Executive Summary
This analysis responds to a request from Senators Smith, Voinovich,
and Brownback to examine the costs of specific multi-emission reduction strategies
in the electricity generation sector (see Appendix A for the requesting letter).
In their request, Senators Smith, Voinovich, and Brownback asked the Energy
Information Administration (EIA) to analyze the impacts of three scenarios
with alternative power sector emission caps on nitrogen oxides (NOx),
sulfur dioxide (SO2) and mercury (Hg). They also requested an analysis
of the potential costs of requiring power suppliers to acquire offsets for
any increase in carbon dioxide (CO2) emissions that occur beyond
the level expected in 2008.
Specifically, EIA was asked to analyze the following three
scenarios for reducing power sector emissions with and without holding CO2
emissions to 2008 reference case levels:
- Scenario 1: Reduce NOx emissions by 75 percent below
1997 levels, SO2 emissions by 75 percent below full implementation
of Title IV of the Clean Air Act Amendments of 1990 (CAAA90), and Hg emissions
by 75 percent below 1999 levels by 2012, with half the reductions for each
of the emissions occurring by 2007.
- Scenario 2: Reduce NOx emissions by 65 percent below
1997 levels, SO2 emissions by 65 percent below full implementation
of Title IV of the CAAA90, and Hg emissions by 65 percent below 1999 levels
by 2012, with half the reductions occurring by 2007.
- Scenario 3: Reduce NOx emissions by 50 percent below
1997 levels, SO2 emissions by 50 percent below full implementation
of Title IV of the CAAA90, and Hg emissions by 50 percent below 1999 levels,
with half the reductions occurring by 2007.
The emissions reduction programs are assumed to cover all power
generators other than industrial cogenerators and are patterned after the
SO2 allowance trading program created in the CAAA90. For Hg the
Senators specified that half the reductions require d in each scenario are
to come from site-specific reductions. The specific emission caps imposed
in each case are given in Table ES1.
The key results of controlling NOx, SO2,
and Hg to the required levels include:
- Adding emissions control equipment to reduce NOx,SO2,
and Hg is projected to be the dominant compliance option (Table
ES2). The values in Table ES2 indicate that emissions
control equipment is expected to be added to many of the existing U.S. coal-fired
electric power plants, which currently total just over 300 gigawatts of
capacity. The percentage of existing coal-fired capacity expected to have
SO2 scrubbers is larger than suggested by the values shown in
Table ES2, because 90 gigawatts of that capacity already is equipped with
scrubbers.
- Decreased use of coal and increased use of natural gas in the electricity
sector is projected to result when emission reduction efforts of these levels
are required. By 2020, coal-fired electricity generation is projected to
be between 4 percent and 10 percent below the reference case level, and
natural-gas-fired generation is projected to be between 4 percent and 10
percent above the reference case level (Table ES3).
- The potential for emission “leakage” outside the electricity
generation sector is slight,1 because coal plays such a small role in the residential, commercial, and
industrial sectors and because the higher natural gas prices that result
from increased use of natural gas in the generation sector lead to lower
overall fuel consumption and lower emissions in the non-electricity sectors.
- Emission allowance costs and electricity prices are projected to increase
as the caps on NOx, SO2, and Hg are tightened across
the cases. The price of electricity is projected to be between 1 percent
and 6 percent higher in 2020 than in the reference case. The Nation’s
total electricity bill (in 1999 dollars) is projected to be between $3 billion
and $13 billion (1 to 5 percent) higher in 2020 than projected in the reference
case.
- Over the 2001 to 2020 forecast period, power supplier resource costs
(in 1999 dollars) are projected to be between $28 billion and $89 billion
higher than in the reference case.
- If power suppliers were required to purchase offsets for CO2
emissions above the level projected to be emitted in 2008 in the reference
case, they would need to purchase between 65 million and 89 million metric
tons of offsets in 2020. There is considerable uncertainty about the potenial
price of carbon offsets in world markets, and EIA has not performed any
analysis in this area; however, using information from the Pacific Northwest
Laboratory’s Second Generation Model (SGM) and assuming that the United
States would not participate in the Kyoto Protocol, it appears that full
worldwide trading of energy-related carbon offsets would lead to a price
of about $10 per ton. At that price, the cost of purchasing offsets in the
three cases would range between $654 million and $888 million in 2020, or
roughly 0.3 to 0.4 percent of the industry’s projected revenue in 2020.
If trading programs also include offsets from reductions in emissions of
other greenhouse gases (such as methane) or investments in “carbon
sinks” (such as reforestation programs)— which are not analyzed
in this report—the costs could be lower.
- As in any 20-year projection, these results include numerous uncertainties.
Key uncertainties include the following:
- Future natural gas prices. Higher natural gas prices than those
projected in this report would increase the costs of reducing power sector
emissions.
- Cost and performance of new emissions control equipment. Because
few full-scale tests have been conducted, there is significant uncertainty
about the cost and performance of Hg control equipment. In addition, the
impact of equipment designed to remove NOx and SO2
on Hg emissions is also uncertain at this time.
- The changing structure of U.S. electricity markets. This study
assumes that wholesale power markets in the U.S. will behave competitively.
If they do not, compliance costs could be higher.
- The policy instrument used to reduce power plant emissions. This
study assumes that an efficient cap and trade system will be set up to reduce
power plant emissions. Numerous other policy instruments—such as taxes,
technical standards, or a generation performance standard with cap and trade—are
available. If an alternative instrument were used, the compliance costs
and price impacts would be different from those projected in this analysis.
Notes
|