issue in context.
(1) A proposed agreement that demonstrably imposes much higher costs than an alternative
more measured approach, and thereby invites substantial domestic political opposition, will
also suffer from credibility problems both here and abroad.
(2) The concern about emissions reductions agreements being shirked rather than postponed
is a legitimate one, but there are a variety of ways it might be addressed. [Add options here -
they should include performance bonds that require carbon debts to be paid back, and (less
efficient but more straightforward) simply a backloading of emissions reductions goals in the
targets/timetables. The latter may not be credible, but there is little that can be done if a
country really sees the burden of successively greater emissions reductions as greater than the
cost of noncompliance.]
TOMAN_IA.WPD
Page 4
(3) Demonstrating willingness to reduce our emissions may not make much difference to the
willingness of other countries to reduce their emissions anyway, particularly in developing
countries for whom climate change is a low-priority issue. It might be much more effective to
take some of the subtantial cost savings from shifting emissions reductions into the future and
use them to help develop and diffuse low-emissions technologies that those countries will
want to adopt for their own reasons.
toman @ rff.org
08/25/97 09:43:00 AM
Record Type: Record
To:
Jeffrey A. Frankel
CC:
Subject: text on IA models with catastrophe
One of the criticisms of many integrated assessments (IAs) is that they do
not incorporate the possibility of catastrophe. Recent extensions of
the IA literature include the possibility of a major, discontinuous
jump inh the damages caused by climate change. For example, a
European paper by Gjerde et al (1997) incorporates the risk that
climate change will sudenly cause damages equal to a significantr
share of global GDP. The risk is assumed to rise with an increase in
temperatre from global warming; following Nordhaus (1994), the
benchmark risk scenario assumes a 12% chance of a loss equal to 25%
of GDP (the scale of the great depression) in 2090 if climate has
warmed by 3 degrees C. Incorporating this risk into the IA framework
causes the optimal path for global emissions to be reduced, but not
by that much in the early years. By 2060, optimal emissions are only
somewhat over half what they would have been without the risk of catastrophe, but
the reduction by 2020 is on the order of 15% below the no-catastrophe
case and still above emissions in 1990. (The no-catastrophe optimal
path is
fn
substantially below BAU in this analysis, an artifact of the
assumptions of low abatement cost and high damage cost.) Even
sharper emissions reductions are implied if the catastrophe is truly
shattering (on the order of the entire GDP), or if the discount rate
is extremely low (high intergenerational egalitarianism.)
Jon Gjerde, Sverre Grepperud, and Snorre Kverndokk, "Optimal Climate
Policy Under the Possibility of Catastrophe," presented at the 1997
EAERE meetings, Tilburg. [WARNING: NOT PEER_REVIEWED and may be
unreliable as a consequence. The only peer-reviewed analyses I could
find had technical drawbacks, mainly oversimplified models of
damages.]
William Nordhaus, "Expert Opinion on Climate Change," AMERICAN
SCIENTIST vol 82, 1994, 45-51.
Mike Toman
[email protected]
Resources for the Future
1616 P Street NW
Washington DC 20036 USA
tel + 1-202-328-5091
10
with domestic oil. On balance, removing U.S. energy subsidies
could significantly reduce CO2 emissions according to one study.
Top down models that assume limited substitution, slow technological
change and limited response to price signals and low availability of non-
fossil energy sources predict high costs.
Extent to which market and policy distortions create opportunities for low-
cost (or no-cost) improvements in energy efficiency
Rate of technological innovation and responsiveness of such change to price
signals. Hard to reach consensus on AEEI but value is critical. For example, a
change from 0.5% to 1.0% cuts projected 2100 emissions levels by half and
markedly affects the cost of meeting a CO2 target. Induced technological change
in response to price increases is a distinct possibility.
Availability and likely future cost of non-fossil backstop energy sources
(hydroelectricity, nuclear power, wind and solar energy and biomass) Alternative,
low carbon energy sources exist but aren't currently cost-effective. They will
become increasingly so as carbon energy sources rise in price and technology
makes them less expensive. The availability of these backstop non-carbon energy
technologies has a large impact on the costs of meeting whatever emission
reduction goal is chosen.
Number of years available to achieve a specified CO2 reduction. Merely
stabilizing emissions rates will allow concentrations to continue rising for
centuries. Recent analysis shows that adopting an explicit-long-term target for
atmospheric concentrations and then choosing policies to achieve the most
efficient time path for emissions reductions to meet the target could
significantly lower the economic impact. A target for concentrations is like a
carbon budget limiting CO2 emissions within a specified period of years. Under
some circumstances, it is cheaper to use more of the budget early on and postpone
cutbacks because the capital stock is so durable. In a system of emissions trading,
there should be banking and borrowing of permits to allow flexibility over
time. When time is allowed for capital stock to be replaced, overall abatement
costs could be reduced. Also, R&D will yield new technologies so postponing
costs reduces them. Flexibility in timing of global reductions could lower costs
by more than 35% compared to a less flexible program to achieve the same
concentration.
Under some assumptions, we should adopt a carbon tax now to encourage
early development of energy efficient and low-carbon technologies and
11
discourage long-lived investments in carbon-intensive energy facilities.
Realistically, action today is likely to be necessary to induce investors
to make commitments and not just the expectation of a tax in a
decade or more. To quell doubts, a credible policy signal is necessary at
the outset--e.g., a carbon tax introduced at a low level that rises, perhaps
significantly, in future years.
Potential for international joint implementation. This would allow a utility in
Norway to achieve reduced emissions by contracting to pay a factory in Poland to
install more fuel-efficient furnaces. Finding the lowest cost abatement possibilities
is cost effective. л cannot be used more widely until countries have set binding
emissions reduction targets. But getting countries to agree on the baselines that
should apply to each, from which emissions reductions will be measured is a
formidable task. Monitoring and verification and a mechanism to enforce
contractual obligations is essential if JI is to work. The potential savings are
substantial.
Recycling to reduce economically burdensome tax rates or lump sum rebates.
Without recycling the carbon tax is highly deflationary, lowering GDP
substantially. Lump sum recycling enables a modeler to separate the economic
impact arising from climate abatement from that arising from other tax cuts.
However, it would be possible to reduce taxes that distort economic activity--
payroll taxes, on investment earnings. Some economists have argued that there
could be a double dividend--a gain purely from substituting an energy tax for a
more distoring tax on labor or capital income. This is questionable. etc.
Benefits in form of avoided economic damages from climate change and
other pollution reduction damages. Can avoid pollution associated with auto
emissions and higher medical expenditures.
Under a reasonable standardized set of assumptions, most models predict a small
macroeconomic effect of a carbon tax to stabilize emissions and potentially favorable
outcomes.
The IAT baseline policy of 1990 by 2010 implies about 26% reduction below
baseline emissions in 2020. Looking at all the models we find that, under unfavorable
assumptions, GDP would be 2.4% lower in 2020 than under baseline and under favorable
assumptions, 2.4% higher. The 4 key influences are (whether there are significant short
term adjustments--macro model; whether Л; whether recycling of revenues via reducing
other taxes; whether benefits from abating pollution. Under reasonable assumptions, the
predicted GDP impact would be neutral or even favorable.
12
A carbon tax might have a disproportionate impact on low income households but it could
be offset through other taxes reductions.
The impact of a tax on coalmining and coal carrying railway lines would be substantial.
However, the baseline predicts a substantial expanison in coal mining in the western U.S.
Reduced energy demand in the U.S. would help hold down world oil prices, improving
our terms of trade.
Impact on competitiveness. If the U.S. alone imposes a significant carbon tax,
international trade and investment in some energy intensive industries might shift abroad.
However, evidence suggests that differential environmental policies have a weak impact
on trade and investment flows and many nonOECD countries have raised energy prices
unilaterally. Coordinated international action could avoid these trade effects.
13
MAJOR POINTS:
2000 economists endorsed taking measures to reduce the threat of climate changes on the
grounds of the Intergovernmental Panel on Climate Change finding that "the balance of
evidence suggests a discernible human influence on global climate." The economists
concluded that global climate change carries with it significant environmental, economic,
social and geopolitical risks, and that preventive steps are justified. They concluded that
proper policies can significantly reduce greenhouse gas emissions without harming the
American economy. Some policies could even improve U.S. productivity in the longer
run. Market based policies (such as carbon taxes or emissions permits) would lower the
costs of control substantially. They said that there are many policies with total benefits in
excess of costs. Revenue could be used to lower the deficit or reduce existing taxes.
Nations need to cooperate to achieve climactic objectives at minimum costs--international
emissions trading.
A great deal of controversy surrounds the issue of climate change with some saying that
climate change is one of the greatest threats facing humankind and others saying the risks
are weakly documented. The same kinds of divides arise in discussing costs and benefits
of various policy options. The President believes there is a risk so that policy action is
needed, but will look for policy actions that are sensible, cost effective and consistent with
continued economic growth and job creation.
It is particularly difficult to measure the benefit of climate change action especially when
one takes a broad interpretation and thinks about the value of reducing risk related to
ecological impacts.
Economists differ in their views about emissions policies, some advocating a "broad, then
deep" approach in which we begin with a broad but low cost agreement and others
favoring a deep, then broad perspective, by first establishing a narrow coalition of
developed nations and then reaching out to developing countries to join later via
evolution. The problem with the latter approach is that costs rise for a narrow coalition of
countries leading carbon intensive industries to migrate and making nonparticipant
countries even more carbon dependent.
Any agreement without the cost flexibility provided by international trading or JI will at
least double the US costs.
Models are helpful in understanding implications of climate change policies--give orders of
magnitude and sensitivities to assumptions. There is no single correct set of assumptions
or appropriate model. It is a mistake to offer just a best guess assessment of either costs
or benefits. One should think about ranges of possible outcomes
DISCUSSION PAPER
THE ROLE OF TECHNOLOGICAL CHANGE
TO ADDRESS GLOBAL CLIMATE CHANGE
July 30, 1997 Draft
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DISCUSSION PAPER ON THE ROLE OF TECHNOLOGICAL CHANGE
TO ADDRESS GLOBAL CLIMATE CHANGE
"In order to reduce greenhouse gases and grow the economy, we must invest more in the technologies of the future. I am directing my
Cabinet to work to develop them. Government, universities, business and labor must work together. All these efforts must be
sustained over years, indeed, over decades."
President Clinton
Address to the United Nations
June 26, 1997
Context for this paper:
The U.S. position on global climate change has consistently been that any action program should be centered on a
market-based approach. Given the proper market signals, the private sector will find the most efficient means to make
changes in technologies, business practices, and patterns of energy use to reduce greenhouse gas emissions.
A properly-designed, capped domestic emissions trading system would provide strong market signals to that end
There are also a variety of other technology supporting actions that the federal government could undertake to
supplement such an emissions trading system to stimulate R&D and market development in specific areas, where market
barriers exist or where changes might be restrained for various reasons.
This paper first provides a perspective on the degree of change in energy usage and key technologies that would be
needed in key sectors of the economy in order to begin reducing greenhouse gas emissions from energy use.
Then, the paper identifies a menu of policy options, for discussion and further evaluation, from which specific elements
could be selected to support a technology strategy to both reduce greenhouse gases and continue to grow the economy.
This paper provides an initial identification of the options without providing a thorough evaluation of feasibility, impacts,
or costs.
Additional detailed papers are available from the Department of Energy and others on these technological opportunities.
1
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PROFILE OF U.S. CARBON EMISSIONS IN THE ECONOMY
1990 U.S. Primary Energy Demand (quads)
Energy Profiles
Three sectors account for approximately one-third of U.S. primary energy demand
- transportation, commercial and residential buildings, and industry
Transport
The electric utility sector supplies about one-third of this demand, virtually all in
the buildings and industrial sectors, and consumes fuels to generate that power. In
Industry
the buildings sector, two-thirds of the energy usage is from electricity, and in
industry the share is just over 10%
Growth in U.S. energy consumption changed dramatically after the 1973 energy
crisis, but is projected to continue growing steadily in the absence of new policies:
- the 1960s +52%
- the 1990s +12% (already +9% by 1997)
- the 1970s +14%
- the 2000-2010 decade +12%
- the 1980s +11%
- in total, 2010 will be 26% above 1990
Carbon Emissions Trends - 1990 - 2020
The profile in U.S. carbon emissions parallels the pattern of energy demand
-
the three sectors, transportation, buildings, and industry, each account for
U.S. Carbon Emissions (mm tons)
approximately equal shares
Electric utility emissions are double-counted in the sector in which the
700
electricity is used and can only be lowered by reducing electricity demand, by
600
switching to lower carbon content fuels or by carbon sequestration
500
400
Growth projections for emissions parallel the pattern of energy growth.
300
DOE's Energy Information Administration (EIA) projections show:
200
- Total emissions up 28%, or 377 million tons, from 1990 to 2010
100
- Transportation up 43%, or 184 million tons
0
- Buildings up 24%, or 111 million tons
Transport Buildings
Industry
Utilities*
- Industry up 18%, or 82 million tons
2020
2010
- Utilities, included in the other sectors, up 30%, or 146 million tons
2000
1990
Utilities emissions also included in final use sector
2
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LONG-TERM TECHNOLOGY STRATEGY
In the long-term, over several decades, reductions in carbon emissions will require two fundamental changes, (1) shifts to low-carbon
and zero carbon forms of energy, and (2) significant improvements in the efficiency of our energy usage. Appropriate technologies ae
the only way to achieve these goals without forcing consumers to give up the services and lifestyles they want. A technology strategy,
in combination with appropriate pricing policies, can achieve both goals and provide a strong worldwide position for the U.S. as a
technology leader and exporter by advancing improvements such as the following:
Trans portation
Buildings
Industry
Electric Utilitie
Hydrogen fuels
Fuel cells
High efficiency motors
Renewable energy systems
Fuel cell vehicles
Control systems
Advanced processes
- solar, wind, biomass
Electric vehicles
Materials and structures
Materials recycling
Distributed power
Biofuels
Efficient "plug load"
Combined heat and power
Advanced gas generation
Full PNGV 80 mpg vehicles
Lighting and equipment
Bioproducts/biofuels
Superconducting cables,
Renewable energy
transformers and generators
Long-term Market and Economic Uncertainties
Electricity deregulation, international competitiveness, increased concern over other emissions and waste reduction
Lifestyle trend changes (eg, telecommuting, consumer preferences for large vehicles)
Commercial transport shifts in modes, speed, and the role of short- and long-range transportation of goods and people
this
1%
of
3
Cost Issues
Currently, the federal government spends only 1% of its R&D budget, or $600 million/year on long-term energy technologies
To achieve these major advances will require significant public and private investment
In the long run, it is uncertain whether such technological changes will produce net costs or savings to the U.S. economy
Policy Issues
Federal and private R&D funding
Information and education
Public/private partnerships
Federal procurement
Financing programs
Regulations
3
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IN THE MEDIUM-TERM, TECHNOLOGY AND EMISSIONS TRADING PROVIDE A BRIDGING STRATEGY
In the medium-term, deployment of currently available, under-utilized technology, or nearly available technology, can serve a "bridging"
function to reduce emissions sufficiently to allow time for the long-term R&D developments and the commercialization of various new
technologies to reach significant levels.
Emissions trading and joint implementation are critical to a technology strategy in providing timing flexibility to deploy efficient
technologies at rates close to normal capital stock turnover cycles, and to provide a "safety valve" if the required rates of technological
change cannot be achieved fast enough. Both of these steps will help keep costs significantly lower than they otherwise would be.
The DOE "Labs Study", the IAT computer modeling, and other studies suggest ambitious rates of change in energy consumption, fuels
mix, and technology would be needed to reduce U.S. carbon emissions significantly. For example, the implications of the most
commonly evaluated scenario, reducing U.S. carbon emissions to 1990 levels by 2010, would lead to the following:
Overall, emissions growth of 28%, or 377 million tons, would have to be avoided or offset
If reductions were limited to the U.S., unless large-scale fuel-switching occurred, energy growth would probably have to drop
to half its present rate, to about 10 to 12% over the 20-year period, and it's already about 9% above 1990 levels in 1997
With emissions trading and joint implementation, the models suggest that up to 40% of the 2010 emissions reduction might be
achieved abroad, at U.S. expense, to buy time for a more orderly technological transition here
The key in the latter case would be to encourage, through pricing and other
means, the utilization of the most efficient or low-carbon technologies when
Emissions Stabilization by 2010 (mm tons)
capital stock is being installed or replaced on its regular cycle
Illustrative Scenarlo
700
Transportation
600
In the absence of international emissions trading, growth in energy usage by
500
400
2010 would have to drop to about half its projected growth rate of 30% to
300
40%, down to 15% to 20%
200
On-road fuel economy for all cars and trucks (new and existing) would have
100
0
to reach 25 mpg by 2010, from its present level of 20 mpg
Transport Buildings Industry Utilities
Through PNGV, government is partnering with automakers and expects to
develop new automotive technology that can triple the fuel efficiency of a
1990
2010 BAU
No Trading
Trading
4
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MEDIUM-TERM
continued
models
Is
typical family sedan while meeting stringent emissions and safety standards and maintaining affordability, performance and
utility. Production prototypes are expected by 2004
One pathway to achieve an on-road fuel economy of 25 mpg would require about 30% of new light duty vehicles to meet the
PNGV goal by 2010. Alternatively, all new cars and light trucks could incorporate 30% of the improvements represented by the
PNGV goal by the 2010 model year for 45 mpg new automobiles
Currently projected higher costs of PNGV improvements would pay for themselves in fuel savings within 4 to 5 years
With international emissions trading, the pace of improvements could be slower, but would likely still need to show significant
improvement in fuel economy over present vehicles
Commercial and Residential Buildings
Without emissions trading, growth in energy usage in buildings would have to be cut in half, to a rate of about 10% by 2010
Technologies needed to achieve these savings largely exist today. No major breakthroughs are needed. Over the next decade,
most buildings could be cost-effectively improved to use 30% less energy while delivering the same comfort.
To achieve the needed efficiency savings by 2010, approximately 35% of the equipment that normally would be installed or
replaced in buildings by then needs to be cost effective, high efficiency equipment
Technology deployment programs such as EPA's and DOE's Energy Star labeling, Rebuild America, and Green Lights
programs, are currently working to inform consumers and businesses of efficiency and cost savings opportunities
Industry
Without emissions trading, energy growth would have to be almost flat at 1990 levels, instead of increasing about 20% by 2010
Increased use of heat recovery, cogeneration, and more efficient motors offer the greatest generic opportunities, with other
specific technologies also available in individual industrial sectors, such as those detailed in DOE's "Industries for the Future"
cooperative program with seven major energy-intensive industries
5
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With emissions trading, modest emissions and energy growth of around 7% by 2010 could be possible
Industrial energy efficiency has improved since 1972, now requiring just 67% as much energy per unit of output
Electric Utilities
Without international emissions trading, utilities would likely have to make absolute reductions on the order of 30% in carbon
emissions below 1990 levels, in order to offset the increases above with even substantial reductions in energy growth rates in
buildings and industry, while at the same time supplying more electricity to customers
Renewable energy sources would increase by 25%
Combined cycle natural gas plants today can generate electricity while emitting about 2/3 less carbon than many existing coal
plants. Natural gas would roughly double its 1990 usage in the industry
Coal usage would have to drop to about one-third to one-half the 1990 level, while natural gas use would increase from 50% to
three times its 1990 level
appear inconsistent
With emissions trading, the coal-to-gas shift could be less severe, but electricity demand would also rise faster. Overall,
emissions would still probably have to be about 10% below 1990 levels in 2010
Shifts in the utility sector would offer other substantial air quality benefits. For example, fuel shifts and increased use of
advanced technologies could reduce Nox emissions by over 1/3.
Costs
How much these changes would cost the U.S. economy is uncertain. In some recent experiences, such as with the Montreal
Protocol on ozone depletion and the sulfur dioxide emissions trading system under the Clean Air Act, actual experience has
turned out to be substantially less costly than expected because market incentives were used
The interagency economic modeling analysis indicates that the economic incentives needed to reduce emissions to 1990 levels
by 2010 would be in the range of $100 per ton if all of the reductions were made domestically, about $50 per ton with
international emissions trading among developed countries, and as low as $20 per ton if both international trading and joint
implementation were available
DOE's "Labs Study" identified those technological changes that were estimated to be cost effective at an emission allowance
price of approximately $50 per ton
needs to note that they achieved 1990 in 2010
e $50 e *50/ton
6
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The true, net cost of such emissions reductions would depend significantly on how the revenues from any emission allowance
sales were recycled into the economy, and upon the degree of cost savings experienced due to reduced energy costs. The DOE
"Lab Study" projected that the majority of costs would be offset by energy savings, with net costs as low as $10b annually in
2010
Policy Issues
A commitment to cap carbon emissions would provide an immediate incentive to invest in energy efficiency, but because of
market imperfections, some additional measures could be needed to stimulate R&D, commercialize new technologies, and
purchase and use advanced technologies as capital stock turns over in the economy
7
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net
cost
DOE'S 'Labs Study'
"SCENARIOS OF U.S. CARBON REDUCTIONS
The Potential Impact of Energy-Efficient and Low-Carbon Technologies"
THE REPORT'S CONCLUSION
Technology can lower the net cost of stabilizing carbon emissions at 1990 levels in the medium term (i.e., 2010) to less than $10 billion
a year or less (0.1% of GDP). International trading or flexibility in meeting a stabilization target, considered by other studies, could
reduce costs by another 50% or more. The study assumes penetration of technologies from expanding Administration initiatives, such
as the PNGV, natural gas technologies, the Climate Change Action Plan and renewable energy such as wind and biomass.
BACKGROUND
Five DOE national laboratories, led by Oak Ridge and Lawrence Berkeley National Laboratories, have conducted a comprehensive,
extensively peer-reviewed, 1 year "bottom-up" analysis of the role technology can play in stabilizing U.S. carbon emissions. It is the
most authoritative and documented study of this subject since the National Academy of Sciences report and the Office of Technology
Assessment Report in 1991. The study documents in detail how four key sectors of the economy-buildings, transportation, industry,
and electric utilities-could respond to a climate treaty if launched in the year 2000 with a goal of stabilizing emissions in 2010 and a
U.S. cap and trade system is phased in with gradually rising permit prices. The National Laboratories study examined what effect an
aggressive program of research, development, and development of clean technologies could have if combined with alternative marginal
permit prices of $25/ton and $50/ton of carbon (the average permit price is much lower).
RESULTS
The study concludes that energy efficiency and low-carbon technologies have a very large potential to cost-effectively reduce U.S.
carbon emissions while meeting the full energy needs of U.S. businesses and families. Many consumers and businesses will save money.
8
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Under moderate technology and market assumptions, energy efficiency technologies alone can reduce emissions in 2010 by 120 MMT
(of the 380 MMT needed to stabilize at 1990 levels). This level of carbon reduction is estimated to be possible at little or no net cost -
that is, the energy bill savings far exceed the investments required to achieve the carbon savings. Under more aggressive assumptions
motivated in part by a $25/ton carbon permit price, a combination of energy efficiency, low-carbon technologies and relatively
inexpensive coal power plant conversions to natural gas can reduce 2010 emissions by a total of 225 MMT. Under a $50/ton carbon
permit price, technology investments reduce 2010 emissions by a total of 380 MMT. The analysis also suggests that substantial
additional savings are available if permit prices were to begin to rise above the $50/ton level.
The annual investment costs of reductions of this magnitude are estimated to be $50 to $80 billion per year, but result in substantial
energy bill savings. The resulting net costs are on the order of -$25 to +$10 billion per year in 2010.
METHODOLOGY
In contrast to the top-down economic modeling of the Administration's interagency team, the five laboratory study uses a bottom-up
technology-by-technology assessment as well as top-down engineering-economic modeling approach. It draws upon a wide variety of
technology cost and performance information to assess potential impacts. It has been peer-reviewed by industry and academic experts.
Analysis of the buildings, industry and transportation sectors quantifies the impacts of end-use energy efficiency improvements on
carbon emissions. A utility sector analysis estimates the impacts of those improvements on utility carbon emissions, and quantifies
additional emissions reductions through changes in operations and conversion of a number of coal power plants to natural gas. Finally,
a number of promising very low carbon technologies are examined to determine their potential for emissions reductions, including
advanced gas turbines in industry, biomass power, transportation biofuels and improved aluminum smelting.
TOTAL BENEFITS EXCEED TOTAL COSTS
In the long term, these climate change mitigation actions will provide additional benefits not fully considered in the study - reductions in
criteria air pollutants (i.e., ozone and fine particles), decreased dependence on foreign oil, greater industrial productivity, and U.S.
leadership in technologies are likely to be a major source of international trade and jobs in the next century. This report provides details
on the technologies that can potentially achieve the energy usage and carbon emissions reductions necessary if the U.S. commits to a
scenario like the one outlined in the sections above, which would return U.S. carbon emissions to 1990 levels by 2010.
9
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POLICY OPTIONS FOR A U.S. TECHNOLOGY STRATEGY
GOALS
To develop a set of policy options that can help establish the appropriate price signals in the economy, and then provide a set of
supplemental actions that will help overcome market barriers and otherwise facilitate an efficient response in the private sector:
encouraging manufacturers, builders, etc. to produce high efficiency equipment, systems, materials, etc.
stimulating consumers and purchasers to accelerate their acquisition and use of those technologies
encouraging the development of financial, service, and other infrastructure to support those technologies
A MENU OF POLICY OPTIONS
Prices in the economy
- Valuing carbon emissions rights, through a "cap and trade" system, which should be more efficient and less costly than
individual subsidies and incentives
- Investment tax credits, special depreciation treatment, differential fuel taxes (such as the ethanol tax credit), or other
financial incentives through the tax system
- Feebates, or complementary product fees and rebates depending upon product energy efficiency
Financing
- Enhance availability of financing through partnerships and innovative instruments with financial organizations
- Incorporate incentives into federal loan, loan guarantee, and grant programs to promote high efficiency technologies
Federal R&D policy
- National public/private initiatives in key technologies, modeled after the Partnership for a New Generation of Vehicles, eg:
in DOE's 7 "Industries of the Future" programs for Pulp and Paper, Chemicals, Petroleum Refining, Glass,
Aluminum, Iron and Steel, and Metal Casting
in DOE's "Buildings for the 21" Century" program for residential and commercial buildings
- Increased federal funding for R&D, pilot projects and demonstrations leading to commercialization and/or wider
availability of new technologies - current federal funding is just over $600 million annually
- "Bonus Emissions Credits" under a cap and trade system to reward development and deployment of advanced technologies
- Incentives for utility sector technology R&D incorporated into utility industry restructuring at the Federal and State levels
10
*PREDECISIONAL DRAFT* DO NOT QUOTE OR CITE
Continued
POLICY OPTIONS
continued
Market transformation
- Market aggregation, for local governments and companies to coordinate purchases for greater influence
- Business-government partnerships to provide information, demonstrations, and technical assistance
- Field verification of advanced technologies
Federal leadership through procurement
- Federal agencies "lead by example" by adopting aggressive policies to implement energy savings and renewable energy
technologies at federal facilities, and to acquire and use more efficient and alternative-fuel vehicles in federal fleets
- Broaden the participation in Federal Energy Savings Performance Contracts which DOE is implementing to leverage
private sector financing through third party energy services companies to reduce the federal government's $8 billion
annual energy bill
- Executive Orders to provide clear direction and management flexibility for greenhouse gas emission reductions
within agency plans and programs
- Green Power Purchasing, by which agencies can negotiate contracts to supply a fraction of their electricity from
renewable energy sources
Regulation and standards
- Appliance efficiency standards, negotiated with the industry and public, such as the recent refrigerator standards
- Building energy efficiency codes, implemented at the local, state, and federal levels, as appropriate
- Expedited environmental permitting for highly efficient or low carbon technologies
- Coordinated implementation of National Ambient Air Quality Standards with climate change policies
- Restructuring of the electric utility industry in a way that facilitates investment in new and renewable technologies
Information and education
- Voluntary or mandatory energy performance labels to internalize the asset value of energy efficiency, such as efficiency
labels on appliances, vehicles, computers, equipment, and commercial and residential heating and air conditioning systems
- Federally-supported multi-media materials development for use in schools and the mass media
International market development
- Special focus on bilateral trade agreements, export assistance, and financial assistance in support of U.S.-produced
advanced technologies for energy efficiency, renewable energy supplies, etc.
11
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
BACKGROUND ON KEY SECTORS
The material on these pages provides brief, thumbnail sketches of six key sectors of the economy, listed
below. For each, the information profiles the sector's current energy and carbon emissions profile and
trends, the types and extent of technological improvement needed under the scenario in which U.S.
emissions are returned to 1990 levels by the year 2010. These descriptions assume no emissions trading
or joint implementation, in order to provide a benchmark for further examination.
1.
Autos and Light Trucks
2.
Freight, Aircraft and Rail
3.
Residential and Commercial Buildings
4.
Electric Utilities
5.
Renewable Energy
6.
Industrial Emissions
12
*PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
Autos and Light Trucks
Carbon Emissions
Key Trends - 1990-2010
The transportation sector generates one-third of all energy-related carbon
emissions in the United States. Moreover, this is the fastest growing end-use
400
sector. Cars and light trucks (light duty vehicles) alone account for 58
300
percent of the total transportation emissions.
Million Metric Tons
Average fuel economy for new automobiles has been regulated at a minimum
200
27.5 mpg since 1985. It is projected to grow to 31 mpg in 2010. New
minivans, sports utility vehicles, and other "light trucks" now get 21 mpg and
100
are projected to get 23 mpg in 2010.
Light trucks were 20 percent of the personal vehicle market in 1974, 44
0
1990
2010
2020
percent in 1996, and are projected to be 50 percent by 2010. Assuming no
this
me
change in this trend, this will result in a declining overall fuel economy for all
Base
Technology
light duty vehicles.
this
Vehicle miles traveled have been growing 2-3 percent per year for the past 30
1.15.
Source: Markal-Macro 1.25 Stabilization Case
years and are expected to grow 1.4 to 2 percent or more per year through
Since me only explain 5labs
2010. Improved fuel economy
Stude, this may not come
will help maintain desired
across at clear
levels of vehicle miles traveled.
New Vehicle Fuel Economy
Needed Technological Improvements
50
45
By 2010, about 30 percent of new light duty vehicles would have to meet the Partnership
40
for a New Generation of Vehicles (PNGV) goal of a tripled fuel economy (e.g., 80 mpg
35
Average MPG
30
for automobiles) to help reduce overall carbon emissions to 1990 levels. On the other
25
hand, all new cars and light trucks would have to embody 30 percent of the improvement
20
15
represented by the PNGV goal (e.g., 45 mpg for automobiles).
10
On-Road fuel economy for all cars and trucks (including both new and existing vehicles)
5
0
would need to reach 25 mpg by 2010 and 31 mpg by 2020 compared to 20 mpg in 1995.
1980
1985
1990
1995
2000
2005
2010
2020
Key technologies needed are vehicle weight reduction through advanced materials and
Model Year
Autos
Trucks
Combined
13
Source: DOE Labs; Markal-Macro 1.25 Stabilization Case
*PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
design, hybrid/electric drivetrains, and improved aerodynamics.
Costs
If PNGV goals are met, the more efficient light duty vehicles will have no increased cost for consumers.
At currently anticipated technology costs, new autos in 2010 would have an incremental price of $800-1,200. At gasoline prices
forecasted for the year 2010, these higher costs would pay for themselves in fuel savings within 3.5-5.3 years.
PNGV is currently funded at $263 million (Federal share).
(note scenario
Policy Challenges
Achieve successful demonstration production prototype of PNGV vehicle by 2004.
Ensure that PNGV technologies fully penetrate all markets for all new light-duty vehicles by 2010 and continue through the period 2020.
Devise new commercialization strategies, including new approaches to fuel economy standards and market incentives (e.g., Green
Machine Challenge, financing packages, bonus emission credits).
14
*PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
Freight, Aircraft and Rail
If
Key Trends: 1990-2010
Freight, aircraft and rail together accounted for 185 million tons of carbon
Carbon Emissions
dioxide emissions in 1990, nearly 40 percent of all emissions from
transportation.
350
All modes of freight transport have improved their energy efficiency. However,
300
increased freight tonnage and shifts toward more energy-intensive modes have
250
Million Metric Tons
meant a 60 percent increase in the amount of energy used to haul freight since
200
1972-1995, although about three times as much freight was transported.
150
Opportunities to reduce carbon emissions from freight are expected to come
100
mainly from trucking and air transport.
50
0
1990
2010
2020
Base
Technology
Source: DOE Labs Study, 1997
Needed Technological Improvements
Key technologies to reduce energy intensity in truck freight in the next 10-15 years include vehicle weight reduction through materials
substitution (which could allow for heavier loads and thus fewer trucks, improved tires, electronic engine and transmission controls).
Larger reductions are possible beyond 2010 if hydrogen-powered, fuel cell powertrains are developed and commercialized for truck
transport. Also, a more aggressive technology scenario might include advanced diesel engines, rapid penetration of diesel trucks that are
25 percent more efficient than current diesel engines.
NASA programs have helped to reduce energy intensity in air transport for over 20 years. NASA's high performance turbine engine
technology program aims to achieve a 40 percent increase in fuel efficiency by 2003, and such engines could conceivably be on commercial
aircraft within 15 years.
15
*PREDECISIONAL DRAFT* DO NOT QUOTE OR CITE
Costs
The DOE Labs Study estimates that annual costs needed to achieve emissions reductions in 2010 in freight transportation range from $20-
25 billion, and could save K $27-40 billion annually in fuel costs.
whatpered to $35
Policy Challenges
Technology R&D is key to reducing energy intensity in trucks in the medium and long term. Hybrid powertrains could likely be
significantly advanced with increased R&D funding.
To achieve a high efficiency/low carbon technology scenario, R&D programs might need to be increased substantially.
16
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
Residential and Commercial Buildings
Key Trends - 1990-2010
Carbon Emissions
35% of U.S. carbon emissions are from energy use in buildings, with homes
emitting 19% and commercial buildings emitting 16%.
700
Energy intensity in buildings has declined substantially since the late 1970s.
600
Primary energy intensity in commercial buildings declined by 22% between 1979
500
and 1992, while residential primary energy intensity dropped by 15% since 1978.
Million Metric Tons
400
Buildings have become increasingly electrified - driven by rapid growth in office
300
equipment, small appliances and other devices collectively know as "plug loads".
200
From 1978 to 1992, commercial electricity consumption grew by 37%, while
100
residential electricity grew by 36%.
0
Due to continuing electricity growth, the EIA forecasts that future commercial
1990
2010
2020
energy intensity will decline by only 0.2% per year, and residential intensity by
Base
Technology
0.5% per year. However, numerous studies identify substantial additional potential
for cost-effectively reducing buildings energy consumption and greenhouse gas
Source: EIA, Markal-Macro, DOE Labs Study, 1997
emissions.
Needed Technological Improvements
Technologies needed to achieve the emissions reductions above largely exist today.
The large potential emissions reductions are not being achieved in current markets because of
a number of market barriers that impede the diffusion of energy-efficient technologies - such
Buildings Energy Intensity and 2010 Target
1
as lack of reliable product information; higher up-front costs; split incentives between
efficiency purchasers and beneficiaries; conflicting building codes; and lack of market
0.8
expertise in efficiency design, construction and financing.
To achieve the efficiency savings in 2010, the equipment that naturally turns over in about
Energy Intensity
0.6
35% of buildings is replaced with the most cost-effective technologies by 2010; these savings
assume normal retirement of equipment at the end of its useful life.
0.4
Energy efficiency improvements needed are 12% for residential buildings and 18% for
commercial buildings by 2010 VS. no sustained improvement from 1980 to 1995.
0.2
0
1979
1983
1986
1989
1992
1995
2010
17
Homes
Commercial
Source: EIA DOE Labs Studv 1997
*PREDECISIONAL DRAFT** DO NOT QUOTE OR CIT
Integrated renewable technologies in buildings can cut heating and cooling loads while directing cutting emissions.
Costs
The DOE Labs Study estimates investments to achieve these 2010 savings are $7-$14 billion per year and result in 2010 energy bill savings
of $18-33 billion - a net savings of $10-19 billion and a 20% return on investment.
DOE estimates costs of Federal programs to accelerate the use of energy efficient technologies in buildings are $300 million per year.
Policy Challenges
Federal, state and local policies that accelerate technology deployment and energy efficient building design, construction and operation.
Partnerships with states, local government and industry to improve efficiency of existing buildings and remove market barriers.
Research and development of a portfolio of advanced buildings technologies.
18
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITY
Electric Power
Carbon Emissions
Key Trends - 1990-2010
36% of US carbon emissions are in the electric utility sector, primarily
from burning of coal and natural gas.
700
Coal and natural gas together are projected to increase from 63% of
600
energy inputs to 70% by 2010, increasing the carbon intensity of this
500
Million Metric Tons
sector.
400
Demand for electricity is projected to rise by 20 percent per decade
300
compared to 30% from 1980 by 1990.
200
Renewable power (other than hydroelectricity) is projected to rise from
100
1.5% of generation currently to 1.8% in 2010.
0
1990
2010
2020
Base
Technology
Source: Markal-Macro 1.25 Stabilization Case
Needed Technological Improvements
No breakthroughs are projected in generation technology. Continued improvements will be
possible from combined cycle turbines, gasification for biomass fuels, wind turbines and
% Share of US Generation
system improvements (such as transmission efficiency).
First, end use electricity demand growth must slow -- efficient technologies can reduce
70
demand to 23% above 1990 levels by 2010, vs. a business as usual forecast of over 40%
60
growth.
50
Second, those reductions must primarily reduce coal-fired generation.
40
Third, remaining coal-fired generation must be reduced in favor of natural gas, through gas co-
30
firing, conversions to gas, and increased use of combined cycle gas turbines.
20
Beyond 2010, nuclear plant life extensions may be an economically viable option.
10
Renewables such as solar, wind, geothermal and biomass must be promoted for the long term,
1990
2010
2020
and must be accelerated to make a larger contribution.
Coal (base)
Coal (policy)
Gas (base)
Gas (policy)
19
Source: DRI 1.25 Stabilization Case
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
Costs
Cost estimates for the needed changes in the utility industry are under development at this time.
Policy Challenges
Aggressive R&D and marketing for energy efficiency sectors is essential.
Integrate climate policy with competitive trends and air quality regulation.
Incentives for shifting power to lower-emitting fuels -- pricing, emissions trading credits, promotion, regulation, and financing.
Incentives to develop emissions sequestration alternatives such as the capture and combustion of methane from landfills for power
generation.
20
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
Renewable Energy
Key Trends - 1990-2010
Carbon Emissions Savings
Today, roughly 12% of the country's electricity generating capacity is
from renewable energy - with 85% of this from hydropower. Newer
100
renewable technologies - including wind, biomass, photovoltaics, solar
90
80
thermal and geothermal - are increasingly economic and have large
Million Metric Tons
70
potential.
60
50
Costs have dropped dramatically -photovoltaic cells have dropped from
40
$0.90/kilowatt-hour in 1980 to under $0.20/kWh today, while wind
30
20
power has dropped from $0.25/kWh to $0.05/kWh.
10
Cost reductions will continue because of R&D advances and as
0
manufacturing process improvements and production rates decrease
1990
2010
2020
costs.
Base
Renewable
Cost performance improvements have resulted in several technologies
being competitive in selected markets today and others will be
Source: DOE Labs Study, 1997
B this
competitive in broader markets in the near future.
Several major international companies such as Royal/Dutch Shell, expect
ci/electric
these technologies to be dominant global energy sources and are
Dower
substantially investing in their development.
Needed Technological Improvements
The contribution of renewable electric technologies to emissions reductions could be substantially higher than projected in the base
case.
Costs and performance of these technologies continue to improve, but additional advances in wind, biomass, photovoltaics,
geothermal, solar thermal and transportation biofuels are needed - such as: wind turbine design for moderate wind speeds,
photovoltaics conversion efficiency improvements, geothermal drilling technology and resource verification, large-scale celluosic
biomass fuels production, and biomass combustion and integrating renewable technologies into building designs.
Non-hydro renewable energy generation capacity could grow from 9 gigawatts (GW) today to 21-24 GW in 2010 and 77-108 GW
by 2020.
21
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
Costs
According to the DOE Labs Study, the incremental capital investment in renewable power systems needed to achieve the above
results is $2-3 billion in 2010 and $15-25 in 2020 - although fuel cost savings in 2020 will result in net incremental costs that are
low or negligible.
As estimated by DOE, the incremental production cost of renewable electricity is estimated to be $2-3 billion/yr in 2010 and
negligible in 2020 as multiple renewable technologies are widely competitive with gas technologies.
Policy Challenges
Expand technology R&D to lower costs and increase performance.
Conduct cost-shared technology diffusion with industry to increase utility system experience and increase U.S. renewable energy
production capacity.
Conduct R&D on key support systems such as power storage, power conversion systems, controls and superconducting power
equipment.
Encourage use of U.S. renewable technologies abroad to tap the huge global market for renewable energy.
22
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITE
Industrial Emissions
Carbon Emissions
Key Trends - 1990-2010
Based upon EIA data for 1995, the industrial sector uses 37 percent of
the nation's energy, or 34 out of a total 91 quads. Carbon emissions are
700
now at about 33 percent or total emissions in the United States, or 464
600
of 1424 million metric tons (MMT). The industrial sector is second only
500
Million Metric Tons
to transportation in the growth of carbon emissions.
400
Electricity accounts for 34 percent of the total industrial carbon
300
emissions.
200
100
0
1990
2010
2020
Base
Technology
Source: Markal-Macro Technology Investment Case
Average Rate of Industrial Energy
Efficiency Improvement 2000 to 2010
Needed Technological Improvements
With normal rates of capital stock turnover, the industrial energy intensity
3%
is expected to decline at a rate of 1.2 percent in base case forecast for the
2.5%
period 1997-2015. Historically, energy intensity has decreased by an
average of 1.8 percent annually from 1972 to 1995. During this period,
average energy intensity declined by 3 percent between 1972 and 1985,
Annual Rate of Efficiency improvement
2%
1.5%
and then remained relatively unchanged from 1985 to 1995.
1%
The industry sector is also responsible for most of the non-energy related
0.5%
emissions of carbon dioxide (21 MMT) and other greenhouse gases (219
0%
MMT of carbon equivalent). Although industrial emissions of these gases
1972-1985
1985-1995
2010 Base
2010 Tech.
are far smaller than energy-related carbon emissions by weight, they have
Source: Markal-Macro Technology Investment Case
global warming potentials (GWP) that range from 21 for methane to
23,900 for sulfur hexafloride (SF6).
23
**PREDECISIONAL DRAFT** DO NOT QUOTE OR CITL
The industrial sector has the potential to reduce energy use by 10-15 percent over 2010 baseline forecasts through cost effective
investments in energy efficient technologies, and in some cases, low carbon technologies.
The use of heat recovery and combined heat and power (i.e., cogeneration) systems such as the Advanced Turbine System, can
reduce industrial carbon emissions by up to 35 MMT/year in 2010 with electricity costs that are 10 percent lower than current
systems.
Motor systems account for 70 percent of industrial electricity use (about 120 MMT). Better designed energy-efficient motor
systems could reduce electricity use by up to 40 percent. Better maintenance of compressed air systems can also save 40
percent of the energy used in such systems.
In addition, there are important longer term opportunities to reduce the carbon intensity of industrial operations through
changes in the fuel mix, and by using lower-carbon fuels.
Costs
There are readily-available but underutilized technologies with two to four-year paybacks that can reduce industrial energy use
by 10 percent or more. As referenced above, these technologies include more efficient motor systems, air compressors, and
process efficiency improvements.
DOE estimates that the cumulative investment necessary to reduce industrial carbon emissions to 1990 levels by 2010 is on the
order of $47 to $58 billion in the period 1998-2010. On an annual basis, this is about 3-4 percent of the total investments made
by the manufacturing sector in 1995. By 2010, annual energy savings are estimated at $8-10 billion (with all values in 1995
dollars) -- approximately a 17% to 20% return on investment.
Many of the most successful technologies have multiple benefits, including environmental- or productivity-enhancing may
actually improve the competitive position of many industries.
Policy Challenges
Policies to encourage the more rapid diffusion of existing technologies include: (1) incentives to accelerate the investment in
new capital stock and equipment; (2) increased RD&D to facilitate the development of improved technologies as well as the
development of a new generation of industrial technologies; (3) incentives to increase the use of recycled feedstocks; (4)
expediting the use of combined heat and power systems through improved environmental permitting and by incorporating
provisions into the ongoing utility restructuring that facilitate the sale of excess power by industrial plants; and finally (5) a life
cycle approach to environmental permitting and regulations.
24
16:17 MAY 19, 1997 ID: RFF
TEL NO: 202-939-3460
#5317 PAGE: 2/3
Executive Office of the President
Council of Economic Advisers
MAY 19, 1997
MEMORANDUM FOR: JASON SHOGREN
CC:
TOM RHOADS
FROM:
MIKE TOMAN
SUBJECT:
"JOINT IMPLEMENTATION" SOME DISCUSSION POINTS
You asked me to prepare some general points that could help guide CEA's thinking on
how joint implementation should be structured. Here are some general issues that need to be
emphasized, in my view:
(1) Transactions costs. On the one hand, it is true that the potential cost savings from JI for US
emitters are high enough that some transactions costs can be borne; and that some should be
borne to develop a system that is environmentally and politically acceptable. On the other hand,
past experience with emissions trading programs indicates that transactions costs can cripple
trading when there is no effective way to manage them. In this regard. for example, it would be
very counterproductive to require too many reviews of л proposals and performance from too
many parties, especially third parties who may have idiosyncratic interests and bear no costs for
frivolous challenges. There is simply no way to manage that kind of risk, and the rational
response of both investors and hosts will be to eschew many if not most possible projects. It
makes a lot more sense to have the project reviewed at the proposal stage, and then again after a
number of years (perhaps with random spot-checking; annual review is too burdensome and
doesn't provide scope for inevitable fluctuations in performance). If projects are found to be in
default, then whoever is responsible could be required to make restitution. The simplest way to
do this would be to require the emitter to retire an offsetting number of other carbon credits plus
a penalty, though putting all the burden on the credit buyer creates its own adverse incentive
problems (presumably insurance mechanisms could develop; this was a major point of contention
in the development of EPA's Open Market Trading Rule for O3 and VOCs).
(2) Additionality: these issues are in some ways extensions of the points above. There is
considerable concern about how to determine whether certain emissions reductions wouldn't have
happened anyway, leading some to conclude that there should be no JI (trading should only take
place within Annex 1 countries with national caps), or at least that JI should be restricted in
various ways. Additionality is a practical concern, but we have a lot of time (several years) to
work out some sensible, transparent, easily implemented protocols. Analysts at the IEA and
OECD, among others, already are engaged in this process, and it should be allowed to run its
16:18 MAY 19, 1997 ID: RFF
TEL NO: 202-939-3460
#5317 PAGE: 3/3
course. We should not let our current uncertainty about how to address the problem freeze us
into a very restrictive posture toward JI in the long term. In particular, we need to watch out in
trying to early to establish an "approved" list of Л project types that qualify for additionality, since
this is the way de facto design standards get created. (We do need to think about sequestration
differently from emissions reduction, but that is a specific narrower question.)
(3) "Paper Credits" and "Leakage:" A related question is whether it makes sense to have trading
involving non-Annex 1 countries, since their emissions are likely to be growing anyway. This
view reflects a basic misunderstanding of what JI is supposed to do. It is supposed to provide a
way to reduce the cost of achieving whatever emissions reductions targets are negotiated; and in
the process, it can provide a valuable spillover benefit by introducing climate-friendlier and
economically beneficial technologies into developing countries, reducing their baseline emissions
growth. If emissions reductions are additional, they necessarily are making emissions growth
slower than would otherwise have occurred.
(4) Discounting credits: some arguments have been made that Л credits should be discounted to
reflect a variety of factors, including uncertainty about additionality and monitoring, leakage, and
the desire to get non-Annex 1 countries into the Annex 1 trading system. As suggested above, I
think the leakage argument is specious. Discounting for uncertainty is possible, but it needs to be
handled with great care lest any incentives to improve performance be taken away, or that
discounting introduce an untoward bias in favor of some technology types over others. Better to
just get people to improve monitoring. Finally, discounting to induce participation in Annex 1
trading has it all backwards -- these countries are supplying a valuable service to us with JI, not
the other way around, and we should not be impeding the supply of that service. They do not at
this point have much incentive to opt into a national cap and trade system just because we shoot
ourselves in the foot by discounting JI credits.
I hope these thoughts are useful. Please contact me with any questions or comments.
16:17 MAY 19, 1997 ID: RFF
TEL NO: 202-939-3460
#5317 PAGE: 1/3
RESOURCES
FOR THE FUTURE
Facsimile Transmittal
To:
Jay Shogren
Fax : 93956853
CEA
Voice:
Date:
Monday, May 19, 1997 4:15 p.m.
From: Toman, Michael
Fax: 202-939-3460
Number of pages, including this cover sheet: 3
Mary -- I'd appreciate it if you could get this to Jay and
Tom at your earliest convenience. Thanks.
If you do not receive all pages noted above, please contact sender.
RFF Form 29 (rev. 7/96)
1616 P Street, NW Washington, DC 20036 Telephone 202-328-5000 Fax 202-939-3460
3/19/98
To: JA, RL, AM, JY
From: JF
Re: Proposal to phase out trading
Did you all see this? Did we know that this view was out there? Does the e-trading paper
address this view? If not, I think it should, as a first step to countering it if it comes up in
international negotiations.
Emissions Trading
In Warming Pact
The treaty, which would reduce the
average industrialized nation's emissions
May Be Phased Out
by 5% from the base year 1990. was opened
for signature yesterday at the U.N. Small
island nations and European Union coun-
tries are expected to be among the first to
By JOHN J. FIALKA
sign. The U.S. is likely to wait until after
Staff Reporter of THE WALL STREET JOURNAL
details are hammered out in Buenos
WASHINGTON - The emissions trad-
Aires.
ing that the U.S. pushed to be a permanent
The White House hasn't submitted the
feature of last year's global warming
treaty for Senate ratification because of
treaty may phase out after eight years,
strong congressional opposition. The Sen-
according to the head of the United Nations
ate has tied its approval to the application
commission that negotiated the pact.
of emissions controls to China and other
The practice will eventually discourage
major developing nations not subject to
the involvement of developing nations,
treaty controls.
6
which worry that emissions trades would
perpetuate pollution by industrial coun-
tries, said Ambassador Raul Estrada-
Oyuela, an Argentinian who heads the
U.N. agency in Bonn that is preparing for
1
the Kyoto, Japan, treaty's implementa-
-
tion. "We want to make sure we're not
creating a new crop for nations to sell." he
r
added.
Trading and compliance details are to
be included in negotiations set for this
November in Buenos Aires. Enforcement
F
THE WALL STREET JOURNAL
of limits for developed nations is scheduled
C
to begin in 200S.
a
Through trading. industrialized na-
TUESDAY, MARCH 17, 1998
tions can reduce the economic impact of
global controls on emissions of carbon
dioxide and other man-made "greenhouse
t
gases" thought to be warming the earth's
atmosphere.
:
A company could receive credit against
its country's limits by buying emissions
1
rights from companies that have reduced
:
warming-related gases below their limits.
Or the company could get credits by help-
ing developing nations reduce their emis-
sions, which might be cheaper than meet-
ing its country's limits.
02/03 '00 20:45
ID:SPF-301 Series
FAX:
PAGE
5
11/28/95
20:15
202 260 0512
AIR & ENERGY BR.
013/020
Exhibit 3 illustrates the results for model runs for the U.S. that select only cost-effective
carbon reduction options-those that are cheapest on the basis of life-cycle costs. By definition
of the models, these emission reductions has zero or negative costs associated with them. Most
of the studies indicate that emissions can be kept at or below base year levels for about 20 years.
The OTA and MARKAL studies indicate steadily rising emissions while the AEC study
indicates steadily falling emissions thereafter; the difference reflects different assumptions about
technology opportunities in the future. The EIA study considers only energy efficiency
improvements and is unable to match the others in terms of identified cost-effective
opportunities.
Exhibit 4 illustrates the lowest-carbon run undertaken by each U.S. study. The EIA
study results in only modest additional reductions in carbon emissions. All of the other studies
are able to reduce emissions below the base year. AEC reduces carbon emissions by 40 percent
by the year 2010. Exhibit 5 indicates the assumptions and cost-results for these studies. Only
the most aggressive carbon reduction case is included. For all but the MARKAL study, the
investments include a mix of those that save more than they cost ("no regrets") and those that
cost more than they save (for MARKAL, all measures have positive costs). The resulting
average costs may be positive (OTA, ICF, MARKAL) or, negative (ABC, OTA). Marginal costs
- the cost of the last ton of carbon saved tend to be significantly higher than average costs,
indicat that costs rise as the stringency of the carbon limit increases. (Average costs actually
fall in the AEC study as the stringency increases, even though marginal costs rise. This is due to
"no regrets" investments being brought in faster in the more stringent scenario.)
Economy-wide cost estimates. The Energy Modeling Forum at Stanford University
brought together 8 number of economic modelers to analyze carbon taxes, and they differed by a
factor of 5 in their conclusions as to how large a tax would be required to achieve specific
emissions goals. To the extent possible, key assumptions were standardized across models.
Most of the acenarios examined in the models assume initial reduction steps beginning in 1990.
Scenar 05 in which emissions reductions do not begin until 2000, and begin from the higher base
level projected at that time, would likely engender higher costs.
Exhibit 6 tabulates model estimates of U.S. GDP costs of emissions reductions.
Stabilizing emissions at their 1990 levels is generally estimated to reduce GDP by .2 to .7
percent in the year 2010, a $20-70 billion loss for that year. One macro study, however,
estimates the costs to be approximately 3% of GDP. These estimates assume a lump sum
redistribution of tax revenues, with no incentives effects on marginal tax rates. GDP losses
increase as the emissions target gets more stringent: estimated GDP losses in 2010 with a 20
percent reduction from 1990 range from .9 to 1.7 percent of GDP. Estimates range from $20 to
$150 per ton for the carbon taxes required to hold emissions at 1990 levels in 2010. To achieve a
20 percent reduction, model estimates range from $50 to $330 per ton. High carbon taxes were
required in models that assumed a low price responsiveness to higher energy prices and slow
adjustment of the capital stock.
Note however, that the above estimates are based on a pro-specified set of economic
assumptions imposed upon the modelers. When modelers are free to choose the economic
assumptions they consider most likely to materialize, the range of cost estimates is much wider.
For example, Montgomery, Hughs, and Yanchar (Global Climate Coalition) estimate that even a
$200 per ton tax, causing a 4.3% GDP loss, would be insufficient to attain the 20 percent
reduction goal by 2010. This same point applies to OECD and world estimates.
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Exhibit 6: GDP and Carbon Taxes in Carbon Emissions Reductions
in Economy-wide Models
Carbon tax level
% GDP loss
(per ton of carbon)
Model
Model Type
Stabilize
Reduce emissions
Stabilize
Reduce emisr kins
emissions at 1990
20% below 1990
emissions at 1890
20% below 1 130
levels by 2010
levels by 2010
levels by 2010
levels by 2010
United States
CRTM
Disaggregate
0.2
1
150
260
(Rutherford)
scon equil
DGEM
Disaggregate
0.6
1.7
20
50
(Jorgenson/Wilcoxen)
econ equil
ERM
Energy sector
0.4
1.1
(Edmonds/Relliy)
equil
Fossil2
Energy sector
0.2
1.4
80
250
(Belanger/Nail)
equil
Gemini
Energy sector
120
330
(Cohan/ Scherags)
equil
Global 2100
Aggregate
0.7
1.5
110
240
(Manne/Richels)
econ equil
Global Macro
Energy sector
20
50
(Pepper)
equil
Goulder
Disaggregate
0.3
1.2
20
50
econ equil
Green
Disaggregate
0.2
0.9
80
170
(Martin/Bumleux)
econ equil
MWC
Energy sector
0.5
1.1
70
180
(Mintzer)
equil
DRI
Macro
3
150
(Horowitz)
Other OECD
ERM
0.5
80
Green
0.3
40*
Global 2100
0.5
80
%GDP loss for other reduction k vels
World
% GDP loss
% reduction below
Stabilize at 1990 levels by 2020
1990 levels by 2020
%GDP kr 1:
ERM
1.1
Green
1.5
Global 2100
2.2
CRTM
0.8
Burnlaux
17
1.8
Edmonds / Barnes
22
1.9
Manne
13
2.9
Rutherford
15
1.5
*Has lower basetine & assumes rapid phase-in of backstop technologies.
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013/020
Exhibit 3 illustrates the results for model runs for the U.S. that select only cost-effective
carbon reduction options-those that are cheapest on the basis of life-cycle costs. By definition
of the models, these emission reductions has zero or negative costs associated with them. Most
of the studies indicate that emissions can be kept at or below base year levels for about 20 years.
The OTA and MARKAL studies indicate steadily rising emissions while the AEC study
indicates steadily falling emissions thereafter; the difference reflects different assumptions about
technology opportunities in the future. The EIA study considers only energy efficiency
improvements and is unable to match the others in terms of identified cost-effective
opportunities.
Exhibit 4 illustrates the lowest-carbon run undertaken by each U.S. study. The ELA
study results in only modest additional reductions in carbon emissions. All of the other studies
are able to reduce emissions below the base year. AEC reduces carbon emissions by 40 percent
by the year 2010. Exhibit 5 indicates the assumptions and cost-results for these studies. Only
the most aggressive carbon reduction case is included. For all but the MARKAL study, the
investments include a mix of those that save more than they cost ("no regrets") and those that
cost more than they save (for MARKAL, all measures have positive costs). The resulting
average costs may be positive (OTA, ICF, MARKAL) or, negative (ABC, OTA). Marginal costs
- the cost of the last ton of carbon saved - tend to be significantly higher than average costs,
indicat that costs rise as the stringency of the carbon limit increases. (Average costs actually
fall in the AEC study as the stringency increases, even though marginal costs rise. This is due to
"no regrets" investments being brought in faster in the more stringent scenario.)
Economy-wide cost estimates. The Energy Modeling Forum at Stanford University
brought together a number of economic modelers to analyze carbon taxes, and they differed by a
factor of 5 in their conclusions as to how large a tax would be required to achieve specific
emissions goals. To the extent possible, key assumptions were standardized across models.
Most of the scenarios examined in the models assume initial reduction steps beginning in 1990.
Scenar os in which emissions reductions do not begin until 2000, and begin from the higher base
level projected at that time, would likely engender higher costs.
Exhibit 6 tabulates model estimates of U.S. GDP costs of emissions reductions.
Stabilizing emissions at their 1990 levels is generally estimated to reduce GDP by .2 to .7
percent in the year 2010, a $20-70 billion loss for that year. One macro study, however,
estimates the costs to be approximately 3% of GDP. These estimates assume a lump sum
redistribution of tax revenues, with no incentives effects on marginal tax rates. GDP losses
increase as the emissions target gets more stringent: estimated GDP losses in 2010 with a 20
percent reduction from 1990 range from .9 to 1.7 percent of GDP. Estimates range from $20 to
$150 per ton for the carbon taxes required to hold emissions at 1990 levels in 2010. To achieve a
20 percent reduction, model estimates range from $50 to $330 per ton. High carbon taxes were
required in models that assumed a low price responsiveness to higher energy prices and slow
adjustment of the capital stock.
Note however, that the above estimates are based on a pro-specified set of economic
assumptions imposed upon the modelers. When modelers are free to choose the economic
assumptions they consider most likely to materialize, the range of cost estimates is much wider.
For example, Montgomery, Hughs, and Yanchar (Global Climate Coalition) estimate that even a
$200 per ton tax, causing a 4.3% GDP loss, would be insufficient to attain the 20 percent
reduction goal by 2010. This same point applies to OECD and world estimates.
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Exhibit B: GDP and Carbon Taxes in Carbon Emissions Reductions
in Economy-wide Models
Carbon tax level
% GDP loss
(per ton of carbon)
Model
Model Type
Stabilize
Reduce emissions
Stabilize
Reduce emis kins
emissions at 1990
20% below 1990
emissions at 1890
20% below 1190
levels by 2010
levels by 2010
levels by 2010
levels by 2010
United States
CRTM
Disaggregate
0.2
1
150
260
(Rutherford)
econ equil
DGEM
Disaggregate
0.6
1.7
20
50
(Jorgenson/Wilcoxen)
econ equil
ERM
Energy sector
0.4
1.1
(Edmonds/Relliy)
equil
Foseil2
Energy sector
0.2
1.4
80
250
(Belanger/Naill)
equil
Gemini
Energy sector
120
330
(Cohan/ Scherags)
equil
Global 2100
Aggregate
0.7
1.5
110
240
(Manne/Richels)
econ equil
Global Macro
Energy sector
20
50
(Pepper)
equil
Goulder
Disaggregate
0.3
1.2
20
50
econ equil
Green
Disaggregate
0.2
0.9
80
170
(Martin/Bumlaux)
econ equil
MWC
Energy sector
0.6
1.1
70
180
(Mintzer)
equil
DRI
Macro
3
150
(Horowitz)
Other OECD
ERM
0.5
80
Green
0.3
40*
Global 2100
0.5
80
%GDP loss for other reduction k vels
World
% GDP loss
% reduction below
Stabilize at 1990 levels by 2020
1990 levels by 2020
%GDP kr 8:
ERM
1.1
Green
1.5
Global 2100
2.2
CRTM
0.8
Burnlaux
17
1.8
Edmonds 1 Barnes
22
1.9
Manne
13
2.9
Rutherford
16
1.5
*Has lower baseline & assumes rapid phase-in of backstop technologies.
WORKING DRAFT
12
11/28/95
OUTLINE FOR EMISSIONS TRADING STUDY
I.
The Challenge of Global Climate Change
II. Reducing Economic Impacts Through a Cost Effective Approach -
Comparison of Command and Control versus Market-Based Approaches
III. Evolution of Emissions Trading Programs - Netting, Bubbles,
Recent Experience
IV. Characteristics of a Cost Effective Emissions Trading Program
A. Flexibility in When and Where Reductions Occur
1. Reducing Costs through Timing of Reductions
a. Potential for Cost Reductions
b. Mechanisms for Improving Flexibility in Timing
(1) Banking
(2) Borrowing
2. Reducing Costs through Choice of Location: Potential for Cost
Reductions
B. Incentives for Innovation and Diffusion
C. Low Transactions Costs and Broad Participation: Issues in
Market and Permit Design
D. Equitable Distribution of Effects of Program
E. Monitoring and Enforcement Costs
F. Impact on Ancillary Benefits and Costs
1. Effect on Costs on Other Environmental Programs
2. Leakages
V. Estimated Costs
VI. Issues:
A. Other Market Based Approaches
B. Domestic versus International Trading
C. Allocation Formula or Auction
D. Where in the Product Cycle to Impose Controls
E. Hybrid Approaches
F. Sinks
G. CO2 versus Greenhouse Gas Trading
Climate Change Agenda
September 5, 1997
CI
622-0563 Gruben
I. The big picture
A. What are the scientific uncertainties? SQUITIERI memo done, attaching article from
Science
Targets &
B. What obligations should we argue for in Kyoto? - FRANKEL paper in process
Timetables
C. How would we implement a program domestically to attain obligations that might be
agreed upon in Kyoto?
1. Domestic emissions trading paper Ray S.
2. Why are we so staunchly opposed to CAFE-type regulation? Ray S.
D.
What role might we expect technology to play in helping us to meet any obligations we
might assume in Kyoto? What is the proper role of government in fostering the
development of that technology? GILLINGHAM
j
E. How and when will developing countries participate? } dev. country data
F. How would any ilnternational agreement be enforced? state
G. What if Kyoto blows up? (Would we take unilateral action?)
Would another meeting between Yellen, Summers, and associates
be warranted to touch base on their vision of the big picture?
I. Domestic Emissions Trading
upstream
We are now working with EPA on a paper that will cover four options, representing the
convolution of upstream/downstream and auction/allocation (SQUITIERI).
1. Heavily revise EPA's version of the two upstream options (target: 9/5)
2. Receive EPA's version of the two downstream options (target: COB 9/4), and provide
comments (target: COB 9/8). These comments probably only need to state our
objections, and hit the low points.
see a previons
paper for background
3. Develop a clear written explanation of why we oppose tradable credits. Key points
should include the inefficiencies of CAFE-like approaches (doesn't penalize intensity of
use, impacts only market for new units, not existing); should draw on empirical literature
concerning the cost of the CAFE standards relative to a gasoline tax (target: COB 9/8).
4. Gardiner wants to talk things through face-to-face (especially our visceral opposition to
downstream options) after we've had a chance to look at the downstream stuff. After that
we can decide whether we need to append a statement to the effect that "the downsteam
options are vigorously opposed by the economics agencies."
5. Wrap-up (target: COB 9/10?)
II. Technology
A. GILLINGHAM and ALDY to draft stand-alone technology paper.
[Might include an argument along the following lines, supplied by Summers: Even if you
accept the 5labs report lock, stock and barrel, you get only X percent of the way there
without raising price. To get all the way there, you have to raise price by Y percent. This
would have the following implications for energy prices-x for coal, y for gasoline,
etc.-and would be roughly Z times as large as the BTU tax that was proposed early in
the first term.]
Transmit to D. WILLIAMS and B. BOORSTIN for comment
B. GILLINGHAM and ALDY(?) to lead the effort in commenting on technology options
paper when it arrives late next week
III. Targets and Timetables
A. FRANKEL & CO have produced draft. WILCOX has provided comments. Paper
currently under revision at CEA.
B. JONES memo near completion.
IV. Other Analytics
Laura
A. MULDOON to work on effects of policies on the typical family. (Rough draft expected
COB Friday, Sept 5)
B. GRUBER and JONES to work on incidence across income groups (Rough draft by
Sept ?)
C. ALDY (CEA) has completed memo on size of financial flows; has this been transmitted
upward?
D. MULDOON to work on political economy lessons BTU tax (Draft exists?)
E. MULDOON to work on political economy lessons of Carter oil allocation scheme.
(Rough draft by Sept ?)
F. SCHOLZ to work on incidence as between households and firms. (Might the paper by
Poterba, Rotemberg, and Summers be relevant here for shedding light on degree of pass-
through?)
G. SCHOLZ to work on revenue recycling. How does the prescription of academic public
finance theory translate into the real world? Why do simulations of empirical models
suggest that deficit reduction might be a better way to go than recycling? (Do they?)
Baselines for H. LDC's
GILLINGHAM to work on spelling out emissions baselines for developing countries that
check on CEA activity
would not involve either excessive restraint on growth nor large transfers of resources.
Randy
(Frankel recommends consulting his comments on State Dept papers. Gruenspecht may
also have ideas on this.)
involve they fanstors. always.
GRUBER and GILLINGHAM to work on developing principals for climate change.]
J. GRUBER, WILLIAMS, and BOORSTIN to work on the political economy of climate
change.
K. SQUITIERI has written a short memo on scientific uncertainties, and attached a copy of
the recent article from Science.
V. Papers in the Interagency process
A. We believe that the one-page summary from State is now a sufficient statistic for where
the process is on developing country commitments.
B. Paper by Justice on relationship between international and domestic trading - August 12
version is still the latest - WILCOX will provide comments 9/5 (Jim Rubin; 514-9050)
C. Paper on escape clause - FRANKEL working on analytics of when we would need escape
clause. (Would a Bill-Poole-style analysis be helpful here? The source of shocks matters.
If most uncertainty derives from aggregate demand shocks, then we might not need (or
even want) an escape clause. If most uncertainty derives from shocks to technology,
escape clauses seem very important.)
D.
Paper on competitiveness - (status?) Jon HAVEMAN (CEA) is writing a separate paper
on this topic. what are the odds ? what are the sources of
uncertainty? How mary periods was growth over 2% over mean?
E.
Paper on negotiating implications of different targets and timetables (At last word, Jeffrey
Hunker did not know that he and Pomerance had been tasked to write this paper. Status
unknown)
F. Paper on federal undertakings - status?
G. Paper on early credit - revised version received 9/4
K
H. Paper on transition assistance - on hold.
VII. Briefing for Rubin - GILLINGHAM
What happens if you have 5% growth rate in economy
borroning
Has Jon folded in Treasury comments? ? Get back to
Treasury
led
11 labs study
Sequestration
$12 million
efficiency
$ 10 million
1) capture & dispose
2) enhancing natural sinks
more uncertainty
20
iron fertilization of ocean
3) biomass mgt.
long range
genetic eng neering to
enhance co₂ sequestration of
plant life photosyruthesis
Difficult for new technologies in 1st budget
period
- increased funding
- Use coal more efficiently
- almost double energy efficient
of coal fired plant
5 labs study
- coal goes down 40%
- replace w/natgas
miners, coal transport,
Jay takes
202 586-4361
EIA director
sectoral impacts - testified
Dan Reicher
Asst Sec for energy eff.
586-9220
Sept. 22nd, 1997
TO:
ADELE MORRIS
FROM:
MARK LEVINE
SUBJECT:
Carbon tax effect on coal mining industry
Using data compiled by the Bureau of Economic Analysis for the period from 1969-1996, it is
quite apparent that coal mining is an industry that has, since 1979, experienced consistent
declines in its total number of employees (from roughly 260,000 workers in 1979 to just over
100,000 in 1996). However, this decline in employment has been met with a modest increase in
absolute coal production over the same time period, particularly due to the increased mining of
subbituminous coal and lignite, thus indicating an increase in worker productivity. Per capita
real wages, which slowed down in 1979 after considerable growth in the ten years prior, have
only recently begun to increase.
In the event of a substantial carbon tax, it is very likely that the coal mining industry would
suffer greatly. With more than 80% of the workforce above the age of 35¹, it is unlikely that any
significant amount of displaced coal miners could be retrained for careers in other fields. The
states that would be affected most greatly by a carbon tax are West Virginia, Kentucky, and
Pennsylvania, which cumulatively account for 53% of all U.S. coal miners. The region that
would be hit hardest is the Southeast, where almost 56% of all coal miners are employed.
¹According to estimates from the Bureau of Labor Statistics that cover the period from
1992-1996.
Personal Income by Major Source and Earnings in the Coal Mining Industry, 1969-1996
(SOURCE BUREAU OF ECONOMIC ANALYSIS)
All figures in thousands of dollars
State
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1886
1987
1988
1989
1990
1991
1992
1993
1994
1995
1990
Alabama
52020
63875
63643
77133
88902
122520
191282
212093
263551
314469
377779
433399
416998
466600
388888
424634
455494
417190
402296
381387
357777
400589
401004
379320
368508
378892
423749
432444
Alaska
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
11015
(D)
12230
11947
(D)
(D)
(D)
10655
10910
12111
(D)
(D)
(D)
Arzona
332
1668
1924
2468
3923
6924
9973
16141
26029
34210
39199
46036
48294
55262
51312
(D)
(D)
(D)
55758
55153
53038
55320
57335
59128
60439
64233
64070
60815
Arkansas
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
5647
2910
3930
3075
4020
4216
3693
(D)
(D)
(D)
7592
(D)
9950
(D)
(D)
California
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
20644
(D)
(D)
(D)
34327
(D)
(D)
47190
60557
59344
(D)
58817
59247
Colorado
16299
25061
23908
27004
34687
68266
80773
76418
131917
155103
184572
212716
242480
257905
208054
231144
221004
197854
163083
156541
160506
182024
170519
187707
191161
201095
210699
194498
Connecticut
86
572
473
696
1193
3286
3801
2374
25741
27285
30855
37306
45158
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
9098
9996
11900
2085
2047
1771
Delaware
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
863
902
1759
1834
2105
1513
785
(D)
(D)
D C.
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Floride
77
291
364
581
745
2776
2731
2254
9261
9243
8608
10460
11699
15815
9224
12397
11883
10594
10475
14682
(D)
(D)
(D)
17231
(D)
15516
17378
18152
Georgia
38
107
183
778
777
2363
2684
2578
15303
12359
9687
9278
8852
9856
6950
7490
(D)
(D)
(D)
10321
6578
5727
5072
5748
2971
2364
2748
2850
Hawaii
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Idaho
144
393
364
491
622
1444
1590
894
1506
3463
3379
4015
3877
4022
2266
3628
3557
3523
3613
3533
3610
5759
5198
6592
3389
4452
5284
5363
Illinois
122020
139920
142440
178219
197612
228554
291478
339995
409447
416343
575535
635649
601712
734302
666163
712311
685984
667134
649813
613855
575813
594690
615510
579075
480878
525347
468427
439683
Indiana
32310
39639
40725
50434
58038
76854
103800
116713
179553
202822
242604
268777
293876
344870
305562
354208
316108
271413
(D)
241838
231814
278755
254249
236974
(D)
(D)
199798
205702
lows
1749
2826
2462
3544
2541
4437
5185
3233
8302
6660
7559
7830
7714
8694
6599
9282
8303
8255
(D)
(D)
6243
7978
12824
12114
(D)
(D)
(D)
(D)
Kansas
3124
3930
3966
5325
6846
6252
7868
9217
13672
19141
17459
20560
20025
20478
17045
20449
20499
18540
18410
(D)
18182
22764
24620
(D)
13706
(D)
11045
10061
Kentucky
201712
276621
314154
355449
409538
660452
920935
927633
1308301
1423653
1630650
1799413
1933621
2002506
1609039
1835028
1732092
1638224
1659638
1503272
1411500
1530103
1379759
1366619
1314337
1320632
1221945
1179738
Louisiana
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
15072
16791
8267
8175
9537
13349
18594
12501
14078
11916
(D)
(D)
Maine
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
3735
2060
3084
2964
2938
3552
2588
(D)
2199
507
(D)
(D)
(D)
(D)
(D)
Maryland
2660
4641
4378
4645
6677
15532
20097
17975
38033
38299
48741
65743
69036
71144
49440
(D)
56497
50103
48116
47307
39763
40519
57039
44558
30858
26246
26226
26588
Massachusetts
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
11298
11293
11438
19794
16217
21574
11143
9040
10256
10408
Michigan
153
466
437
532
622
2231
3469
1941
5221
7327
6387
8662
8356
10831
4961
8352
6562
6551
5777
6325
6318
10117
8419
9898
9134
8137
9195
9265
Minnesota
144
143
219
818
1762
4462
2706
2101
8204
8989
9499
9036
6916
11147
5789
9707
8101
7436
3552
8171
7190
13666
12094
4696
4832
6810
7760
7970
Mississippi
115
358
364
327
414
1312
978
637
1506
1443
2028
2548
2418
2908
1442
2177
2568
2152
987
(D)
1504
2199
1834
2105
(D)
1571
1814
1843
Missoun
10222
13662
14918
18581
22464
32175
41097
39754
60224
71020
75250
66747
74337
111094
94434
117088
114404
107338
84396
78711
59448
61465
82175
(D)
83767
50069
(D)
(D)
Montana
1148
1743
2309
2848
7200
10431
16864
19983
24785
40840
48065
52571
58137
58213
58550
61946
64498
62645
65022
64584
62024
63949
84207
72298
63148
61646
64530
60311
Nebraska
125
429
254
859
3163
7087
5012
2737
9038
7213
10364
13385
11631
14654
8240
12335
11263
10176
(D)
(D)
10530
17595
14305
(D)
(D)
7944
9440
9510
Nevada
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(D)
416
307
(D)
(D)
2106
2199
3354
4001
3698
2146
(D)
(D)
New Hampshire
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
o
0
0
New Jersey
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
7801
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
4537
6091
6796
6831
New Mexico
5034
6366
7589
8643
12590
20605
26455
27121
40767
51184
63575
80218
89683
102835
88261
(D)
(D)
(D)
101895
96197
68258
97553
104150
113652
130355
130231
125299
114410
New York
4133
4440
1505
2239
2191
4590
4565
5896
10541
11860
10740
13106
15133
17145
9732
16264
11858
11583
11249
10638
11131
13195
17281
(D)
(D)
(D)
8656
8746
North Carolina
192
416
377
220
486
1857
4108
1785
11488
6947
11570
13092
14174
18434
11166
18342
12655
10966
4342
3450
2707
4399
4367
4928
6735
11208
12784
13120
North Dekota
2818
4172
4181
4401
4754
6373
9495
13552
17247
23407
30750
36911
43857
49531
53999
57262
63184
57987
55650
55683
54718
56656
57846
61606
66769
65018
68130
67139
Ohio
95024
120334
128088
158849
173477
229762
320161
338919
437513
460545
530849
546293
510974
561466
488769
551134
514790
492398
(D)
401900
363060
378073
330732
300271
(D)
(D)
266377
274264
Oklahoma
6682
10699
15361
11371
12156
21596
29959
24616
55167
68685
69487
85283
96145
105512
77394
98698
85500
(D)
40007
33489
30281
35650
38660
39247
37486
32257
33104
35962
Oregon
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
13612
17160
16916
7284
5563
5743
Pennsylvania
305308
362393
367810
427778
481866
645580
640979
884322
1179965
1245452
1422619
1491144
1475562
1548742
1255814
1376145
1250224
1175318
1153329
1116670
1054268
1151096
1068010
1084131
1021272
1008874
1027609
1062697
Rhode Island
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1314
1571
1784
1782
South Carolina
38
143
183
204
103
657
856
255
646
297
470
670
644
(D)
(D)
(D)
(D)
(D)
(D)
(D)
5438
6912
12785
4689
4150
1667
2136
2162
South Dakota
48
222
296
284
1119
2026
2147
1222
1563
3760
3605
4709
3916
4609
2884
4535
4348
4500
(D)
(D)
712
710
2630
1990
(D)
(D)
2179
2228
Tennessee
15736
19822
26967
30104
34674
67725
94246
87333
184033
197916
182409
202770
201266
213735
152886
179263
153617
144181
122788
121857
113678
116977
98516
86630
88715
82489
89132
94543
Texas
125
787
764
1226
2592
7958
7162
7184
23927
28217
35648
42963
60045
69220
60499
82828
88768
215917
215133
204353
199769
223431
250714
259379
213467
205716
211721
219417
Utah
13355
16070
17004
20386
24900
30497
44465
60903
72820
80740
114679
137955
159397
199798
130248
120449
126888
130513
126251
121986
118293
127583
119667
126460
121015
119938
122189
129562
Vermont
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
300
440
507
(D)
(D)
(D)
(D)
(D)
Virginia
104639
139300
145204
172933
191373
285630
381855
398041
610909
611353
694688
813288
870919
902688
685454
830118
720091
628246
596865
572161
514537
553469
534519
532488
503358
499559
475050
447712
Washington
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
41381
(D)
(D)
(D)
(D)
(D)
41720
44272
39515
47562
48437
47803
West Virginia
437717
538168
557537
671110
682878
798638
1118292
1249645
1414080
1507493
1641461
1871176
1920064
2152401
1705090
1823414
1670643
1618047
1564073
1485704
1418285
1588740
1538459
1513105
1257837
1405552
1432422
1369969
Wisconsin
95
965
219
859
1244
2756
2689
1082
3658
4041
5407
4351
4154
4022
2472
4535
5335
4500
3552
5462
5114
8598
5886
6426
7164
6580
7523
7634
Wyoming
4074
11815
13653
17369
22359
48706
63663
72410
136719
163492
184074
253741
284711
294287
286754
293344
292673
275668
250211
253832
244247
262077
273052
276824
280967
284777
293589
307847
Region
Far West
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
86742
(D)
85608
91775
(D)
(D)
(D)
116531
136900
131584
123394
130243
130964
Great Lakes
249602
301324
311909
388693
430993
540157
721597
798650
1035392
1091078
1360782
1481732
1418872
1655291
1467927
1630540
1528779
1441996
1395455
1269380
1182119
1268233
1214796
1132644
998715
1059199
951320
936768
Mideast
312330
371724
373876
434866
491686
668065
867842
912301
1236916
1302486
1490533
1579761
1567215
1645317
1320932
1461516
1325986
1244368
1223697
1178467
1108887
1209461
1148068
1143058
1065027
1051615
1071853
1107429
New England
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
39168
(D)
45836
(D)
(D)
(D)
(D)
26329
32888
25870
14563
16231
16114
Plains
18230
25384
26294
33612
42649
62812
73510
71816
118250
140190
154486
159178
170396
220207
168990
230658
230100
214232
(D)
180737
157023
180834
206494
182271
191085
144368
156977
148108
Rocky Mountain
35020
55082
57238
68098
89768
159344
207355
230608
367747
443638
534769
660998
746602
814225
685872
710511
708620
670003
608160
600476
588680
641392
652643
671881
859680
671908
696291
697581
Southwest
12173
19520
25638
23710
31261
57083
73549
75062
145890
182296
207909
254480
294167
332829
277466
335991
335244
456815
412791
389192
371344
411954
450859
471406
441747
432437
434194
430604
Southeast
813884
1042638
1113077
1313860
1414389
1951904
2732594
2895648
3644723
4109757
4576979
5175663
5398266
5803880
4581048
5150874
4783936
4495142
4384529
4110159
3859344
4246510
4019280
3932952
3583312
3741516
3701891
3585432
National
United States
1444000
1820000
1916000
2275000
2518000
3471000
4713000
5014000
6829000
7362000
8421000
9429000
9727000
10612000
8633000
9646000
9051000
8654000
8346000
7866000
7378000
8095000
7835000
7704000
7097000
7239000
7159000
7053000
(D) corresponde to undeclosed figures
Wage and Salary Disbursements in the Coal Mining Industry, 1969-1996
(SOURCE: BUREAU OF ECONOMIC ANALYSIS)
AB figures in thousands of dollars
State
1969
1970
1971
1972
1973
1974
1975
1976
1977
1976
1979
1980
1981
1982
1983
1984
1965
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
Alabama
42258
50232
51070
63490
71812
93186
148253
168297
184730
211969
272748
307121
295701
337784
284427
321002
352364
309735
292241
296165
292808
323474
317223
285573
276829
291848
327547
336122
Alaska
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Arizona
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Arkansas
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
1002
1164
(D)
1896
1016
925
1361
1381
1390
1553
2019
1589
(D)
229
California
0
0
0
1326
1440
1683
2075
1936
1993
1617
78
4
18
23
(D)
(D)
(D)
(D)
(D)
(D)
171
808
(D)
439
559
647
(D)
323
Colorado
12240
14519
14496
17496
20247
25665
38067
47059
64639
92572
123348
138457
151361
153083
130180
139009
139677
122967
(D)
(D)
115537
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Connecticut
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
Delaware
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
D.C
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
Florida
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
358
Georgia
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
83
Hawaii
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Idaho
0
0
0
0
0
0
0
2
0
0
0
0
0
0
0
0
0
0
(D)
(D)
0
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Illinois
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
575129
522669
583569
(D)
(D)
503651
(D)
(D)
(D)
(D)
467926
379882
420003
372465
350014
Indiana
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
214455
204399
236702
(D)
199462
194211
183770
190593
221649
192457
176249
158282
165343
144516
149801
lowe
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
3984
3746
2529
2336
(D)
(D)
(D)
(D)
(D)
0
0
Kansas
2541
3079
3154
4359
5486
4382
5781
6989
8814
12702
11443
13033
12962
12981
11286
12930
13069
10478
(D)
(D)
(D)
11829
(D)
(D)
(D)
5919
(D)
(D)
Kentucky
160837
208089
237665
275909
314748
460207
651922
701594
822484
919352
1079463
1145798
1276842
1304256
1067921
1213398
1187794
1133047
1127591
1052615
1042432
1115517
1018261
969364
910276
956499
880954
825889
Louisiana
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Maine
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Maryland
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
24657
27969
24598
21652
(D)
(D)
(D)
(D)
(D)
(D)
(D)
20766
20625
(D)
Massachusetts
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
(D)
(D)
(D)
0
(D)
(D)
(D)
0
(D)
(D)
Michigan
0
0
0
0
0
0
447
397
401
323
244
234
257
0
(D)
(D)
(D)
(D)
(D)
0
0
0
0
0
0
0
0
0
Minnesota
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
(D)
(D)
(D)
0
(D)
(D)
(D)
(D)
(D)
Mississippi
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Missoun
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
51491
(D)
(D)
58450
52412
49052
40243
42403
48735
46177
60491
32404
36425
30400
Montana
824
1005
1621
2113
5450
7352
12521
15760
19308
29986
36357
39185
44028
43541
44831
48543
52466
49820
(D)
(D)
46315
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Nebraska
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(D)
(D)
Nevada
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(D)
(D)
(D)
(D)
(D)
0
0
0
0
(D)
(D)
(D)
(D)
New Hampshire
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
New Jersey
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
New Mexico
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
125
86529
79715
78497
75603
62194
86208
90459
103692
106890
101983
93327
New York
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
714
(D)
(D)
0
0
0
0
0
0
0
0
0
0
North Carolina
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
0
(D)
(D)
(D)
0
0
North Dakota
2330
3324
3433
3723
3962
5192
7844
11242
14003
18856
24714
29655
35197
39750
43218
47980
54579
48475
(D)
46087
47888
47815
48634
51508
56808
55313
58045
57279
Ohio
77344
93514
100936
126615
136874
163579
237017
266942
291831
304583
370312
367403
349384
381815
(D)
(D)
365211
347680
(D)
(D)
(D)
(D)
(D)
210162
187548
201622
168020
174646
Oklahoma
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
31531
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
Oregon
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
9236
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
Pennsylvania
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
794504
748634
703675
665007
637332
662761
507333
590942
506446
510660
488433
(D)
Rhode Island
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
South Carolina
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
South Dakota
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
0
0
0
0
0
0
0
0
0
0
(D)
(D)
(D)
(D)
Tennessee
12275
13653
18315
20521
21205
30060
50602
54556
66358
85793
84823
87030
91862
89044
70376
75828
76222
69265
62039
59258
57441
54404
36605
29801
25808
25138
24275
(D)
Texas
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
195072
152275
140905
144261
150307
Utah
11081
13055
13980
17032
20573
24604
36211
50317
58030
64422
92330
110278
126935
158402
101808
96991
104674
105770
98236
99241
103057
107562
99727
102149
98558
97219
98706
105305
Vermont
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Virginia
81993
101851
108589
133649
144231
181866
248436
288967
317894
318705
393245
437021
476123
500206
397993
467934
450963
420912
(D)
(D)
393195
413688
394731
392935
360566
345267
318750
293951
Washington
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
West Virginia
360006
433238
455775
556339
562621
630229
887914
1013753
1062381
1092005
1234544
1384386
1426597
1600817
1268545
1392638
1307335
1235095
1161418
1138877
1164361
1290928
1253689
1207002
966821
1094046
1106054
1054637
Wisconsin
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Wyoming
1751
3165
5109
7985
9904
15177
24127
45670
71031
97613
120321
166722
194283
199527
205264
216932
232381
216850
195123
204382
209440
220790
230481
232522
238871
238992
246983
260388
Region
Far West
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
41025
(D)
(D)
(D)
(D)
(D)
(D)
44392
50289
47720
42882
40978
40514
Great Lakes
204426
239336
251280
314999
344949
399684
546734
632998
722152
749398
981603
1033705
1003272
1171399
1071153
1208711
(D)
1091797
1030947
960984
957832
994112
921286
854339
725712
786968
685001
674461
Mideest
251165
288509
289718
344555
377978
454450
617616
690481
757304
778362
946633
946566
960224
979079
837869
902818
819358
770586
726286
686741
660214
686521
631534
613078
526878
531426
509058
(D)
New England
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
(D)
24167
20964
(D)
(D)
(D)
(D)
(D)
(D)
(D)
4921
4274
7915
(D)
240
(D)
Plains
14252
18402
19348
23002
26584
29558
40716
49130
58298
74051
87428
79807
86660
108457
108650
124937
135024
121387
112379
106511
99333
104055
106402
106377
125135
(D)
101233
93562
Rocky Mountain
25898
31744
35206
44626
56174
72798
110926
158808
213008
284593
372356
454642
516607
554553
482083
501475
529198
495407
439635
455124
474349
500226
505249
508829
515363
523087
540250
542566
Southwest
8199
11590
13175
15319
17718
24449
36800
47750
68150
97393
117775
143494
171662
(D)
168118
198576
207811
316387
300104
294082
294766
313680
328905
352105
318905
312361
309647
306509
Southeast
658200
808141
872854
1051722
1116452
1397869
1992298
2234061
2463889
2636266
3070829
3365419
3573565
3835673
(D)
(D)
(D)
3173935
3061066
2961416
2957320
3205537
3028311
2892709
2549372
2721463
2643593
2547403
National
United States
1164000
1400000
1486000
1801000
1949000
2390000
3360000
3829000
4317000
4659000
5621000
6076000
6375000
6898000
5820000
6470000
6312000
6041000
5734000
5529000
5492000
5858000
5571000
5382000
4817000
5013000
4830000
4742000
(D) corresponde to undisciosed figures
Coal Production, 1969-1994
Values are in million short tone
1969
1979
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1995
1986
1987
1988
1982
1990
1991
1992
1993
1994
571
612.7
560.9
602 5
598.6
610
654.6
684.9
697.2
670.2
781.1
829.7
823.8
838.1
782.1
895.9
883.6
890.3
918.8
950.3
980.7
1029.1
996
997.5
945.4
1030.5
Worker Productivity in the Coal Mining Industry. 1969-1994
All values in thousand short tone per worker
1921
1992
1993
1994
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1989
1981
1982
1983
1984
1985
1986
1907
1988
1989
1990
4.06
4.08
3.69
3.67
3.63
3.30
2.96
2.89
281
2.77
2.97
3.21
3.37
3.34
3.88
4 25
4.42
4.83
5.46
6.12
6.59
6.85
7.18
7.60
8.13
8.98
Worker Productivity in the Coal Mining Industry, 1969-1994
10
a
Thousand Short Tons per Worker
$
Productivity
4
2
0
1969 1870 1971 1972 1973 1974 1875 1978 1977 1978 1979 1980 1961 1882 1983 1964 1803 1988 1987 1983 1988 1880 1891 1982 1983 1994
Year
02/13/98 FRI 12:15 FAX
€ U U 1
OF STATE
Department of Energy
Germantown, MD 20874-1290
OF
DATE: FEB 13, 1998
Office of Nuclear EMERGY Science & Technology
ENGINEERING AND TECHNOLOGY DEVELOPMENT, NE-50
TO: Adele Morris, CEA FAX # 202/395-6870
FROM: John HERCZEG, DIE e-mail Address: [email protected].
telephone: 301/903-9887
RAX 301/903-1510
Pages excluding cover: 5
NOTES: 1 Brookhaven NAt'l LAb- CO2/Nuclear Power Study
Contact PERSON- U.S. Rohatgi 516/344-2475
2
Attachments A Nuclear ENERGY Plant Optimization
B
Nuclear ENERGY Research Initiative
PLEASE CONFIRM/NOTIFY MISSING PAGES. X Nuclear ENERgy FACT Sheet
(See Bullet #4)
(301) 903-3456 OR 903-5447
(301) 903-1510 (FAX#)
Printed with soy ink on recycled paper
John Herezeg (301) 903-9887
People to call about coal & nuclear
sequestration
Pittsburgh Energy Tech Project-
(412) 892 - 4890 (412) 892 - 4890 Deseman
(301) 403-4675
State's briefing Inaterials
charts
Phil Doherty 586-7950 DOE tech guy
586-6660
- Coal Jae Braitsch
586
TOTO
Bob Porter 5% 9682 6503
loal Technologier off.
586-1650
Gouray Rudins
talked
John Gutridge (301) 903-1632
mediar to about Nuclear
John Herczeg (301) 903 - 9887
Bill Magwood A 586 - 6630
generalist
Ofc. of Nuclear Energy
586-6450 586 - 6450
Science & Tech.
office of energy of hany to
.A.
Bill Melman
DOE Basic Energy Sciences (301) 903-5865
PETER.KARPOFF @ hq.doe.gov
04/02/98 09:29:00 AM
Record Type:
Record
To:
Adele C. Morris
CC:
Subject: Following Em Trdg meeting at State Dept.
Dear Adelle,
It is always a bit frustrating to me at these meetings when we open a
topic and then move on without concluding it. I wanted to say a bit
more about your nomination of the pure seller liability option, but I
couldn't get speaking space at the right time. At the end of the
meeting Jonathan kept pure seller liability on the table, saying that
he had heard some in favor and no fatal criticsim. His motivation may
have included the fact that some of the "big guys" have spoken
favorably of pure seller liability and you can't go against the big
guys. I assume that you defended the idea either because you favor
it, or because you have not seen the group make a sufficient
(dismissive) critique and you want to hold US to a high logical
standard (perhaps as devil's advocate) or perhaps for other reasons.
Anyway, I think there are some imporant negatives about strict sellers
liability that have not yet been aired. So here is my view of pure
seller liability.
From a simple feasibility perspective I think pure seller liability is
tough to implement. The transaction may occur in year 1, but the
final validity of the allowance sold may not be determined until year
5 or later. By the time the liability, if any, of the seller is known
the sale is so distant that the proceeds may be gone and the liable
sellin country
seller may be unable or unwilling to pay. An escrow is not a perfect
answer because the time period is so long. Escrow impounds are
usually for fairly short period while exposures are actively resolved,
not for long periods. Surety bonds are not the right tool in this
case either.
Next, for true versions of pure seller liability we need to have the
seller liable, not the alternative form in which the buyer is liable
with access to a legal remedy against the seller. That would impose
too much of a burden on buyers by allowing them (i.e., forcing them)
to pursue sellers to make good on promises to buyers. Chasing a
seller and even getting a judgment is far different from getting
payment on that judgment. Seller liablity should mean that the Fccc
Secretariat undertakes to collect directly from the defaulting seller
in the event of default. Can we really imagine the FCCC Secr. going
after defaulting Parties? Especially in light of the option that any
Party has to quit the agreement?
In light of the long period between the sale and a potential default
finding, the questionable ability of the FCCC/Secr. to enforce against
the selling Party no matter how quickly it can proceed, and the
opportunity of any seller to simply quit rather than face an onerous
penalty make seller liability a non-feasible choice. This door must
be locked before the horse has escaped, not five years after. I think
the only feasible choice is to make the sales proceeds reflect
concurrent compliance probablities, so that sellers get about the
right revenues from the start so as to minimize the need for
subsequent adjustments.
I think escrow and insurance schemes are also unworkable answers for
this case. Insurance is defeated by the moral hazard aspects of this
problem. In the dynamic, insurance charges have to be experience
rated. Here, experience rating will tend toward a 100 percent premium
for the worst issuers. at any lower premium they have an incentive to
take the money from sales and default in the polar case. An the polar
case is what you get since performance (or non-performance) is fully
within the control of the insured. Control by the insured over the
insured outcome is the classic hallmark of an uninsurable event.
Likewise for escrow, apart from the earlier point about the long
duration of the escrow, for the big defaulters, if any, an escrow of
less than 100 percent will create an incentive to default for a
financial gain. But any large escrow interferes with use of the
revenues for energy efficiency investment and monitoring costs and in
a way increases the chances of default. For the bad guys any escrow
will be too small; for the good guys any escrow will be too large. In
either case revenues will be denied for valid purposes.
I come back to the same conclusion, that we need some way to limit
revenues to the expected value of allowances at the time of the
transactions. I still like the market verdict on sale prices with
constant market review. I don't think the FCCC SEcr. will ever get
the authority to make discretionary judgments against the soverign
Parties.
Peter Karpoff
16:31 MAR 31, 1998 ID: EPA OAR-OPA LINE2145 TEL NO: 000-0000
#14845 PAGE: 1/4
Fax Cover Sheet
EPA
Cc: RL
JA
Please Deliver to:
Adele Morris
JF
AMeoria
Sent to Fax #:
395-6958
Company: CEA
From:
SHARON SAILE
Fax #:
000-0000
Voice:
Pages: 4
Message:
Interagency Emissions Trading Workgroup
RE: Meeting at State (room to be determined)
Tomorrow, Wednesday, April 1 (no fooling!)
1:15-2:30pm
TOPIC: Further discussion of buyer seller liability issues
ATTACHMENT: DOE draft paper
This will be a working staff level meeting for
discussion. The issue might be discussed further at the
Assistant Secretary level meeting next week, among all the
issues which need to be discussed at that time.
If you can't make it, please call me for a summary sharon
UNITED STATES
PROTECTION AGENCY
16:31 MAR 31, 1998 ID: EPA OAR-OPA LINE2145 TEL NO: 000-0000
#14845 PAGE: 2/4
Emissions Trading; How to Apportion Liability for Compliance Failure
Compliance rules must be enforced to maintain integrity of the national emissions assignments.
Trading in emission allowances involves a mix of characteristics from both commodity and bond
market trading. Safeguarding the environmental values and the interests of trading participants
requires a blend of practices from these two markets.
Trading raises the importance of enforcing compliance, since non-compliance is the route to
financial profit and trading allows Parties to put into circulation some allowances that might lie
dormant without the trading opportunity. Neverthcless, with trading the required compliance
rules are the same ones needed for ordinary compliance. The integrity of emissions limits will be
strengthened if Parties that fail to meet compliance requirements, especially if they are net sellers
of allowances, can be held liable for their non-compliance.
In commodity trading, the concept is "what you see is what you get." Once the commodity
specification is written, conforming delivery is secured by the certain prospect of secured cash
penalty in the absence of conforming delivery. For trade in gold, for example, performance by the
seller requires timely delivery of specification-grade gold. The delivered commodity itself is
sufficient evidence of its own validity. By contrast, trading in bonds, representing a promise of
the issuer's performance, requires continual assessment of the underlying promise to pay, in order
to determine value and prices. Trading in emission allowances can be pushed to either model.
Emissions trading via instruments whose compliance value is guaranteed by the international
authority is like commodity trading. So long as the guarantee is trusted, the allowances can trade
as a commodity; what you see is what you get and a tonne is a tonne. The value of an allowance
derives from its guaranteed compliance value. By contrast, if the authority reserves the right to
adjust the compliance value of the allowance based on some subsequent occurance, then trading is
more like bond trading and the value of the instrument depends on market assessment of the
promisor's likelihood of performance. How, and even whether, allowances will trade and be
valued depends whether their compliance value is guaranteed or subject to adjustment for
conditions outside the control of the holder
Seller vs. Buyer liability for non-compliance:
Pure seller liability: A seller would unconditionally guarantee attainment of its adjusted emissions
target in support of any allowance sale. This is a commodity market model, but unlike most
commodity trades, compliance may not be determined until long after allowance sales; the power
to compel subsequent cure of a compliance deficiency, or to exact indemnity from a sovereign
Party that is unwilling or unable to cooperate, is lacking. Seller liability may be impossible to
enforce.
Modified seller liability: All sellers would agree, in advance, to escrow a share of allowance sale
revenues or provide 3rd party performance bonds for their end-of-period emission compliance
obligations. This plan has the disadvantage that some net sellers will be counting on their
16:32 MAR 31, 1998 ID: EPA OAR-OPA LINE2145 TEL NO: 000-0000
#14845 PAGE: 3/4
allowance sales proceeds to cover monitoring costs and the cost of investments to further improve
energy efficiency and emission performance. Performance bonds may be costly for the Parties
that need them most. Insurance is not viable because the insured event is too much subject to the
control of the insured Party and the Party may, in the short-run, gain more from default than from
compliance. The insurance cost will be unfairly high for those who comply and too low for those
who default. The issue is akin to the 1980 S&L problem. The problem is summarized by the
economic term "moral hazard" and creates incentives for a downward spiral toward progressive
non-compliance and the parallel withdrawal of all insurers.
Pure buyer liability: Under this option, buyers of allowances can use (tender) them for emissions
compliance (i.e., receive the anticipated value) only to the extent that sellers retrospectively, meet
their emission commitments. This is a bond market model. The determination of compliance
value is made long after some sales occur. Unless buyers can get effective guarantees of
performance from the originator of purchased allowances or reliable assessments of risk, the
buyer holds a very uncertain instrument. This risk, even in small doses, is unattractive to buyers
and even less attractive to traders. Buyer liability for sellers' future emissions performance would
likely be fatal to emissions trading, where, unlike the case of "full faith and credit" guarantees,
secure guarantees of performance across national boundaries are unlikely.
Modified buyer liability: If the FCCC Secretariat held the power to deny compliance tender value
to allowances not supported by emissions compliance of the first issuer (a bond market model),
the direct compliance burden would fall on buyers, but an informed market could achieve
substantial shifting of the compliance burden to sellers. For example, allowance trading could be
conducted according to these rules:
Traded allowances are identified as to original nationality and serially identified by date of
their first recorded trade. For untraded allowances, the date of submission to the FCCC
Secretariat for compliance determines the serial priority,
In the event of a Party's non-compliance, some allowances originating from that Party
would be invalidated, starting from the latest dated allowances and proceeding backward,
until the remaining quantity matched the Party's compliance achievements (i.e., domestic
emssions do not exceed retained allowances, and exchanged allowances do not exceed
avoided emissions),
Annual reports would reveal each Party's compliance progress (emissions) and AEU sales
rate, thus permitting the market to assess how many allowances from each Party are likely
to be valid, and a quality-adjusted price for each point in the serial sequence,
Market prices for allowances would reflect expected probabilities of validity. Private
tools, such as rating services, compliance consultants, derivative contracts, and portfolio
syndications would arise to permit risk management strategies.
Market information, both public and private, would permit shifting of risk exposure back
to sellers through the market prices that informed buyers would offer for allowances of
varying probable value. In the end, each allowance would be good or bad; all good
allowances would have the same compliance value. Market information would permit a
gradual sharpening, over the course of the budget period, of the price differential between
expected good and bad allowances around the expected validity cut-point for each Party.
16:33 MAR 31, 1998 ID: EPA OAR-OPA LINE2145 TEL NO: 000-0000
#14845 PAGE: 4/4
Direct imposition of compliance burdens on buyers, but with substantial information given to
sellers, can create a hybrid system of liability that shifts a significant share of the compliance
burden to sellers and creates a significant market incentive for seller compliance, even when the
direct compliance process is administered on buyer/holders of allowances.
Private steps in the trading process following emission assignment under the FCCC with modified
buyer liability rules:
Parties may, at their option, assign some allowances to sub-national entities.
Holders may offer to sell allowances, to be identified by nationality and serially numbered
in ascending order.
Buyers offer prices, based on assessment of end-of-period compliance of seller. Highest
prices will be offered for first issuances, which are the first to be honored within each
nationality class. Later issuances carry greater risk of non-compliance bumping and will
generally command lower prices.
Rating agencies could offer assessments of the likely validity cut-off point for each issuer.
Prices of allowances traded would reflect market consensus of future validity with
continual adjustment of perceptions as compliance expectations change.
Parties that show credible compliance reports will get higher prices for larger proportions
of their sales offerings. Poor reports will limit the opportunity to sell allowances except at
very low prices and for limited quantities. Speculators might enter to buy cheap
allowances to rehabilitate them prior to the compliance date.
At the end of the compliance period, FCCC Secretariat announces which allowances are
valid. Nations make compliance tender of valid units and added compliance, as needed, to
complete compliance.
Supplemental compliance methods, like borrowing from the second budget or an agreed
"excess emissions fee" will be needed to permit national compliance in the event that
insufficient valid allowances remain to permit first period compliance.
Official steps in the trading process under modified buyer liability rules:
Emissions amounts assigned to Parties,
Compliance authority agrees to permit allowance trading,
Following any sale, the recording agent accepts joint order to record transfers;
The recorder notes the nationality and places a serial number on newly-recorded
allowances, and maintains the existing identifiers for previously traded allowances.
At the end of the budget period, FCCC Secretariat announces which allowances are valid
for compliance, based on the compliance showing of each issuer that traded.
Parties supplement surviving allowances, if necessary, to complete compliance by
borrowing, open market purchases, or pre-specified default payments.
Prelim. Draft: 3-28-98, for comment only
Peter Karpoff
3/31/98 TUE 18:22 FAX 202 647 5713
EB/FRONT OFFICE
002
THGE:
1/4
Fax Cover Sheet
EPA
Please Deliver to:
Victoria Greenfield
Sent to Fax #:
647-5713
Company:
State
From:
SHARON SAILE
Fax #:
000-0000
Voice:
Pages: 4
Message:
Interagency Emissions Trading Workgroup
RE: Meeting at State (room to be determined)
Room 4325
Tomorrow, Wednesday, April 1 (no fooling!)
1:15-2:30pm
TOPIC: Further discussion of buyer seller liability issues
ATTACHMENT: DOE draft paper
This will be a working staff level meeting for
discussion. The issue might be discussed further at the
Assistant Secretary level meeting next week, among all the
issues which need to be discussed at that time.
If you can't make it, please call me for a summary sharon
UNITED STATES
PROTECTION AGENCY
03/31/98 TUE 18:22 FAX 202 647 5713
EB/FRONT OFFICE
003
Marks
Emissions Trading; How to Apportion Liability for Compliance Failure
Deter Kar -poff
wrote show
Compliance rules must be enforced to maintain integrity of the national emissions assignments.
Trading in emission allowances involves a mix of characteristics from both commodity and bond
market trading. Safeguarding the environmental values and the interests of trading participants
requires a blend of practices from these two markets.
Trading raises the importance of enforcing compliance, since non-compliance is the route to
financial profit and trading allows Parties to put into circulation some allowances that might lie
dormant without the trading opportunity. Nevertheless, with trading the required compliance
air
rules are the same ones needed for ordinary compliance. The integrity of emissions limits will be
strengthened if Parties that fail to meet compliance requirements, especially if they are net sellers
of allowances, can be held liable for their non-compliance.
In commodity trading, the concept is "what you see is what you get." Once the commodity
specification is written, conforming delivery is secured by the certain prospect of secured cash
penalty in the absence of conforming delivery. For trade in gold, for example, performance by the
seller requires timely delivery of specification-grade gold. The delivered commodity itself is
sufficient evidence of its own validity. By contrast, trading in bonds, representing a promise of
the issuer's performance, requires continual assessment of the underlying promise to pay, in order
to determine value and prices. Trading in emission allowances can be pushed to either model.
Emissions trading via instruments whose compliance value is guaranteed by the international
authority is like commodity trading. So long as the guarantec is trusted, the allowances can trade
as a commodity; what you see is what you get and a tonne is a tonne. The value of an allowance
derives from its guaranteed compliance value. By contrast, if the authority reserves the right to
adjust the compliance value of the allowance based on some subsequent occurance, then trading is
more like bond trading and the value of the instrument depends on market assessment of the
promisor's likelihood of performance. How, and even whether, allowances will trade and be
valued depends whether their compliance value is guaranteed or subject to adjustment for
conditions outside the control of the holder
Seller vs. Buyer liability for non-compliance:
w sde liable so
Pure seller liability: A seller would unconditionally guarantee attainment of its adjusted emissions
target in support of any allowance sale. This is a commodity market model, but unlike most
commodity trades, compliance may not be determined until long after allowance sales; the power
to compel subsequent cure of a compliance deficiency, or to exact indemnity from a sovereign
Party that is unwilling or unable to cooperate, is lacking. Seller liability may be impossible to
too quickly
dismused
enforce. (?)
Modified seller liability: All sellers would agree, in advance, to escrow a share of allowance sale
revenues or provide 3rd party performance bonds for their end-of-period emission compliance
obligations. This plan has the disadvantage that some net sellers will be counting on their
03/31/98 TUE 18:23 FAX 202 647 5713
EB/FRONT OFFICE
004
THGE
3/4
allowance sales proceeds to cover monitoring costs and the cost of investments to further improve
energy efficiency and emission performance. Performance bonds may be costly for the Parties
that need them most. Insurance is not viable because the insured event is too much subject to the
control of the insured Party and the Party may, in the short-run, gain more from default than from
compliance. The insurance cost will be unfairly high for those who comply and too low for those
who default. The issue is akin to the 1980 S&L problem. The problem is summarized by the
suppose
economic term "moral hazard" and creates incentives for a downward spiral toward progressive
non-compliance and the parallel withdrawal of all insurers.
Pure buyer liability: Under this option, buyers of allowances can use (tender) them for emissions
compliance (i.e., receive the anticipated value) only to the extent that sellers retrospectively, meet
their emission commitments. This is a bond market model. The determination of compliance
d
value is made long after some sales occur. Unless buyers can get effective guarantees of
performance from the originator of purchased allowances or reliable assessments of risk, the
buyer holds a very uncertain instrument. This risk, even in small doses, is unattractive to buyers
and even less attractive to traders. Buyer liability for sellers' future emissions performance would
likely be fatal to emissions trading, where, unlike the case of "full faith and credit" guarantees,
when
secure guarantees of performance across national boundaries are unlikely
rost
Modified buyer liability: If the FCCC Secretariat held the power to deny compliance tender value
to allowances not supported by emissions compliance of the first issuer (a bond market model),
DUE
the direct compliance burden would fall on buyers, but an informed market could achieve
substantial shifting of the compliance burden to sellers. For example, allowance trading could be
conducted according to these rules:
Traded allowances are identified as to original nationality and serially identified by date of
their first recorded trade. For untraded allowances, the date of submission to the FCCC
Secretariat for compliance determines the serial priority,
to
In the event of a Party's non-compliance, some allowances originating from that Party
would be invalidated, starting from the latest dated allowances and proceeding backward,
be
of
until the remaining quantity matched the Party's compliance achievements (i.e., domestic
gaming the system
emssions do not exceed retained allowances, and exchanged allowances do not exceed
avoided emissions),
Annual reports would reveal each Party's compliance progress (emissions) and AEU sales
rate, thus permitting the market to assess how many allowances from each Party are likely
to be valid, and a quality-adjusted price for each point in the serial sequence,
Market prices for allowances would reflect expected probabilities of validity. Private
tools, such as rating services, compliance consultants, derivative contracts, and portfolio
syndications would arise to permit risk management strategies.
Market information, both public and private, would permit shifting of risk exposure back
to sellers through the market prices that informed buyers would offer for allowances of
varying probable value. In the end, each allowance would be good or bad; all good
allowances would have the same compliance value. Market information would permit a
gradual sharpening, over the course of the budget period, of the price differential between
expected good and bad allowances around the expected validity cut-point for cach Party.
(an't be determined
until after end of Com pul,
casting don't or everyone's compliance
03/31/98 TUE 18:23 FAX 202 647 5713
EB/FRONT OFFICE
005
PHGE
4/4
Direct imposition of compliance burdens on buyers. but with substantial information given to
sellers, can create a hybrid system of liability that shifts a significant share of the compliance
burden to sellers and creates a significant market incentive for seller compliance, even when the
direct compliance process is administered on buyer/holders of allowances.
Private steps in the trading process following emission assignment under the FCCC with modified
buyer liability rules:
Parties may, at their option, assign some allowances to sub-national entities.
Holders may offer to sell allowances, to be identified by nationality and serially numbered
in ascending order.
Buyers offer prices, based on assessment of end-of-period compliance of seller. Highest
prices will be offered for first issuances, which are the first to be honored within each
nationality class. Later issuances carry greater risk of non-compliance bumping and will
generally command lower prices.
Rating agencies could offer assessments of the likely validity cut-off point for each issuer.
Prices of allowances traded would reflect market consensus of future validity with
continual adjustment of perceptions as compliance expectations change.
Parties that show credible compliance reports will get higher prices for larger proportions
of their sales offerings. Poor reports will limit the opportunity to sell allowances except at
very low prices and for limited quantities. Speculators might enter to buy cheap
allowances to rehabilitate them prior to the compliance date.
At the end of the compliance period, FCCC Secretariat announces which allowances are
valid. Nations make compliance tender of valid units and added compliance, as needed, to
complete compliance.
Supplemental compliance methods, like borrowing from the second budget or an agreed
Liver
"excess emissions fee" will be needed to permit national compliance in the event that
who
insufficient valid allowances remain to permit first period compliance.
Official steps in the trading process under modified buyer liability rules:
Emissions amounts assigned to Parties,
Compliance authority agrees to permit allowance trading,
Following any sale, the recording agent accepts joint order to record transfers;
The recorder notes the nationality and places a serial number on newly-recorded
allowances, and maintains the existing identifiers for previously traded allowances.
At the end of the budget period, FCCC Secretariat announces which allowances are valid
for compliance, based on the compliance showing of each issuer that traded.
Parties supplement surviving allowances, if necessary, to complete compliance by
borrowing, open market purchases, or pre-specified default payments.
Prelim. Draft: 3-28-98, for comment only
Peter Karpoff
me
and
Price
Trading P
price
4
reduction
Kyoto
Savings
from
target
savings from
not complying
not complying
(Autarky) (10w/MC
( (Autarky- -
country)
high
MC
Draft 1/04/98: please do not cite or quote
Annex I Expert Group on the UNFCCC
Emissions trading paper: draft 1 April 1998
Objectives
At the March 1998 Annex I Expert Group meeting, "The Group agreed that for 1998 the first
priority will be a product that will reflect delegates' views on principles, modalities, rules,
and guidelines for emissions trading, with a focus on verification, reporting, and
accountability. The objective of the product will be to underpin Annex I Parties' input to the
UNFCCC meetings in June and November 1998. Where there is agreement in the Group on
any issue, the paper will note the agreed view. For any issues where there is a range of
views, the paper will note the different views.. (meeting report). The objectives of this
draft paper are:
i.
to reflect views of Annex I Parties on principles, modalities, rules, and guidelines for
emissions trading.
ii.
to underpin Annex I Parties' input to the June and November UNFCCC meetings.
Approach
The paper aims to reflect Annex I Party views. It is concise, and is not analytical in nature.
For this first draft paper, the secretariat has drawn on views expressed during the March 10
and 11 meeting, ideas from earlier work, and comments received on the outline that was
presented at that meeting. This document will be revised in line with comments received by
10 April for discussion at the May 12 and 13 meeting in London.
Process
Delegates are encouraged to post their comments and any papers or views they wish to
contribute on the Annex I Expert Group password protected web site. Alternatively, please
send your comments and papers in an electronic file to Fiona Mullins for inclusion on the
web site. This web site provides an electronic discussion group that will greatly facilitate
exchange of views. All delegates will be able to read (and respond to) the comments of other
delegates as soon as they are posted.
The timing of draft papers and deadlines for comments and meeting schedule are as follows:
March 19
comments on the structure and the type of issues that should be covered in the new
"principles, modalities, rules, and guidelines" emissions trading paper
March 31
first draft emissions trading paper
April 10
substantive comments on this draft paper, reflecting views on the issues
May 4
second draft emissions trading paper for discussion at the May meeting
May 12 & 13
Annex I Expert Group meeting in London to discuss next steps on emissions trading,
including possible products for the June and November UNFCCC meetings.
Sept 10 & 11
Annex I Expert Group meeting in Paris to discuss products for COP4 and beyond.
1
Draft 1/04/98: please do not cite or quote
Principles, Modalities, Rules and Guidelines for Emissions Trading
(in particular for verification, reporting, and accountability)
PRINCIPLES
Consistency with Protocol and UNFCCC provisions
1. Emissions trading should be fully consistent with and supportive of all provisions of the
Kyoto Protocol.
2. Emissions trading should accord fully with UNFCCC principles.
Note: the UNFCCC principles are referred to in the Kyoto Protocol preamble "Being guided by
Article 3 of the Convention". The main points of these principles are noted below for information:
3.1 protect the climate on the basis of equity common but differentiated responsibilities and
respective capabilities.
3.2 needs and special circumstances of developing country Parties
3.3 take precautionary measures policies and measures should be cost-effective so as to
ensure global benefits at the lowest possible cost. should take into account different socio-
economic contexts, cover all relevant sources, sinks.
3.4 policies should be appropriate for specific conditions of each Party
3.5 promote a supportive and open international economic system. measures should not
constitute a disguised restriction on international trade
Environmental effectiveness
3. Emissions trading should not compromise the environmental objectives agreed to under
the Kyoto Protocol. Any transfers or acquisitions should be verifiable, and emission estimates
should be of good quality so that all Parties have confidence in the system.
Economic efficiency
4. Emissions trading should facilitate economic efficiency in the achievement of the Kyoto
Protocol targets, and should have clear and simple rules, and low set up, administration, and
transaction costs.
Equity
5. Implementation of emissions trading should not create any additional inequities, or give an
unfair advantage to any one Party or group of Parties.
6. The market for transfers and acquisitions should be open, transparent, and competitive.
(this principle relates to both equity and economic efficiency).
2
Draft 1/04/98: please do not cite or quote
MODALITIES, RULES AND GUIDELINES
Eligibility criteria:
1. Annex I Parties with commitments listed in Annex B of the Protocol that comply with
Articles 5 and 7 and meet the further requirements [reference relevant paras e.g. paras 7, 8,
and 12 below], and authorised legal entities in those Parties, shall be eligible to transfer or
acquire parts of assigned amounts.
Public listing of participants:
2. Parties and legal entities that are eligible to trade must be listed on a public bulletin board.
Market institutions for an open, competitive and transparent market:
3. Transfers and acquisitions shall be carried out at an official international auction held
periodically.
or
4. Parties shall notify the UNFCCC prior to any transfer, and the UNFCCC secretariat shall
make information on the quantity and price of the transaction available to all Parties that are
eligible to trade.
or
5. Transfers and acquisitions may be carried out through any brokers, exchanges, or auctions
that are established to facilitate transfers.
Unit of transfer:
6. The international unit of trade shall be metric tons of CO₂ equivalent calculated using the
global warming potential value defined by decision 2/CP3, or as subsequently revised in
accordance with Article 5.3.
Estimating emissions:
7. Use of the IPCC guideline methods for estimating emissions and removals (as required by
Article 5.2 and decision 2/CP3) shall be clarified for Parties that wish to transfer or acquire
parts of assigned amounts according to adjustments to the guidelines that may be agreed by a
COP/MOP to make data collection and estimation methods more comparable.
8. Parties that wish to transfer or acquire parts of assigned amounts shall agree to use
consistent and transparent emission estimation methods, including data collection. (note: this
could be an eligibility requirement)
9. Parties that wish to authorise legal entities-to transfer or acquire parts of assigned amounts
shall agree to meet enhanced requirements for monitoring the emissions of legal entities. (note:
this could be an eligibility requirement)
3
Draft 1/04/98: please do not cite or quote
Accounting for units transferred:
10. Accounting of tons of CO₂ equivalent transferred shall be consistent with any accounting
and reporting requirements or guidelines that are elaborated under Article 7 of the Protocol.
National recording:
11. Governments shall record all transfers or acquisitions of CO₂ equivalent units that are
carried out by government and by legal entities.
12. Information on emission reductions transferred by firms and projects shall be recorded by
national governments at least annually.
13. Parties that wish to authorise their legal entities to transfer or acquire parts of assigned
amounts shall have in place effective national systems for monitoring and enforcing legal
entities' emission limits and tracking their transfers and acquisitions. (note: this could be an
eligibility requirement)
Reporting transfers and acquisitions:
14. Information on quantity of CO₂ equivalent units transferred or acquired, including the
country to which units were transferred to or from which units were acquired from, shall be
submitted to the UNFCCC secretariat for each year, consistent with the frequency of reporting
determined in accordance with Article 7.
International recording:
15. The UNFCCC secretariat shall record all transfers and acquisitions, and publish, on an
annual basis, a tabulation of all transfers and acquisitions made in the previous year and the
adjustments to assigned amounts required under Articles 3.10 and 3.11.
International review:
16. Parties that wish to transfer or acquire parts of assigned amounts shall be subject to
enhanced review, additional to that required under Article 8 of the Protocol, of national
emission inventories, projections, monitoring systems.
Trading of assigned amounts of the six GHG and sinks:
17. Any part of an assigned amount can be traded, including the sink categories that may be
used to meet commitments under Article 3.
New entrants:
18. New entrants shall be subject to the same eligibility conditions as Parties already in the
trading system.
Non-compliance:
19. Parties are responsible for national non-compliance with their assigned amounts at the
end of the commitment period (even if sub-national entities make transfers).
4
Draft 1/04/98: please do not cite or quote
20. Annex I Parties that do not comply with rules and guidelines for emissions trading shall
be subject to the non-compliance provisions agreed under Article 18.
21. Parties that wish to trade shall be subject to interim review of their progress towards
compliance during commitment periods.
22. A Party whose emissions are in excess of its emissions budget in any commitment period
may acquire, but not transfer, any part of its assigned amount.
23. If a question of possible non-compliance by an Annex I Party, or failure to implement the
requirements of Articles 5 or 7, is identified in accordance with the provisions of Article 8, or
if Parties fail to comply with any principles, modalities, rules, and guidelines for emissions
trading, transfers and acquisitions may continue to be made after the question has been
identified, provided that any such acquisitions may not be used by a Party to meet its
commitments under Article 3 until any issue of compliance is resolved.
Supplemental to domestic action:
24. Parties shall not make acquisitions equivalent to more than x% of their assigned amount,
including acquisitions made by authorised legal entities.
25. The supplementarity of trading shall be the subject of in-depth review with periodic
assessment by a COP/MOP.
26. Parties shall not transfer, under Articles 6 and 17, any more than y% of their assigned
amount, including transfers made by authorised legal entities.
Changes (i.e. participants, trading rules etc.):
27. Changes in the Parties that are eligible to trade, and changes in trading principles,
modalities, rules, and guidelines shall apply in subsequent commitment periods or at least X
years after the change is agreed.
5
041417DT WPD
Page 1
Comment Draft
The middle, bulleted text is my view of the minimum provisions for trading. Comments invited.
Pre-requisites taken from the basic system of Targets and Underlying Compliance
Party acceptance of targets (assignments) and compliance obligations,
Definition and creation of allowances,
Procedures for reporting and monitoring national emissions,
Establishment of a compliance system.
Minimum compliance system: Harsh glare of public scrutiny on non-compliance at end of
budget periods (or additionally at any interim checkpoints, or for anticipated defaults).
Minimum additional requirement to establish a trading system
AEUs transferable among holders
AEUs of any national origin acceptable in international compliance
Establish a recording system for international trades
Impose responsible control over the supply of new AEUs and fungible substitutes (CDM)
Establish credible sanctions for instances of compliance failure (may be no more than the
spotlight of public opinion as noted above).
The Follow-on Role for the Market (if not pre-empted by exclusive government action):
Establish a place (or virtual place) for trading to occur,
Establish allowance prices, given the definition of allowance attributes,
Establish broker communities to permit secure trading between private entities,
Establish low-cost practices for recording temporary and/or unofficial trades,
Devise derivative trading instruments (contracts) for futures and options trading,
Provide private information about price-influencing aspects of various national allowances,
Provide diversified portfolios and portfolio insurance to permit risk management.
Comment draft
protocol?
6. Could rules affect a
Message Sent To:
Adele C.
Robert J
greenfiey
meridam
ray.squit
mark.ma
jonathan
protocol?
6. Could rules affect an umbrella?
Message Sent To:
Adele C. Morris/CEA/EOP
Robert J. Tuccillo/OMB/EOP
greenfieva @ ms6820wpoa.us-state.gov @ inet
meridame @ ms6820wpoa.us-state.gov @ inet
ray.squitieri @ treas:sprint.com @ inet
mark.mazur @ hq.doe.gov @ inet
jonathan.gruber @ treas.sprint.com @ inet
03/18/98 WED 13:59 FAX 202 647 4037
MARIO MERIDA
DEPARTMENT
FAX
To:
Adele Morris- - C
Phone:
Fax phone: 395-6870
8
REMARKS:
Urgent
Copy 06 the revi
for the next A
today'r 4pm mt
told otherwise.
new "cover sharet
1
through
+
2
officia
net
Regmatic
on
3
Conseque
off
03/18/98 WED 13:59 FAX 202 647 4037
EB/ESC/IEC
001
MARIO MERIDA
DEPARTMENT OF STATE,
2201 C STREET, NW, WASHINGTON, DC 20520
FAX
Date:
3/18
Number of pages including cover sheet:
5
To:
From:
Adele Morris- CEA
EB/ESC/IEP/ECC
Phone:
Phone:
(202) 647-2231
Fax phone: 395-6870
Fax phone:
(202) 647-4037
CC:
REMARKS:
Urgent
For your review
Reply ASAP
Please comment
Copy 06 the revised cover sheet for the NE paper
for the next A/S discussion on trading. CI thought
today'r 4pm mtg. was on trading but have been
told otherwise .) Ar I mentioned, on this
new "cover sheet" we have concerns that:
1
throughout : trading day not make
the commitments "annual" - we still
de have a 5yr- - period!
2
official trades vs. Contract trades: we need
net mandate who assumes risk: this V
on issue for contract negotiation.
3
Consequencer: Yellow flaç presented as
official VSG proposal, which it 15 not.
Emissions Trading Attachment
Article 17 on Emissions Trading:
What are the significant features?
The penultimate draft said parties had the right
to trade "once" rules were adopted; the final
provision has a free-standing sentence containing
the right to trade.
While some countries had sought to put a
percentage limit on the amount of a country's
target that could be met through trading, the
final provision says only that trading must be
"supplemental" to domestic action (without giving
the Parties the authority to quantify this term)
Unlike other provisions, the Article refers to
"Annex B" rather than "Annex I" Parties. This
would allow developing countries, through an
amendment to Annex B, to participate in emissions
trading.
Unlike other provisions, the body charged with
developing the rules is the COP rather than the
COP/MOP; this could allow earlier establishment
of the rules.
What is missing that was in earlier drafts?
In order to engage in emissions trading, a Party
has to be in compliance with its measurement and
reporting obligations (now Articles 5 and 7), as
well as have in place a national mechanism for
the certification and verification of emissions
trades.
A Party may authorize intermediaries (which would
have been understood to include the private
sector) to participate in actions leading to the
transfer or acquisition of tons. [Note: Even
without such an explicit rule, we would interpret
the Protocol not to preclude private sector
participation.]
With respect to any trading in which they engage,
Parties were to submit annually to the
Secretariat information regarding the quantity,
Party of origin or destination, and the relevant
budget period.
-2-
Emission levels achieved before the start of the
first commitment period (so-called "superheated
air") could not be used as the basis for
emissions trading; such a provision is arguably
no longer necessary in light of Article 3.10 and
3.11, which refers to transfers and acquisitions
of "assigned amounts."
A Party whose emissions were in excess of its
allowed amount in any budget period could have
acquired, but not transferred, tons.
When a question was raised regarding a Party's
compliance with its reporting/measurement
obligations, transfers could continue to be made,
but transferred tons could only be used to meet
targets after the compliance issue had been
resolved.
630916CW.WPD
Page 1
THE SIMPLE STEPS OF AN EMISSION TRADE:
Buyer and seller, having met the preconditions (budgets,
monitoring, reporting), find themselves with compliance
obligations that do not match their emission unit balances.
Willing buyer and seller agree on a price and delivery date.
Buyer checks that originator of the offered allowances (either
seller or prior seller) was not on the public FCCC non-compliance
list at the time the offered allowances were first sold.
(If first seller is/was on the bad boy list, buyer may
still buy, but with notice that allowance acquired will not be
accepted for FCCC compliance until the seller's compliance
deficiency is cured. Impaired allowances may be cheap and may be
a good. value, depending what you know about the source and its
prospects for compliance.)
Seller determines that its anticipated emissions unit needs
permit it to sell.
Buyer pays the seller and seller delivers the allowances in a
simultaneous transaction or through an escrow arrangement.
Buyer may be a government in a G to G trade. Buyer may be a
private firm buying from a government seller, buyer may be a
firm buying frim a firm, or buyer may be a government buying
from a private firm. In each case the required safeguards
and authentications may vary.
As money and allowances change hands, the FCCC records the
transfer, debiting the seller's account and crediting the buyer.
These same allowances could trade further before their use
in emissions compliance. Interim trades may or may not be
officially recorded, but the last ownership change before
compliance use should be recorded.
At the end of the agreed compliance period, buyer/owner of the
allowance makes tender of allowances for its actual emissions. If
the direct owner of the traded allowance is a Party, the
allowance from trade may be submitted directly to the FCCC as
part ofinternational compliance. If the owner is a firm, it makes
a compliance tender to its national government (a Party). The
Party then can use that same allowance that it collected in its
national compliance process in tender to the FCCC as part of the
international compliance process.
As one of the enabling rules for trading, the international
compliance process must explicitly state that all valid
allowances are equal when tendered for compliance, regardless of
their national origin.
ID:
MAR 02'98 17:34 No 004 P.19
pollution emissions by 90 percent. These technological advances have been made
possible through the efforts of the Partnership for a New Generation of Vehicles
between the Administration and the U.S. auto companies and their suppliers.
Such progress may be replicated in other sectors. VCR$ and TVs, even
when off, consume about #1 billion worth of electricity annually. EPA has
established a partnership with major manufacturers that has a goal of achieving .
70% reduction In energy use, without eacrificing product quality, usefulness, or
increasing costs, This partnership offere pramise of substantial improvements In
energy efficiency.
Non-Climate Benefits
A final factor that should be Included in any comprehensive assessment
of the economic implications of the Kyoto protocol are the benefits of the
agreement. The literature has emphaelzed that any relative price shifts that prove
necessary to reduce emissions should produce non-climate benefits in three areas:
air pollution unrelated to climate change, traffic congestion, and highway accidents.
These benefits are hard to quantify precisely but are potentially significant> our
rough setimates suggest that these three benefits could offer 16-25% of any
keep
resource 0001 of the elimate change policy. Suggest deletong cerclass it
Synthesis
can be verivied by specific modeling
results as described in other parts of
A comprehensive evaluation of the Boonomic Impact of the Kyoto Protocol
must integrate all of the factors described above: reliance on flexible market-based the
mechanisms domestically; International trading and Joint Implementation among
Annex 1 countries; the Clean Development Mechanism; maaningful developing
country participation; the potential cost-mitigating role of including six gases and
Testimony.
carbon sinks: the benefite of electricity restructuring; and emissions reductions
achieved 88 a consequence of other proposed Administration climate change
initiativos. Assuming that effective mechanisms for International trading, Joint
Implementation and the Clean Development Mechanism are established, and
assuming also that the U.S. achieves meaningful developing country participation.
our overall assessment is that the economic cost to the United States in aggregate
and to typical households of atteining the targets and timetables spealfied in the
Kyoto Protocol, will be modest.
This conclusion that the Impact will be modest is not entirely dependent
upon, but la fully consistent with, formal model results. 1 have previously
emphaeized the limitations of relying on any single modal in assessing the aconomic
impact of the Kyoto Protocol, and continue to view any such results as Just one
Input Into an overall analysis. But It is worth emphasizing that model results
reflecting the details of the Kyoto Protocol are consistent with our conclusion. For
ID:
MAR 02'98 17:24 No.004 P.01
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON DC 20503
TRANSMISSION NUMBER: 202/395-5836
ENVIRONMENT BRANCH
VERIFICATION NUMBER: 202/395-6827
ROOM 8026
NEW EXECUTIVE OFFICE BLDG.
Name
Fax # 56870
To:
Joe Aldy
From:
Bob Trecillo
Message: Comments on testimary
Number of Pages to Follow: 18
Date:
3/2/98
Time: 5:40 5:40 pm pm
I
ID:
MAR 02'98
17:24 No.004 P.02
FEB-27-1998 16:18 TO:33 - EPA
FROM:TITIER, L.
LRM ID: EHF385
SUBJECT: Council of Economic Advisers Oversight Testimony on Kvoio
Climate Treaty
RESPONSE TO
LEGISLATIVE REFERRAL
MEMORANDUM
If your response to this request for views to short 10.0., nonsur/no comment), we prafer that you respond by
e-mail or by faxing us this response sheet. If the response 10 short and you prafer to call. please call the
branch-wide line shown below (NOT the sholyst's line) to lusvo . message with . legisletive assistant.
You may also respond by:
(1) calling the analyst/attorney's direct line (you will be connected to voice mail " the analyst does not
enswer): of
(2) sending us a memo or letter
Please Include the LRM number shown above. and the subject shown below.
TO:
Robert J. Tucellio Phone: 305-5809 Fax: 395-5938
Office of Management and Budget
Branch-Wide Line (to reach legislative assistant): 396-4586
FROM:
3/2/98
(Date)
REYNOLD MENI
(Name)
EPA
(Agenoy)
260-5428
(Telephone)
The following is the response of our agency to your request for views on the above-captioned subject:
Conour
No Objection
No Domment
Bas propesed edho on pages
Other: see attached
FAX RETURN of
pages, atteched to this response sheet
ID:
MAR 02'98 17:25 No. .004 P.03
EPA comments on Janel Yellen's draft testimony
March 2, 1998
The testimony is generally excellent. Here are several specific comments and proposed changes.
Most have these have been reviewed already with Randy Lutter, who found them acceptable.
(We were Interrupted in discussing the last point, and need to talk again about that one.)
P.15: In the paragraph on restructuring, change the fourth sentence to read: "In addition, stronger
incontivos for Improved gonoration officiancy. in conjunction with provisions to conserve energy
and promote use and development of renewable energy sources appropriate market based
provisions, will could achieve modest reductions in emissions."
Joh
The change from "will" to "could" is needed to reflect the uncertainty regarding the
emissions consequences of retail legislation - NEC and CEQ project is small (7-3%)
decline (relative to approximately 40% baseline growth 1990-2010), and also
acknowledge substantial uncertainty and that actual emissions could Increase.
The phrase "appropriate market based provisions" was used In the October 22 fact sheet
on restructuring to accompany the President's climate speech in order to bndge the gap
between the DOE and EPA views on whether the renewables portfolio, atc. was sufficient
to address emissions, or whether market based emissions provisions are needed as well.
The
P. 17: In the first paragraph on sinks, change the second to last sentence to read: "Very
preliminary estimates indicate that carbon sinks could comprise up to nearly 10%'..."\
We have not reached a definitive policy decision on Interpretation of the Protocol's sinks
language and are not yet In a position to Imply a "nearly 10%* bonus from sinks. The
addition qualifies the point.
oh!
P.18: There is a typo in the first full pare: "25 percentage points" should read "0.25 percentage
points." or "one quarter of one percent". More Important, the current formulation does not treck
the Interagency agreement reached last week on language going something like this:
"For example, results based on SGM and other model simulations with different assumed
rates of AEEI suggest that permit prices could be reduced by as much as 40 percent for
each quarter percent by which the AEEI can be successfully Increased."
in addition, was we suggest switching the order of the first and second full paragraphs on that page,
and moving the first sentence of the last paragraph forward, as follows:
"Our justification for incorporating In this Instance, we prudently and have
ZO
made conservatively assumeptions as to the rate of new that there will be substantial
delays between Investments
"There are reasons, however, for faith in the ability of American ingenuity to offer
solutions to the challenge of climate change. The President's FY 1999 budget For
example, published results based OA SGM model simulations with different assumed rates
of AEEI suggest that an Increase in the AEEI of 25 percentage points could lead to
ID:
MAR
02'98
17:25 No. 004 P.04
declines In the permit price of approximately 40 percent. For example, results based on
SGM and other model simulations with different assumed rates of AEEI suggest that
permit prices could be reduced by as much as 40 percent for each quarter percent by
which the ACEI can be successfully Increased.
There are many other reasons for faith in the ability of American Ingenuity to
offer solutions to the challenge of elimate change. Moreover, at the recent automobile
show
P. 19: In the first full para:
"Such progress may be is being replicated in other sectors. To give but one recent
No
example, VCRs and TVs
P.20: Last para: Please try to find another term besides "fraught with uncertainty." "Fraught" is
oh
generally 8 perjorative. How about: "As highlighted earlier, there are substantial, but unavoidable
uncertainties surrounding estimates like these."
You may want to include here some words emphaeizing onoe again that there really Is no
responsible alternative to acting under uncertainty. given the long-term nature of this problem.
and the fact that greater certainty cannot be had in time to be useful.
To discuss these comments, please call David Doniger, 260-2865,
ID:
MAR 02'98
17:26 No. 004 P.05
FEB-27-1998 16:15 TO:61 - JUSTICE
FROM:FITTER, F.,
P. ?./24
LRM ID: EHF385
SUBJECT: Council of Economic Advisers Overaight Testimony on Kyoto
Climate Treaty
RESPONSE TO
LEGISLATIVE REFERRAL
MEMORANDUM
W your response to this request for views le short (a.g., concur/no comment). we profer that you respond by
e-mail or by faxing us this response sheet. " the response is short and you prefer to call, please call the
branch-wide line shown halow (NOT the analyst's line) to leave . message with a legislative assistent.
You may also respond by:
(1) calling the analyst/attorney's direct line (you will be connected to volce mail If the analyst does not
answer): or
(2) sending us . memo or letter
Please Include the LRM number shown above, and the subject shown below,
TO:
Robert 3. Tunelllo Phone: 395 5000 Fax: 390-5830
Office of Management and Budget
URGENT
Branch-Wide Line (to reach legislative explaient): 395.4586
FROM:
3/2/98
(Date)
Velma Taylor
(Name)
DUJ
(Agency)
514-72-79
(Telephone)
The following 1s the response of our agency to your request for views on the above-ceptioned subject:
Concur
No Objection
No Comment
X See preposed edits on pages
Other:
FAX RETURN of
pages, attached to this responses sheet
"TC 707 VVJ RO:51 NOW RR/20/C0
ID:
MAR 02'98
17:26 No 004 P.06
FEB-27-1998 16:15 TO:61 - JUSTICE
FROM:FITTER, E.
P. 9/24
Page 71
energy prices, which we will shortly address. In general it is difficult to undergo a
structure) change in the economy without having the effect of expanding some
sectors and contracting others. But to provide some perspective on this issue.
consider the following facts. First, on average, energy constitutes only 2.2 percent
of total costs to U.S. industry. Second, energy prices already vary significantly
across countries. According to the 1997 Statistical Abstract, for example, in 1996
premium gasoline cost $1.28 per gallon in the United States - but only B cents per
gallon in Venezuela. Similarly, gas prices were $3.71 per gallon in Switzerland and
$4.41 per gallon in France. Electricity prices also vary significantly: in the U.S.
they were 5 cents per kilowatt hour, a fraction of prices in Switzerland of 13 cents
per kllowett hour. Yet U.S. industry is not moving on masse to Venezuela, nor is
Swiss industry moving to the United States. Third, roughly two-thirds of all
emissions are not in manufacturing at all, but In transportation and buildings. We
therefore believe we need developing country participation because the problem is
global and cost-effective solutions are essential, than to avoid adverse effects on
oh
compotitiveness.
industries which by their nature would not
Floxibility and Markul Mechanisms
locale to other countries.
A global solution Is thus critical to the global problem of climate change.
Globalizing the solution la not, however, enough by itself. We must also ensure
that our efforts to reduce global greenhouse ges emissions reductions in the most
efficient manner possible. The nature of the climate change problem suggests three
basic methods to lower costs of achieving given levels of environmental protection.
They can be characterized in terms of three categories of flexibility: (1) "when"
flexibility; (2) "what" flexibility: and (3) "where" flexibility, which may be the most
important of all. Such methods have long been championed by aconomists
Interested in increasing the efficiency of protection. Indeed, 2,600 economists
from academia, industry, and government alike urged such approaches In a letter
they signed last year advocating action on climate change:
"Economic studies have found that there are many potential policies to
reduce greanhouse gee emissions for which the total benefits outweigh
the total costs... The most efficient approach to slowing climate change is
through market-besed policies."
1. "When flexibility" (timing)
First is "when flexibility or timing. Since climate change is a long-term
problem, the exact timing of emissions reductions is, within some range, not of
primary importance. Thus the freadom to delay or accelerata reductions within on
agreed upon time frame -- while ensuring credibility of emissions reductions --
lowers costs.
As a result of U.S. leadership, the Kyoto Protocol incorporates this
ID:
MAR 02'98 17:27 No 004 P.07
FEB-27-1998 16:15 TO:51 - JUSTICE
FROM: FITTER, E.
P. 11/24
Page
greenhouse gases by a greater percent than reductions of CO2 could reduce prices
by as much as 10 percent. Thus allowing countries flexibility in what gases they
reduce - essentially trading emissions reductions across gases - can help lower
significantly the costs of meeting their targets.
The second source of "what flexibility" is the treatment of sinks, i.a., land
use activities that promote the removal of curbon from the atmosphere through the
growth of plants. At the urging of the U.S. delegation, sinks can be used to offset
emissions turgets. Promoting such sinks through afforestation and reforestation
may reduce stmospheric concentrations of CO2 at much lower costs than reducing
emissions of greenhouse gases.
3. "Where flexibility" (international)
The third type of flexibility, and perhaps the most important. is "where
flaxibility" (International). As I have already emphasized, emissions have the same
environmental consequences regardiess of where in the world they occur.
Therefore, the least-cost approach to controlling climate change is to reduce
emissions wherever such reductions are cheapest. The Kyoto Protocol, because of
U.S. Insistance and persistence, includes three Important cost-saving pravisions of
this nature.
no
First, It provides for countries that take on binding targets, at present the
Industrial countries, to trade rights to emit greenhouse gases with each
other. This market In emissions permits could ensure that emissions
reductions occur where they are least expensive within the Industrial
countries. In particular. U.S. companies could purchase omissions
that
reductions In other participating countries when doing 90 would reduce
their costs -- thus lowering COSTS without affecting the leval of
we that an
environmental protection.
Second, the agreement provides for joint Implementation by Annox 1
countries. Thus If some Industrial countries do not develop programs to
can
trade permits Internationally, U.S. firms could nonetheless Implement
projects in those countries for which they could receive emissions
reductions credits In the U.S.
Third, the agreement allows Industrial countries to invest in "clean
development" projects In the developing world and use these projects'
certified emissions reductions toward meeting their targets, Many such
clean development projects may be quite cheap In terms of the cost per
ton of emissions avoided, 88 has been illustrated by the joint
Implementation pilot program that is already in place in the U.S.
RRRC DTS 202 PAY OT:BI NON 03/20/83
ID:
MAR 02'98
17:28 No. 004 P.08
FROM:FITTER, E.
r. 11/19
FEB-27-1998 16:24 TO:114 - STATE
LRM ID: EHF385
SUBJECT: Council of Economic Advisors Oversight Testimony on KyDio
Climate Treaty
RESPONSE TO
LEGISLATIVE REFERRAL
MEMORANDUM
If your response to this request for views is short (a.g., concin/no comment), we prafer that you respond by
e-mail or by faxing us this response sheet. " the response is short and you prefer to call, please call the
branch-wide line shown below (NOT the analyst's line) to leave a message with D legislative assistant.
You may also respond by:
(1) onling the analyst/attorney's direct line (you will be connected to valce mail If the analyst does not
answer); or
(2) sending us 0 memo or latter
Please Include the LRM number shown above, and the pubject shown bolow.
TO:
Rebert J. Tucellio Phone: 395-5609 Fax: 395-5936
Office of Management and Budget
Branch-Wide Line (to reach legislative assistant): 305-4586
FROM:
3/0/98
(Date)
Vanessa Harrison
(Name)
state
(Agency)
647-4463
(Telephone)
The following 10 the response of our agency to your request for views on the above-captioned subject;
Concur
No Objection
No Comment
See proposed adite on puger
Others
t
PAX RETURN of 3 pages, attached to this response shoot
ID:
MAR 02'98 17:28 No. 004 P.09
MAR-02-1998 16:37
DES/ELL
United States Department of State
Burgan of Oceans and International
Environmental and Scientific Affairs
Washington, D.C. 20320
March 2. 1998
TO:
FROM:
SUBJECT:
LRM EHF 385 Comments on Draft CEA Climate testimony
Overall. the draft testimony provides a useful summary of our economic understanding
of the costs of the climate agreement. It also appropriately provides cavents on what WG do and
do not know. However, the testimony as drafted overemphasizes the issue of developing
countries and the umbrella- and in neither case fully reflects current policy on these Items.
While additional comments are provided to correct arrors in the draft, these two items are of the
greatest importance and must be fixed prior to submitting the testimony. Thus, comments on
pagos 16, 17. 19 and 20 are oritical.
Specific Comments
Page 2. Top paragraph: It is not Just "commerce" that will be affected, but also quality of life,
and in some cases life itself- o.g., deaths from spread of disease. and from damage to human
Infrastructure are not only commercial issues. In addition, the end of the paragraph suggests that
the only issue is lack of incentives for unilateral action- while omitting the fact that unilateral
10.
action Is inadequate for solving the problem. Propose a rewrite to the last sentence to read: "The
fundamental logic of the Kyoto Protocol is that without such an International agreement, we
cannot solve the global problem: individual nations cannot individually reduce emissions
sufficiently to constrain global concentrations, and absent a global accord, will not have the
incentives to address this threat"
Page 2. Climatic impact, Should add a short sentence after the second sentence to read: "Few
modellers expect that we will be able to constrain global concentrations to only twice pre-
modified
Industrial levels- and therefore, increases in both temperature and SC4 level are likely to exceed wrong
amounts suggested here."
oh
Page 3. Economic and Monetary damages; second paragraph. Need a cite/affiliation for Cline
Oh
Page 4, first full paragraph. last sentence. The possibility of non-linear events Is not know; to
say they are small prosumes knowledge. Delete words: "small and unknown" from sentence.
Page 5. Nood for Global Action, first paragraph. Second sentence, add words "can or" before
no
"hes an incentive..." Also, at the beginning of the fourth zontonoo, insert now text to read: "Fcw
other countries are likely to act unless the US acts, and conversely, even if .."
ID:
MAR 02'98
17:29 No 004 P.10
MAR-02-1990 16:37
DES/ELL
Page 5, third paragraph of section. Rewrite first sentence to read: "Both to address the lack of
progress among many industrialized countries toward meeting the Rio objective and to set a
NO
post-2000 goal for action to mitigate climate change (neither of which were included in the
original Convention text). the United States and 160 other nations agreed in negotiations hald in
Kyoto, Japan last December to lake additional steps to reduce emissions of greenhouse gases."
In addition. it would be appropriate to either spell out all gases. or provide formules for all gases;
current text mixes both.
Page 6, 2nd full paragraph. Add text to and of second sentence to read: " under B
continuation of business as usual --- although even then, developing country per capita cmissions
reject
will remain only about one quarter of our own."
Page 7, Flexibility and Market Mechanisms. Add a new second sentence to first paragraph of
this section: "Hore too, we must take the lead both as the world's largest emitter. and as a key
reject
player in and developer of the concept of greenhouse gas emissions markets."
Page 8, first bullet: delote phrase: "such as those from prematurely scrapping coal fired
electricity plants" - we do not want to send the Rignal that we intend to permanently exempt
reject
these plants from any obligation.
Page 8, propose a fifth bullet: "Fifth, joint implementation credits are not time limited by the
agreement. Parties may arrange for project credits and banking as soon as the agreement enters
reject
into force."
Page 8, 2. What flaxibility. Referring to carbon dioxide as a pollutant is inappropriate. Strike
this word in the third sentence and replace with ...one gas can be used..."
Page 9. Where flexibility. First bullet. Rewrite first sentence to read: "First, it provides the
opportunity for countries that take on binding targets to trade rights to emit greenhouse gases
with each other." Add new final sentence to end of bullet: "While currently only developed
countries have emissions caps, this mechanism also offers an incantive for developing countries
to take on amissions targets."
oth
Page 9, second bullet. Delete word: "industrial" in second sontence.
Page 10. top two paragraphs are repetitive. Also, In second paragraph, may wish to note the
no
initial fine imposed by EPA was over $1000/ton not the $250 stated.
Page 12, Assessing the Kyoto Protocol first para of section. Rewrite last two sentences to read:
"....in an efficient manner and we are successful in securing an offoctive international trading
NO
regime and an operable clean development mechanism in future negotiations. This small net
premium, even....."
Page 15, Estimate costs section. top paragraph. Delete first half of second sentence. begin
ro
sentence with Costs could be reduced substantially...' It is unnecessary to highlight
developing countries so much. Also, in this section, it is unclear why SD much is underlined-
underlines should be deleted.
ID:
MAR 02'98
17:29 No.004 P.11
MAR-02-1998 16:37
UES/EUC
4
Page 16. Delare entire section on umbrella - we do not have a policy on this issue yet, and this
no
prematurely exposes us to obtaining a specific set of commitments - which may never happen.
Joh
Page 16, Estimate reduction in costs section. Second paragraph of section Rewrite first
?
sentence to read: "....that will likely accrue from the limited role to which developing countries
have already agreed:.....". Also, rewrite second sentence to read: "The CDM might shave costs
no
by roughly another 20 to 25 persent from the reduce costs that result from trading among Annex
I countries. Additional developing country action could be expected to yield additional FOSE
no
reductions."
Page 16, last paragraph on page. Strike this entire paragraph including that on tope of page 17. It
ILI
no
implica a specific obligation to which we expoot developing countries to agree - and we Have
not set this policy yet.
Page 17. First full para. Rewrite second sentence to end as follows: " emissions trading
and ultimately, meaningful participation by key developing countries." Delete remainder of
J
paragraph.
Page 17. Accounting for Carbon sinks. Rewrite second to sixth scutence at follows: "....rolz of
carbon sinks in which carbon absorbing activities can be used to offset emissions. The Kyoto
No
protocol specifies that removals of CO2 by sinks count toward meeting the target, and counts the
net amissions effects..."
Page 19, Synthesis. Second sentence. delete words: "an assuming also that the US achieves
meaningful developing country participation," - the costs savings are not only predicated on this
- and it assumes a very specific lovel of commitment from developing countrios that may not be
achievable.
Page 20. Last paragraph on page. Delate clause in second sentence: "the developing country
participation that we are insisting upon as a condition for our ratifying the Kyoto protocol but
J
which is not yet part of the protocol and on" - it prejudges the outcome of internal
deliberations on developing countries.
Drafted: OES/EGC - Jonathan Pershing
3/1/98
Cleared: OES/E - RPomerance (subs)
TOTAL D as
ID:
MAR 02'98 17:30 No 004 P.12
LRM ID: EHF385
SUBJECT: Council of Economic Advisers Oversight Testimony on Kyoro
Climate Treaty
REAPONSE TO
LEGISLATIVE REPEARAL
MEMORANDUM
If your response to this request for views 10 short Im., concurino commont), WP profet that you respond by
e-mail or by faxing us this response street. # the response is short and you profer to call. please call the
bransh-wide Time shown below (NOT the analyst's line) to lonvo B message with 8 legislative ussistant.
You may sleo respond by:
(1) calling the analyst/attomay's direct fine (you mill be connected a valee mail If the analyst does not
answer); or
(2) sanding us a name or letter
Please Include the LRM number shown above, and the subject shown below.
TO:
Robert J. Tucollo Phone: 300-6600 Fex: 296-5898
Office of Management and Budget
Branch-Wide Line (to reach logislative assistant): 395.4580
FROM:
3/2/98
(Date)
Tens PULLIAM
(Nama)
DOE
(Agancy)
586-3397
(Telephone)
The following le the of our agency to your request for views on the above-captioned subjects
Concur
No Depaction
No Comment
See proposed cdite on pages 3,10,11,12,14,19,19
Other:
PAX RETURN of
pages, attached to this response sheet
ID:
MAR 02'98 17:30 No 004 P.13
growing conditions from changing weather patterns, threats to human health from
increased range and Incidence of diseases, changes in availability of freshwater
supplies, and damage to acosystems and biodiversity.
Economic and Monetery Damages
The derivation of quantitative or monetary estimates of the damages from
such a change in the climate in extremely difficult given the capacity of today's
models. Estimates of the economic damages from climate change fall Into the
following broad areas: agriculture. sea-level rise. air conditioning and heating,
water supply, human life and health, air pollution, and other costs thurricanes,
relocation costs. human ementty, construction, leleure activities, urban
infrastructure, and ecological damages such 88 forest loss and species loss).
Although the quantification of these effects 18 quite demanding, researchers have
developed estimates that prompt substantial concern. The IPCC reports that 8
doubling of carbon dioxide levels would lead to about 6,000 to 10,000 additional
deaths per year from higher summer temperatures, even after netting out the
attents of warmer winters and assuming acclimatization. Other researchers have
predicted sea level Increases of about 20 inches by 2100, with substantially greater
increases in subsequent years.
Despita the difficulties, respected researchers have developed estimates
of the monetary damages expected from an average worldwide temperature
Increase. For example, Cline estimated that a temperature change of 4.6 degrees
Fahrenheit would Impose ennual damages of more than $70 billion per year on the
U.S. economy in today's farms, These damages Include 422 billion in lost
agricultural production, #13 billion in additional electricity costs, and $8 billion in
new costs to maintain the existing supply of fresh water. (Cline's original
estimates are quoted in 1990 dollars. The figures given above translated those
numbers Into 1997 dollars using the annual GDP price Index.) William Nordhaus of
Yale University has likewise computed estimates of the dollar loss attributable to -
doubling of greenhouse gas concentrations. Although he USBS methods that differ
from Cline's in several respects, he finds that the Cline estimate is In the center of
three estimates for the U.B., and that the high estimate is only 30 parcent greater
then the low estimate, It must be noted, lowever, that this similarity among
aggregate estimates masks the true uncertainty associated with forecasta of the
damages from given Increases in global warming - the estimates are all
fundamentally based on extrapolations from current and past experience, and may
not fully incorporate effects that will unfortunately become apparent only with
future experience.
One key difficulty In Interpreting and monetizing these estimates of
damages is uncertainty over the extent that they should be discounted because
they coour in the dietant future. Since the benafits of stemming future climate
New scientific information Notal in various scientific
no
journals iN 1957 indicates that transperature increases from
a doubling If CO2 may be below the low end of the 1955 IPCL
range, e.g. below 1.5 defrees C. If this is so, the health
effects and the economic imports are likely to be overstated.
ID:
MAR
02'98
17:31 No 004 P.14
Details of how these provisions will operate will be discussed In future
negotiations such as the one in Buenos Aires later this year. Nonetheless, effective
international trading of emission credits. joint Implementation, and the Clean
Development Machanism can lead to substantial reductions in costs relative to
alternative policies that do not exploit the power of market incentives. To illustrate
briefly the ability of U.S. Industry to perform beyond expentations when given
appropriate oconomic incentives, consider further EPA's highly accleimed sulfur
dioxide (802) program, which relies, among other things, on a system of tradeable
permits to reduce emissions of 602 from electric utilities. The SO2 program has
been successful in several ways: B large number of utilities participate, 802
emissions and amblent concentrations have fallen and the costs of reducing
emissions are considerably lower than originally forecest.
As has been frequently noted, the average cost of 302 emissions
reductions has recently been significantly lower than WSB originally forecast, in part
due to the role of insentives in fostering Innovation. Emission permit prices,
currently at approximately $100 per ton of 902, are well below earlier estimates of
around 6250 to $350 por ton.
Trading programs may not always bring cost savings as large as those
achieved by the 502 program: trading programs will not always be accompanied by
the discovery of much cheaper control strategies) However, the 902 experience
demonstrates clearly how programs like international permit trading, joint
implementation. and the Cleen Development Mechanism will lead firms to find
cheeper ways of reducing emissions that can lead to unexpectedly low costs.
IV. Difficulties of Economic Analysis of the Kyoto Protocol
Now that we have a Protocol even If It is not yet fully complete nor
ready for the President's submission to the Senate It is possible to examine It in
somewhat more detail from an aconomic perspective. But, once again the inherent
limitations of any such estimates deserve emphasis. Such limitations should not be
surpricing to you: economists have a difficult enough time projecting the behavior
of the economy over the next quarter or year, let alone over the next two decades.
The scale of the forecesting exercise is therefore deunting, and any specific results
should be treated with substantial oaution.
The difficulties associated with economic analysis of plimate change fall
into three broad antegories. First are the uncertainties that still remain over the
terms of the ultimate treaty, necessitating assumptions on which the analysis is
predicated. Second are the Inherent limitations of available models to analyze even
short-term costs and benefits. And finally Is a topic discussed earlier: the
impossibility of putting a single monetary number on the lang-term benefits of
climate change mitigation, although there will olearly be economic benefits of
It also should be noted that a worldwide program of greenhouse
gas emissions trading is substantially more complex thom the
trading of ONE pollutment iar one country. Furtharmore, monsitaring
and verification are important elements to be addressed before
successful adoptions of this program.
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Page
emission reductions.
Uncertainties in the International Effort to Combet Climate Change
The Kyoto Protocol WBS an historic sonomplishment, delinesting the broad
terms of the International effort to address climate change. But although we know
a lot more than we did before Kyoto about how that International system will work,
and that informa our analysis, there is still much that we do not know.
First, some provisions raise complex implementation issues. At issue here
is the treatment of so-palled sinke - activities that affect the rate at which carbon
is removed from the atmosphere and "sequestered," c.g., by the planting of trues.
development mechanisms
clean
Second. the details of a number of Items - primarily concerning
International trading/end developing countries " are the subject of further
discussions Including future negotiations in Buenos Aires next fall, because they
had not been definitively settled by the end of the last all-night session of the Kyoto
talks.
Finally, and most importantly, we have not yet negotiated international
agreements to limit amissions beyond the 2012 window. The emission cuts agreed
upon at Kyoto are only a first step on a long journey. The first step that We
propose to take over the next 15 years is critical. But the reason It is critical is not
that, by itself, it will solve the climate change problem -- emissions during any
given decede are email compared to the cumulative concentrations in the
atmosphere. Rather, the first step is critical because We oan not take the second
and third steps until we have taken the first. At the same time. any analysis is
complicated by the lack of knowledge over what the subsequent steps will be.
inherent Limitations of Models
in addition to these uncertainties about the details of the international
effort to address climate change, are the Inherent limitations of the models used to
evaluate that effort. Even within a given model, answers depend oritically on the
precise nature of the question asked. For example, the costs of emissions
reductions depend critically on the extent of global perticipation and International
trading that a treaty is assumed to feature. But in addition to the depandence of
the results from a given model on the preoisé assumptions, different models can
give different answers even when all the assumptions are specified to be the same
- a concrete Illustration of the range of undertainty to which wo must essign the
preditions of any one Individual model.
One aree in which the uncertainty is particularly large is the pace of
technological progress ---aspecially the diffusion of existing energy-efficient
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Page 121
technologies, but also the development of new technologies and the extent to
which the pace will accelerate in response to government programs. Models and
experts on climate change policy tend to have a wider range of dissgreement on the
scope for speeding the diffusion of existing energy-efficient technologies than on
any other single Issue.
Furthermore, each model has strengths and weaknesses; each has
questions to which it is batter or worse sulted 10 answer. Some. for example,
model the energy sector In detail. Some allow for the fact that a coal-fired power
plant cannot costlessly be converted to one that runs on natural gass, Some show
the effects of hypothetical tax outs made possible by the new revenues earned
through the auction of emissions pomite. Some are capable of showing recessions
and booms. Others include a long-term "carbon cycle" model that can keep track
of the accumulation of greenhouse gas concentrations In the atmosphere and their
alimatological effects. Some break down the rest of the world Into regions and so
can model International trade. No one model does everything, and therefore we
must not rely bilndly on the resulte of any one model or set. of modela. Professional
judgement and economic intultion, along with diplomatic assessments, are also
orucist.
Benefits of Averting Climate Change
As disoussed above, it is evident that the benefits of averting climate
change are potentially Immense. But we have chosen not to try to quantify them in
monetery terms, in light of the difficultles we have anumarated. These Include the
undertainty of these benefits, their timing and therefore the extreme sensitivity of
the results to the chosen discount rate. and the dependence of benefits on
emissions paths after the 2008 to 2012 budget period specified in Kvoto.
V. Asssssing the Kyoto Proteool
In order to evaluate the likely net economic Impact of the Kyoto Protocol,
excluding the benefits of mitigating climate change Itself, we have drawn upon a
variety of tools to assess the various possible costs and non-climate benefits of the
Administration's emissions reduction pollcy, To give away the punch line, our
conclusion is as follows: the net costs of pur policies to reduce emissions are likely
to be small, assuming those reductions are undertaken In an efficient menner and
we are successful in securing meaningful developing country participation as well
as effective International trading and clean development mechanisms In future
negotiations. That potential small net premium, oven excluding the benefits of
mitigating climate change, in effect, purchases # partial Insurance policy against a
aerious environmental threet.
Because the reaults from any model must be treated with oaution, the
assumptions that will magnina much effort to realize.
No
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MAR 02'98 17:33 No. 004 P.17
I said in Congressional testimony last July that we can do this smart or
we can do this dumb. 1 was referring to the point that the costs of outting
emissions can be much reduced if flexible, market-based mechanisms are used.
Our economic analysis highlighted the importance of such flexible, market-based
mechanisms - which are therefore reflected, at the President's insistence, in the
/on
Kyoto Protocol and our ongoing diplomatic strategy.
clean development mechaw ism
Within the Kyoto Protocol, this means an Insistance on international
trading implementation and, lultimately. on meaningful developing country
participation-Dornsstiealy, this means that we Implement any emissions
reductions through a market-baced system of tradeable emissions pennits, which
ensures that we achieve reductions wherever they are least expensive. But this
also means taking serious and responsible steps in the short run to prepare us to
meet our obligations in the longer term.
The first such step Is the inclusion in this year's budget of an aggressive,
$6.3 billion program of tax outs and R&D investments - $1.3 billion more than the
$5 billian package the Prexident promised in his Outober 22 speech on this Issue.
The goal is both to stimulate the development of new energy-saving and
cerbon-saving technologies and to encourage the dissemination of those that exist
already. The proposed package contains $3.6 billion over the next 5 years in tax
DULE for energy efficient purchases and renewable energy. Including tex credits of
$3,000 to $4,000 for consumers who purchase highly fuel efficient vehicles, a 15
percent credit (up to $2,000) for purchases of rooftop solar equipment, a 20
persent credit (subjent to . cap) for purchasing onergy-efficient building equipment,
a oredit up to $2,000 for purchasing energy-sfficient new homes, an extension of
the wind and blamass tex credit, and a 10 persent Investment credit for the
purchase of combined heat and power systems. The package also contains #2.7
billion over the next 5 years in additional research and development investments
covering the four major carbon-emitting sectors of the economy thulidings,
Industry, transportation, and electricity), plus carbon removal and sequestration,
Federal facilities, and cross-cutting analyses and research. One example of the
R&D effort le the Partnership for a New Generation of Vahicles (PNGV). PNGV is a
government-Industry offort to develop attractive, effordable care that meet all
applicable safety and environmental atandards and got up to three times the fuel
officiency of today's cars. in FY99, the combined proposal for PNGV in
$277 million, up from 4227 million appropriated in FY98. Similer
government-industry efforts are proposed to develop more efficient diesel engines
for both light trucks and heavy trucks.
A'escond responsible step entalls Industry-by-Industry consultations to
prepare emission reduction plane in key Industrial sectors. The Administration will
work In partnership with Industry to Identify ways in which the Federal government
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MAR 02'98 17:34 No. 004 P.18
Estimated reduction in 00818 from umbrella trading
One possibility that emerged in Kyoto, which none of UP foresaw, was
the idea developed there by the U.S. delegation, that the United States might
undertake trading with a subset of Annex 1 countries, dubbed the "umbrella".
Countries that have expressed Interest in the umbrella Include the United States,
Australia, Canada, Japan, New Zealand and Russia, with strong indications of
Interest from some others. This subset of Annex I countries shares a common
Interest In promoting market-based mechanisms, most specifically, fully flexible
rules for International trading of emissions permits.
It is too early to state the precise form the umbrelle will take. But wa can
envision a number of potential benefits. The umbrella could, for example greatly
reduce costs to the U.S. Results that we have derived from various 6GM
simulations of officient International trading suggest that, relative to the situation in
which there is no trading at all, the umbrella can reduce costs by an estimated
60-75 percent, depending on whether the former Warsaw Papt countries fall within
the umbrella. The Kyoto Protocol classifies these countries outside of the EU
bubble for the first budget period 2008-2012.
Estimated reduction In costs from developing country participation
The next consideration is participation by developing countries. The
President has said that he will not submit the treaty for ratification without
meaningful participation by key developing countries. Such partisipation would
further reduce the costs Involved.
The substantial potential gaine from maaningful developing country
participation are highlighted by the significant benefits that will likely accrue even
from the limited rale that the developing countries have already agreed to: the
Clean Development Mechanism (CDM), medeled after the U.S. joint implementation
heep
concept The CDM cannot realistically be expected to yield all the geins of binding
targets for developing countries, but it might shave costs by roughly another 20 to
no
25 percent from the reduced DOBIS that result from trading among Annex 1
countries.
Another possibility is that we persuade como of the key developing
countries that are the lergest emittere to commit to targets, and allow us to buy
keep
excission reductions from those paths. Simulations with the 8GM model suggest
that full participation by non Annex 1 countries could cut roughly 55 percent off the
reduced costs that result from Annex 1 trading, The actual cost reduction would
no
depend on the extent of developing country partiolpation that la ultimately obtained,
as woll OP the effectiveness of international trading arrangements. The more
developing countries that take on modest binding targets and trade in international
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MAR 02'98 17:34 No 004 P.19
pollution emissions by 90 percent. These technological advances have been made
possible through the afforts of tho Partnership for a New Generation of Vehicles
between the Administration and the U.S. auto companies and their suppliers.
Such progress may be replicated in other sectors. VCRs and TVs, even
when off, consume about $1 billion worth of electricity annually. EPA has
astablished a partnership with major manufacturers that has a goal of achieving .
70% reduction In energy use, without secrificing product quality, usefulness, of
increasing costs, This partnership offers pramico of substantial improvements In
energy efficiency.
Non-Climate Benefits
A final factor that should be Included in any comprehensive assessment
of the economic implications of the Kyoto protocol are the benefits of the
agreement. The literature has emphaelzod that any relative price shifts that prove
necessary to reduce emissions should produce non-climate benefits In three areas:
air pollution unrelated 10 climate change, traffic congestion, and highway accidents.
These benefits are hard to quantify precisely but are potentially significant> our
rough setimates suggest that these three benefits could offert 16-25% of any
keep
resource 0001 of the elimate change policy. Sugget deleting it
Synthesis
can be verivied by specific modeling
results as described in other parts of
must integrate all of the factors described above: reliance on flexible market-based the
A comprehensive evaluation of the economic Impact of the Kyoto Protocol
mechanisms domestically; International trading and Joint Implementation among testimony.
Annex 1 countries; the Clean Development Mechanism; maaningful developing
country participation; the potential cost-mitigeting role of including six gases and
carbon sinks: the benefits of electricity restructuring) and emissions reductions
achieved as a consequence of other proposed Administration climate change
initiativos. Assuming that effective mechanisms for International trading, Joint
Implementation and the Clean Development Mechanism are established, and
assuming also that the U.S. achieves meaningful developing country participation.
our overall assessment is that the economic cost to the United States In aggregate
and to typical households of atteining the targets and timetables spealfied in the
Kvoto Protocol, will be modest.
This conclusion that the Impact will be modest la not entirely dependent
upon, but la fully consistent with, formal model results. 1 have previously
emphasized the limitations of relying on any single modal in assessing the economic
impact of the Kyoto Protocol, and continue to view any such results as just one
Input Into an overall analysis. But It is worth emphasizing that model results
reflecting the details of the Kyoto Protocol Are consistent with our conclusion. For