1 National Commission on Energy Policy, Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges (Washington, DC, December 2004), web site www.energycommission.org/ewebeditpro/ items/O82F4682.pdf. The National Commission on Energy Policy is a nongovernmental organization funded by the William and Flora Hewlett Foundation and its partners—The Pew Charitable Trusts, the John D. and Catherine T. MacArthur Foundation, the David and Lucile Packard Foundation, and the Energy Foundation.

2 Energy Information Administration, The National Energy Modeling System: An Overview 2003, DOE/EIA-0581(2003) Washington, DC, March 2003), web site www.eia.doe.gov/oiaf/aeo/overview/index.html.

3 Energy Information Administration, Annual Energy Outlook 2005, DOE/EIA-0383(2005) (Washington, DC, February 2005), web site www.eia.doe.gov/oiaf/aeo/index.html.

4 With the exception of the greenhouse gas policy case, Senate Energy and Natural Resources Committee staff member, Jennifer Michael, provided the specific assumptions and guidelines for this analysis. See Appendix A for details of the assumptions and the cases requested for analysis and subsequent minor changes.

5 The original request by Senator Bingaman’s staff was for an increase of 10 miles per gallon in the CAFE standards for both cars and light trucks; however, light trucks could not reasonably meet this increase by 2015. In its place EIA substituted the percentage increase in CAFE standards for cars, 36 percent.

6 Assumptions were generally provided by Senator Bingaman’s Energy and Natural Resources Committee staff.

7 Building equipment standards and code policy specifications were taken from Greg Rosenquist, Michael McNeil, Maithili Iyer, Steve Meyers, and Jim McMahon, Energy Efficiency Standards and Codes for Residential/Commercial Equipment and Buildings: Additional Opportunities, LBID-2533 (Berkeley, CA: Lawrence Berkeley National Laboratory, July 2004), reproduced in NCEP Technical Appendix, “Chapter 3: Improving Energy Efficiency,” pp. 103-193, web site http://64.70.252.93/O82F4696.pdf.

8 Detailed assumptions for the AEO2005 cases, including the high technology cases, are described on EIA’s web site at www.eia.doe.gov/oiaf/aeo/assumption/index.html.

9 A number of different sequestration-ready designs are being contemplated, each with its own cost and performance characteristics. Because the new technology will use higher concentrations of hydrogen and probably burn hotter, nitrogen oxide (NOx) controls may be necessary. Technology experts have not reached consensus on a standardized design. The NCEP incentives are adequate to deploy 10 gigawatts of IGCC capacity starting in 2009.

10 $3 billion for 4 gigawatts of sequestration capacity implies that the incremental cost of sequestration is about $750 per kilowatt. EIA estimates that this incentive will be adequate to stimulate the construction of 4 gigawatts of sequestration technology when IGCC plants are built.

11 The NCEP did not specify the PTC level. Senator Bingaman’s Energy Committee staff provided guidance that excluded biomass co-firing in existing coal plants, which would quickly use up the incentive funds in the first 2 years and crowd out other longer-lasting investments in renewable generation technologies.

12 Terrorist threats to critical infrastructure cannot be modeled in NEMS. The impacts of such protection would have to be specified as exogenous assumptions.

13 The impact of research on methane hydrates is not expected to yield cost-effective natural gas supply through 2025. As with the treatment of other R&D, no one can accurately estimate the impact of specific R&D investments on specific successes, and EIA does not assess the impact of such investments.

14 Ms. Jennifer Michael, Senate Committee on Energy and Natural Resources minority staff, provided specific assumptions (see Appendix A).

15 See Addendum to the Global Climate Change Policy Book” at web site www.whitehouse.gov/news/releases/2002/02/addendum.pdf. The business-as-usual (BAU) projections cited in the Addendum are somewhat higher than a “Policies and Measures” case EPA developed for the U.S. Climate Action Report 2002. EIA has adjusted the addendum projections to reflect the most recent 2002 and 2003 data on these gases as published by EIA, as well as to estimate the intervening years of the projections, since the projections were only provided for every 5 years. In addition, EIA extrapolated the projections to estimate emissions for 2025.

16 Energy Information Administration, Analysis of S. 139, the Climate Stewardship Act of 2003, SR/OIAF/2003-02 (Washington, DC, June 2003), web site www.eia.doe.gov/oiaf/servicerpt/ml/pdf/sroiaf_(2003)02.pdf. See also Energy Information Administration, Analysis of Senate Amendment 2028, the Climate Stewardship Act of 2003 (Washington, DC, June 2004), web site www.eia.doe.gov/oiaf/analysispaper/sacsa/pdf/s139amend_analysis.pdf.

17 U.S. Environmental Protection Agency, U.S. Methane Emissions 1990-2020: Inventories, Projections, and Opportunities for Reductions, EPA 30-R-99-013 (Washington, DC, September 1999), web site www.epa.gov/ghginfo/pdfs/07-complete.pdf; and Addendum to the U.S. Methane Emissions 1990-2020: Update for Inventories, Projections, and Opportunities for Reductions (Washington, DC, December 2001), web site www.epa.gov/ghginfo/pdfs/final_addendum2.pdf.

18 U.S. Environmental Protection Agency, U.S. High GWP Gas Emissions 1990-2010: Inventories, Projections, and Opportunities for Reductions, EPA 000-F-97-000 (Washington, DC, June 2001), web site http://www.epa.gov/ghginfo/pdfs/ gwp_gas_emissions_6_01.pdf.

19 U.S. Environmental Protection Agency, U.S. Adipic Acid and Nitric Acid N 2O Emissions 1990-2020: Inventories, Projections and Opportunities for Reductions (Washington, DC, December 2001), web site www.epa.gov/ghginfo/pdfs/adipic.pdf.

20 The curves are based on an EPA-funded evaluation of reduction opportunities available across a range of emission allowance prices and are consistent with EPA’s BAU case. The BAU case has somewhat higher emissions than the policies and measures case published in EPA’s Climate Action Report 2002. The BAU and the associated MACs generally (with one exception, methane emissions from gas production) assume that technological improvement does not occur and that trends in improved management practices to reduce emissions do not continue into the future. Such an approach overestimates both the BAU emissions and the economic reductions possible.

21 In the No-Safety case, the permit price is free to rise by as much as 8.5 percent per year, and permits can be banked as long as it is economical to do so. Because the NEMS forecast horizon is limited to 2025, it is assumed that the banks will be depleted by 2025. It appears that it would have been economical to bank permits for 1 to 2 more years beyond 2025 before starting to draw down the bank. The impact would have been higher starting and ending permit prices over the forecast horizon.

22 Although the NCEP did not make specific policy recommendations for the buildings sector, Senate staff requested the use of efficiency standards for both equipment and building shells as defined by an appendix to the NCEP study: Greg Rosenquist, Michael McNeil, Maithili Iyer, Steve Meyers, and Jim McMahon, Lawrence Berkeley National Laboratory, “Energy Efficiency Standards and Codes for Residential/Commercial Equipment and Buildings: Additional Opportunities,” LBID-2533, in NCEP Technical Appendix (Washington, DC: National Commission on Energy Policy, 2004). Residential policies include increased efficiency standards in 2010 for gas furnaces, room air conditioners, electric water heaters, dishwashers, refrigerator/freezers, torchiere lighting, pool pumps, ceiling fans, and standby power in miscellaneous electric products. In addition, residential building codes are tightened in 2010 and again in 2020. Policies specific to the commercial sector include increased equipment efficiency standards in 2010 for gas boilers, packaged and central air conditioners, heat pumps, gas water heaters, ventilation, fluorescent and high intensity discharge (HID) lighting, commercial refrigerator/freezers, ice and vending machines, and standby power in personal computers and other office equipment. Policy assumptions call for a second increase in commercial efficiency standards for air conditioning and lighting equipment in 2020. In addition, commercial building codes for the building envelope are tightened in 2010 and for lighting power density in 2015.

23 The lighting power density limitation of the proposed commercial building codes sets a maximum number of watts that lighting systems can use per square foot of floor space.

24 This is equivalent to $36 billion in 2004 dollars and covers the entire set of programs recommended by the NCEP, as described in the summary of the NCEP report.

25 Based on each factor’s historical share of input costs, the elasticity of potential output with respect to labor is 0.64 (i.e., a 1-percent increase in the labor supply increases potential GDP by 0.64 percent); the business capital elasticity is 0.26; the infrastructure elasticity is 0.02; and the energy elasticity is 0.07.

26 National Commission on Energy Policy, Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges: Economic Analysis of Commission Proposals (Washington, DC, December 2004), web site http://64.70.252.93/O82F4693.pdf.

27 The deflator for sales of new LDVs is quality adjusted by the Bureau of Economic Analysis to reflect the imputed value of the added fuel-saving technology. Hence, the deflator would not rise.

28 Detailed assumptions for the AEO2005 cases, including the high technology cases, are described on the EIA web site at www.eia.doe.gov/oiaf/aeo/assumption/index.html.

29 The tax and deployment incentives include an expansion of the PTC to all new non-CO2-emitting generation technologies and extension of the PTC to the end of 2009 with a total PTC value of $4 billion over 10 years, a price guarantee for the Alaska Natural Gas Transportation System (ANGTS), deployment incentives for one advanced nuclear plant, deployment of 10 gigawatts of sequestration-ready IGCC generating capacity, and 4 gigawatts of sequestration technologies.

30 Energy Information Administration, Analysis of S. 139, the Climate Stewardship Act of 2003, SR/OIAF/2003-02 (Washington, DC, June 2003), web site www.eia.doe.gov/oiaf/servicerpt/ml/pdf/sroiaf_(2003)02.pdf. See also Energy Information Administration, Analysis of Senate Amendment 2028, the Climate Stewardship Act of 2003 (Washington, DC, June 2004), web site www.eia.doe.gov/oiaf/analysispaper/sacsa/pdf/s139amend_analysis.pdf, and Energy Information Administration, Summary Provisions of the 2003 Conference Energy Bill, SR/OIAF/2004-02 (Washington, DC, February 2004), web site www.eia.doe.gov/oiaf/servicerpt/ml/pdf/sroiaf_(2004)02.pdf.

31 The costs to the economy associated with developing lower costs and higher efficiencies are unknown and beyond the scope of this analysis.

32 Because the time horizon of NEMS ends in 2025, the bank of allowances was required to end in 2025. It is likely that the permit safety-valve price would be achieved if the NEMS time horizon extended to 2030, resulting in more banked allowances in the early years and a longer period of time in which to use them.