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Impacts of Modeled Provisions of H.R. 6 EH: The Energy Policy Act of 2005
 

Executive Summary

This report responds to a May 2, 2005, letter from Chairman Pete Domenici and Ranking Member Jeff Bingaman requesting that the Energy Information Administration (EIA) perform an assessment of the energy supply, consumption, import, price, and macroeconomic impacts of H.R. 6, the Energy Policy Act of 2005, as passed by the U.S. House of Representatives on April 21, 2005 (H.R. 6 EH).

Summary Results of the Modeled Provisions of H.R. 6 EH

The impacts of the H.R. 6 EH provisions analyzed are estimated by comparing the results of a simulation with all of the provisions that can be modeled with the National Energy Modeling System (NEMS) based on an updated reference case of the Annual Energy Outlook 20051 (AEO2005). Overall, t he H.R. 6 EH provisions analyzed in this report have a modest impact on energy production, imports, oil prices, overall energy consumption, and economic growth.

The largest impacts come from opening the coastal plain of the Arctic National Wildlife Refuge (ANWR) for drilling. The maximum annual difference from the reference case level of energy production is an increase of 2.2 quadrillion British thermal units (Btu) (2.7 percent) in 2025. Starting in 2016, increased oil production from ANWR and from other fields in Alaska accounts for most of the increase in energy production in the H.R. 6 EH case. Alaska oil production is 940,000 barrels per day (154 percent) higher in the H.R. 6 EH case than in the reference case in 2025. Opening ANWR reduces oil import dependence by 4 percentage points in 2025, to 64 percent of petroleum product supplied. By 2025, world oil prices are expected to be 57 cents per barrel (1.9 percent) less than the reference case in constant 2003 dollars. (World oil prices are defined as the average refiner acquisition cost of crude oil imported into the United States.)

The following is a summary of the key impacts by provision:

  • Onshore and Offshore Deep Royalty Relief. Royalty relief as specified for Sections 2005 and 2016 of H.R. 6 EH is projected to increase cumulative lower-48 offshore oil production between 2006 and 2025 by 0.5 percent. Cumulative lower-48 natural gas production is projected to be the same in the H.R. 6 EH case as in the reference case.
  • Opening of the Arctic National Wildlife Refuge to Drilling. Opening ANWR to oil and natural gas development is projected to increase domestic oil production starting in 2015. In 2025, total oil production in Alaska is projected to be more than twice as high in the H.R. 6 EH case as in the reference case (1.55 million barrels per day in the H.R. 6 EH case, compared with 0.61 million barrels per day in the reference case). The increase in domestic oil production results in a reduction in the import share of petroleum products supplied, from 68 percent in the reference case to 64 percent in the H.R. 6 EH case.
  • Renewable Fuels Standard , Methyl Tertiary Butyl Ether Ban, and Removal of Oxygenate Requirement. The renewable fuels standard (RFS) provision requires 3.1 billion gallons of renewable fuel use in the transportation sector in 2005, increasing to 5 billion gallons in 2012. In 2013 and beyond, the share of renewable fuel is to remain proportional to the 2012 share of gasoline sold in the Nation thereafter. The use of methyl tertiary butyl ether (MTBE) is prohibited by H.R. 6 EH nationwide starting in 2015 and the oxygen content requirements for reformulated gasoline (RFG) is eliminated starting in 2005. These provisions raise ethanol consumption by 1.6 billion gallons in both 2015 and 2025. Relative to the reference case, average gasoline prices differ by less than 1 cent per gallon throughout most of the forecast horizon in the H.R. 6 EH case. RFS provisions are projected to decrease net petroleum imports by more than 100,000 barrels per day by 2015. The impact of the RFS provisions is very dependent on the world oil price assumptions. In the reference case, ethanol production increases from about 2.8 billion gallons in 2003 to more than 5 billion gallons in 2012. However, in a case where crude oil prices average $7.13 dollars higher between 2005 and 2012, the 5 billion gallon RFS target is reached by 2007 without the RFS requirement.
  • MTBE Transition Assistance. Grants to convert merchant MTBE plants accelerate conversion of these plants to other uses, but do not significantly affect petroleum supply.
  • Cellulose Conversion Assistance. Grants to cellulose ethanol producers are projected to allow construction and operation of two 52-million-gallon-per-year plants by 2010.
  • Residential Initiatives, Including Weatherization. These provisions provide incentives for the purchase of renewable technologies, a new standard for torchiere lighting (limiting lighting to 190-watt bulbs), tax credits for energy-efficient existing homes, and increased funding for weatherization programs. The torchiere standard is projected to save 8 billion kilowatthours in 2015 and 9 billion kilowatthours in 2025 (3 percent of residential lighting and 0.5 percent of overall residential electricity use in both years). Increases in weatherization funding and tax credits for existing homes and renewable technologies are projected to save 34 trillion Btu of delivered energy in 2015 (0.3 percent) and 28 trillion Btu in 2025 (0.2 percent). The proposed increases in weatherization funding allow an additional 360,000 low-income homes to be weatherized in 2006 through 2008. Because of the provisions modeled in the H.R. 6 EH, energy consumption and expenditures are lower in the H.R. 6 EH case than the reference case.
  • Commercial Initiatives, Including Energy Conservation Product Standards. These provisions set new appliance standards for illuminated exit signs, traffic signals, and distribution transformers, provide $50 million per year over 5 years to commercialize photovoltaic generation, and provide a 20-percent business investment tax credit for fuel cells, up to $500 per 0.5 kilowatt of capacity, for new capacity added between April 2005 through 2007. The commercial standards are projected to reduce electricity consumption by 4 billion kilowatthours (0.2 percent) in 2015 and maintain that savings through 2025. The photovoltaic program is projected to add 48 megawatts of photovoltaic capacity by 2010 (a 19-percent increase). This capacity is expected to generate about 101 million kilowatthours annually, about 4.8 percent of total commercial sector electricity use in 2025. Since fuel cell systems would have to be operational by 2007 to receive the credit and installed systems costs in the commercial sector are currently over $5,000 per kilowatt, adoption of the fuel cell technology is limited largely to reference case levels.

H.R. 6 EH Provisions Not Analyzed

Provisions of H.R. 6 EH that are not analyzed include: provisions that could not be analyzed using NEMS, including those addressing electric reliability; provisions that provide authorizations but do not provide actual funding; provisions that provide authority to set standards or targets at some future date but do not specify the standard or target; and provisions that are not expected to be significant to the market as a whole or are not quantifiable. Provisions that are not addressed for one or more of the above reasons could also have potentially significant impacts on U.S. energy markets. The results and findings in this report apply specifically to the provisions that were modeled.

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