What if increased nuclear use for electricity generation is limited?

In the main S. 280 cases, new nuclear plants are a key technology the power sector is projected to rely on to reduce GHG emissions. However, many factors could limit their use. There are siting, environmental, political, and public opinion barriers to new nuclear capacity in the United States. While some companies are actively pursuing new nuclear plants at this time, especially due to the tax credits provided by EPACT2005, it has been nearly 30 years since the last new nuclear plant that was completed was ordered. There is also considerable uncertainty surrounding the costs and construction times for new units, as well as concerns over long-term nuclear waste
storage.

A No Nuclear case was analyzed to examine the impacts of restricting new nuclear capacity growth (beyond that added in the reference case) under the S. 280 Core assumptions. The allowance price in the No Nuclear case is 6 percent higher than the S. 280 Core case in 2030 and power sector CO2 emissions are about 3 percent higher. The power sector turns to increased investment in renewables (mainly biomass and wind) as well as significant investment in new coal plants with carbon capture and sequestration and natural gas. In the No Nuclear case, 70 gigawatts of new coal plants with carbon capture equipment are built. Total coal production in 2030 in the No Nuclear case is more than 100 million tons higher than in the S. 280 Core case. The higher allowance price and more costly capacity investment in this case lead to average delivered electricity prices in 2030 that are 8 percent higher than the S. 280 Core case. In turn, the higher prices have an impact on electricity sales, which are 2 percent lower in 2030 in the No Nuclear case than in the S. 280 Core case.

Residential energy savings, rebates, and energy efficiency

An integral element of S. 280 is the creation of the Climate Change Credit Corporation (CCCC), which is funded by the proceeds of buying, selling, and trading GHG allowances. One of the many roles of the CCCC is to establish a funding stream for technology deployment and rebates to the purchasers of energy-efficient appliances. In order to represent the potential effects of this provision, in the S. 280 cases, it is assumed that more efficient technologies are available to consumers as a result of the technology deployment initiative and that the incremental cost of the technologies is reduced by one-half due to the rebate initiative.¹ This assumption implies that a consumer purchasing an efficient heat pump with an incremental cost of $1000 over the base unit would only pay an additional $500. The rebates, combined with higher electricity prices, have a noticeable impact on energy efficiency for some appliances. The stock of residential air-source heat pumps is 6 percent more efficient in the S. 280 Core case in 2030 and 12 percent more efficient in the S 280 High Technology case in 2030.

The increase in efficiency does come at a cost to the CCCC. Over the 2012 to 2030 time period, the CCCC pays out $80 billion (in 2005 dollars) in the S. 280 Core case in order to fund the rebates to residential consumers which helps achieve the stated goal of reducing energy costs borne by consumers as the result of the GHG reduction scheme. Of the $80 billion distributed to residential consumers over the 2012-2030 time period, $45 billion is claimed by consumers who would have purchased more efficient technologies without the rebate, meaning that over half (56 percent) of the consumers are “free riders.” Consumers, for their part, spend an additional $32 billion
for the more efficient appliances, but save $121 billion in fuel costs through 2030.

1 For detailed information on the technology profiles, see: Energy Information Administration, Technology Forecast Updates - Residential and Commercial Buildings Technologies - Advanced Adoption Case (Navigant Consulting, September 2004 and January 2006).

Which buildings will be covered?

The EIA commercial buildings survey data indicate that less than 0.01 percent of commercial buildings used enough fuel, excluding electricity, in 2003 to meet the emissions coverage threshold of 10,000 metric tons of CO2 emissions per year in S. 280.1 Large office buildings that generate electricity for their own use and large hospitals were most likely to meet the emissions threshold at the building level. While one surveyed shopping mall consumed enough natural gas in 2003 to produce over 2,500 metric tons of CO2 emissions, the average for enclosed malls was 45 metric tons of CO2 emissions based on natural gas and fuel oil use. Every surveyed building that met the threshold in 2003 is part of a multi-building facility and/or generates electricity within the building. While a multi-building facility may exceed the threshold, there are no comprehensive data sources that provide commercial energy consumption or emissions at the facility level to make that determination. Given that the vast majority of commercial buildings would not meet the emissions threshold, it is assumed that the commercial sector is not covered by the bill in the main S. 280 cases.

The Commercial Covered sensitivity case was prepared to illustrate the impact of removing this assumption and treating the entire commercial sector as covered. Directly limiting commercial sector emissions in the Commercial Covered case causes commercial sector delivered energy use to be one percent lower in 2020 and 3 percent lower in 2030 than in the S. 280 Core case. Annual energy expenditures by commercial consumers are 2 percent higher ($4 billion) in 2020 and 4 percent higher ($10 billion) in 2030 in the Commercial Covered case relative to the S. 280 Core case. Although treating the commercial sector as covered results in higher energy expenditures, mandatory commercial participation in the allowance system has little impact on allowance prices, with less than one dollar difference between the two cases in 2020. Overall CO2 emissions also change very little; by 2030 emissions are 0.9 percent higher in the Commercial Covered case than in the S. 280 Core case.

1 Energy Information Administration, 2003 Commercial Buildings Energy Consumption Survey, Public Use Files (December 2006), www.eia.doe.gov/emeu/cbecs/cbecs2003/public_use_2003/cbecs_pudata2003.html.

Potential impacts on carbon-intensive industries: cement and lime production

A program to reduce GHG emissions would have the largest impacts on industries whose production processes are most carbon intensive—industries like the cement industry. The U.S. cement industry produced a record 99.3 million metric tons of cement and imported a record 30.4 million metric tons in 2005.²⁶ The share of U.S. cement consumption met by imports grew to 23 percent in 2005, continuing a trend of increasing imports that has been apparent for at least 10 years. Canada accounted for 16 percent of U.S. cement imports in 2005, while China accounted for 14 percent.

If the U.S. cement industry is required to reduce CO2 emissions but other countries are not, it is probable that the upward trend in cement imports will rise faster. There are few options for the cement industry to reduce process-related emissions. One option, however, is to increase the amount of blended cement production. For example, clinker can be combined with fly ash to produce blended cements. This option is already used extensively for some purposes, e.g., highway construction in California.²⁹

In the main S. 280 cases, U.S. clinker production in 2020 is projected to fall 4 percent to 7 percent, relative to the base case, due to a combination of increased production of blended cements and increased imports of finished cement. Reference case process related CO2 emissions and combustion-related emissions³⁰ are projected to be 52 million metric tons and 42 million metric tons, respectively, in 2020. In the main S. 280 cases, in 2020, process-related CO2 emissions are reduced by 2 million metric tons to 4 million metric tons, and combustion-related CO2 emissions are reduced by 3 million metric tons to 6 million metric tons (Figure 24). In 2030, reference case process-related CO2 emissions are projected to be 57 million metric tons and combustion-related CO2 emissions are projected to be 44 million metric tons. In the main S. 280 cases, U.S. clinker production in 2030 is 10 percent to 13 percent lower than in the reference case while process-related CO2 emissions are 5 million metric tons to 7 million metric tons lower (10 percent to 13 percent) and combustion-related CO2 emissions are 7 to 13 million metric tons lower (17 percent to 30 percent). The fall in cement industry CO2 emissions is due to the combined effects of increased blending and imports, increased energy efficiency, and reduced industry output.

The lime production industry is the second largest producer of process-related CO2 emissions. In a process similar to cement clinker production, limestone is heated in a kiln to drive off the carbon to create lime. While there are energy efficiency improvements that could be undertaken in the lime production process, lime production inherently produces carbon dioxide. In 2005, the lime production industry’s process-related CO2 emissions were 15.7 million metric tons of CO2, second only to the cement industry. ³¹ Lime is used in many manufacturing industries as well as in construction and a variety of environmental-related uses, such as flue-gas desulfurization.³² While the lime manufacturing industry does not presently encounter appreciable import competition, the advent of a GHG fees will have an adverse impact on the manufacturing industries that use lime in their production processes. As a result, process-related CO2 emissions from lime manufacturing in 2030 are projected to fall by 1 million metric tons (4 percent) to 21.9 million metric tons in the S. 280 Core case.

The High Auction Case

Notes