New EPA Analysis Released on Climate Bills

March 14, 2008

Lieberman, Warner Welcome EPA Finding that Climate Bill Achieves Strong Results With Manageable Costs

WASHINGTON – Senators Joseph Lieberman (ID-CT) and John Warner (R-VA) today thanked the U.S. Environmental Protection Agency for completing the analysis that they had requested of their Climate Security Act (S. 2191) last November. (The slides presenting the results of EPA’s analysis are available at www.epa.gov/climatechange/economics/economicanalyses.html) The Senate Environment and Public Works Committee favorably reported the bill on December 5, 2007. The full Senate is expected to consider the measure this June.

“EPA’s detailed analysis indicates that the US can curb global warming without sacrificing economic prosperity,” Lieberman said. “We will examine the results closely for improvements that they might suggest for the bill.”

Warner said, “I am satisfied that EPA’s analysis demonstrates what we have long known: You can control greenhouse gas emissions in a manner that leaves the economy whole and is not burdensome on consumers.”

The ADAGE (Applied Dynamic Analysis of the Global Economy) computer model used by EPA projects the economic impacts of government policies that are designed to speed advanced energy technologies to market. The Climate Security Act is such a policy. ADAGE contains detailed treatment of new technology deployment in the power sector and explicitly models the global economy.

EPA has not yet updated the ADAGE model to reflect the provisions of the energy bill enacted last year. In order to approximate the underlying impact of those provisions, however, EPA selected a “high technology reference scenario” when running the Climate Security Act through the ADAGE model. That modeling run found:

Ø The Climate Security Act’s cut in cumulative US greenhouse-gas emissions is deeper than one found earlier by EPA to be consistent with keeping global CO₂ concentrations below 500 parts per million in 2100. [Slide 141] The finding assumes that other developed countries reduce their emissions by less than the US, and that the developing countries do not start making similar reductions until 2025. According to the Intergovernmental Panel on Climate Change, keeping the global concentration below 500 ppm greatly decreases the risk of severe global warming impacts in the US and elsewhere.

Ø Under the conservative assumptions described above concerning action by other nations, the Climate Security Act does not shift US greenhouse-gas emissions abroad. In EPA’s words, “no international emissions leakage occurs.” [Slide 5]

Ø Under the same conservative assumptions, the Climate Security Act causes US exports of energy-intensive products (e.g., steel, cement) to developing nations to increase and causes US imports of energy-intensive products from developing nations to decrease. [Slide 83]

Ø Under the Climate Security Act, US gross domestic product grows by 80% from 2010 to 2030. That is just one percentage point less than the growth in the absence of the bill. [Slide 61]

Ø Under the Climate Security Act, average annual per-household consumption in the US grows by 81% from 2010 to 2030. That is just two percentage points less than the growth in the absence of the bill. [Slide 65]

Ø EPA notes, “The economic benefits of reducing emissions were not determined for this analysis,” [Slide 3] and “While the models do not represent benefits, it can be said that as the abatement of GHG emissions increases over time, so do the benefits of the abatement.” [Slide 108]

Ø The Climate Security Act’s allowance price and financial support for carbon capture and sequestration (CCS) make that technology a commercial reality in the US by 2015 – several years earlier than in the absence of the bill. [Slide 4]

Ø One of the effects of the accelerated CCS deployment is to drive natural gas out of the electricity sector, to the benefit of manufacturers who use natural gas. [Slide 57]

Ø Under the Climate Security Act, the price of an emission allowance is $22 in 2015 and $46 in 2030. [Slide 24] That is significantly lower than allowance price predictions made by models that ignore the recent energy bill, artificially limit technology deployment, and ignore technology incentives and cost-saving provisions of the bill.

Ø Under the Climate Security Act, increases in average US electricity prices materialize slowly and gradually. Even forty years after enactment, those prices reach a level only 18% higher than the 2005 level. [Slide 55] Over that period, the bill directs more than $1 trillion to lowering and offsetting US consumers’ actual energy costs.

The analysis also includes, at the request of critics of climate legislation, other modeled scenarios that make highly pessimistic assumptions about constraints on technology deployment, the formation of natural gas cartels, and the like. In responding to the same request last October, the Energy Information Administration concluded that an analysis would be realistic without those pessimistic assumptions.

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EEI Members Call for More Accurate Climate Cost Projections in CRA study

As I discussed here before, the Charles River Associate (CRA) study that is being used by the Chamber of Commerce and others claiming that the Lieberman-Warner bill will generate "catastrophic" economic costs is incredibly flawed.

Now -- it appears, that many of the members of EEI (Edison Electric Institute), the energy association that paid for the study, agree that the study is flawed and should be more responsible. The story below discusses the efforts many of the power generation sector is taking to try to make sure that the flawed study is re-done -- an interesting development to say the least!
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The Energy Daily

Nuclear Utilities Press For Changes In EEI Climate Costs Study

March 5, 2008

Under pressure from a coalition of member companies with abundant nuclear generation, the Edison Electric Institute has agreed to direct economic consultant CRA International to make modest changes in assumptions underlying a controversial CRA analysis that projects sharply higher cost impacts from Senate climate change legislation than predicted by other analyses.

A draft presentation of the CRA analysis, obtained last month by The Energy Daily, examined legislation (S. 2181) by Sens. Joseph Lieberman (I-Conn.) and John Warner (R- Va.) to establish a greenhouse gas cap-and-trade program on most of the U.S. economy beginning in 2012.

The analysis concluded the legislation would sharply increase electricity prices, force many power companies to switch from coal-fired generation to natural gas and impose an average cost of $1,500 on every U.S. household by 2015.

The CRA analysis drew immediate criticism from a variety of stakeholders in the national climate change debate, who charged that unrealistic assumptions in the CRA model led the consultant to conclude, for example, that carbon dioxide (CO2) allowance prices in 2015 would reach $64--a price projection far higher than what other studies have predicted.

CRA assumed, for example, that no utilities would take advantage of provisions in the bill that allow the banking of emission allowances and the use of international emissions offsets to reduce compliance costs. CRA said the emission caps in the early years of proposed mandate are so severe that utilities will need all their allowances, and that European Union countries will scoop up all the available overseas offsets.

The analysis also assumed that a Carbon Market Efficiency Board (CMEB) the bill would establish would take no action to limit sharp allowance price increases, as the bill would authorize.

The CRA study prompted behind-the-scenes moves by several members of EEI who also belong to the Clean Energy Group (CEG), a coalition of utilities whose generation portfolios include robust percentages of nuclear, natural gas and renewable resources. The CEG companies for weeks have pressured EEI to change some of the underlying assumptions in advance of a new CRA modeling run on the Lieberman-Warner bill.

EEI has agreed to include in the new CRA analysis provisions of the Energy Independence and Security Act of 2007 (EISA)--approved in December--that tighten federal fuel economy requirements for motor vehicles, boost alternative fuel use and strengthen efficiency standards for appliances and buildings.

In addition, CRA will also incorporate results of the Energy Information Administration's analysis of S.2181--including an expected change in EIA's baseline "reference case" used to model future U.S. energy use--as well as the findings of a separate Environmental Protection Agency analysis of the bill. Both the EPA and EIA analyses are expected later this month.

In a March 4 letter to EEI President Thomas Kuhn obtained by The Energy Daily, the chief executive officers of seven CEG utilities urged EEI to change other assumptions in the CRA analysis, including those concerning the use of allowance banking and international offsets; actions the CMEB might be expected to take to reduce the costs of the cap- and-trade program; and provisions to reduce the impacts of higher energy prices on low-income households.

"We think this is a positive and important development, and we believe the CRA analysis will be both more robust and received as more reliable with the additions you have indicated," the CEG letter said, referring to the changes EEI has agreed to make. "In our view, it is critical that EEI be viewed as a credible voice in the climate change debate. It is our hope that EEI's work will allow members, Congress, the administration and other interested parties to make informed decisions about various policies and proposals before them in terms of impacts on our industry and our customers."

The letter was signed by the CEOs of Avista Corp., Constellation Energy Group, Entergy Corp., Exelon Corp., FPL Group Inc., National Grid and PG&E Corp. and Public Service Enterprise Group Inc.

A CEG representative said the CEOs "are planning to be very much involved and on top of the whole EEI process" as the CRA analysis proceeds.

"The message between the lines is that these companies are going to be insisting that EEI have a more balanced approach throughout the climate change debate and represent the collective views of all EEI members and not just the views of the coal generators," the CEG representative said.

An EEI official told The Energy Daily Tuesday, however, that--aside from including the EISA provisions and the expected EIA reference case changes--EEI has not decided if it will direct CRA to make other changes, such as accounting for banking and the use of international offsets.

"We're still considering what we are going to do," said Bill Fang, EEI deputy general counsel and climate issue director. "We'll have to consider all that. CEG has raised some good issues, but other member companies have raised other issues. We have to get the views of other companies."

The national advocacy group Environmental Defense, in a February critique of the CRA study, called the analysis "a dramatic outlier when compared to a range of economic models maintained by researchers in academia and government. For example, CRA's estimates for the impact of the bill in 2015 on greenhouse gas emission prices, GDP figures and electricity prices are 75 percent to 300 percent higher than those found by a study done by researchers at Duke University and Research Triangle Institute."

The CRA cost projections also are sharply higher than those found in an analysis of the bill by the Cambridge, Mass.-based Clean Air Task Force, which concluded CO2 emission allowances would cost about $17 in 2015, nearly 75 percent less than what CRA projected.

Fang countered, however, that CRA's assumptions for the likely penetration of new nuclear generation are less optimistic than in other studies and more optimistic for the deployment of new renewable generation.