Executive Summary
1 Emission leakage occurs when control programs
in a sector that is covered lead to actions that increase emissions in sectors
not covered by the programs.
Background and Methodology
1 For more discussion of proposed bills, see
Energy Information Administration, Analysis of Strategies for Reducing
Multiple Emissions from Electric Power Plants: Sulfur Dioxide, Nitrogen Oxides,
Carbon Dioxide, and Mercury and a Renewable Portfolio Standard, SR/OIAF/2001-03
(Washington, DC, July 2001), web site www.eia.doe.gov/oiaf/servicerpt/epp/.
2 Industrial generators currently account for
approximately 8 percent of total generation, with approximately two-thirds
being generated from natural gas.
3 For benefit studies, see bibliography in Energy
Information Administration, Analysis of Strategies for Reducing Multiple
Emissions from Electric Power Plants: Sulfur Dioxide, Nitrogen Oxides, Carbon
Dioxide, and Mercury and a Renewable Portfolio Standard, SR/OIAF/2001-03
(Washington, DC, July 2001), web site www.eia.doe.gov/oiaf/servicerpt/epp/.
4 For more information on the representation
of emission caps in NEMS, see Chapter 2 in Energy Information Administration, Analysis of Strategies for Reducing Multiple Emissions from Electric Power
Plants: Sulfur Dioxide, Nitrogen Oxides, Carbon Dioxide, and Mercury and a
Renewable Portfolio Standard, SR/OIAF/2001-03 (Washington, DC, July 2001),
web site www.eia.doe.gov/oiaf/servicerpt/epp/.
5 For more discussion of the treatment of environmental
rules and regulations in the reference case, see page 9 of Energy Information
Administration, Analysis of Strategies for Reducing Multiple Emissions
from Electric Power Plants: Sulfur Dioxide, Nitrogen Oxides, Carbon Dioxide,
and Mercury and a Renewable Portfolio Standard, SR/OIAF/2001-03 (Washington,
DC, July 2001), web site www.eia.doe.gov/oiaf/ servicerpt/epp/.
6 Even when allowances are allocated at zero
cost, there are opportunity costs associated with them. By using its own allowances,
a company forgoes the revenue that could be made by selling them.
7 For an analysis of the potential impacts of
different emission allowance approaches see D. Burtraw, K. Palmer, R. Bharvirkar,
and A. Paul, “The Effect of Allowance Allocation on the Cost of Carbon
Emissions Trading” (Washington, DC: Resources for the Future, Discussion
Paper 01-30, August 2001); and C. Fischer, “Rebating Environmental Policy
Revenues: Output-based Allocations and Tradable Performance Standards”
(Washington, DC: Resources for the Future, Discussion Paper 01-22, July 2001).
For a discussion of the impacts of a generation performance standard approach
see, J.A. Beamon, T. Leckey, and L. Martin, “Power Plant Emissions Reductions
Using a Generation Performance Standard,” web site www.eia.doe.gov/oiaf/servicerpt/gps/pdf/gpsstudy.pdf.
8 Banking decisions were estimated exogenously.
9 Output received from Pacific Northwest Laboratory
August 30, 2001. Because the Second Generation Model is an energy sector model,
offsets that might be available from non-energy sectors (such as agricultural
changes or reforestation activities) are not represented.
Impacts on Electricity Generation and Key Fuel Markets
10 Power companies created “banked allowances”
by overcomplying during the first phase of the CAAA90 SO2program,
from 1995 to 1999. They can use those allowances in later years. (Return
to Impacts on Electricity Generation and Key Fuel Markets)
11 Substantial uncertainty remains about the
measurement and control of Hg emissions. For a discussion of this issue see
pages 16 and 17 in Energy Information Administration, Analysis of Strategies
for Reducing Multiple Emissions from Electric Power Plants: Sulfur Dioxide,
Nitrogen Oxides, Carbon Dioxide, and Mercury and a Renewable Portfolio Standard,
SR/OIAF/2001-03 (Washington, DC, July 2001), web site www.eia.doe.gov/oiaf/servicerpt/epp/.
12 The reference case includes the summer season
NOx cap that begins in 2004 for 19 midwestern and eastern states and the District
of Columbia. The analysis cases include only the annual NOx reduction
programs requested.
13 The Hg allowance price in 2010 is $0 in
each of the three analysis cases, because it is assumed that each plant must
achieve a specified reduction—set to achieve half the total required
reduction—by 2007. Because these reductions are sufficient to meet the
2010 overall cap, the allowance price is $0.
14 The examples given in this paragraph assume
a 15-percent fixed charge factor, a 2.5-percent heat rate penalty, and a coal
price of $1 per million Btu. They do not represent the costs for any particular
plant but are meant to be illustrative.
15 The changes in resource costs reported here
do not include the financing and profits typically associated with new investments.
If the changes in capital investments are put in the form of annuities, the
changes in resource costs are $3.1 billion, $5.7 billion, and $7.2 billion
in 2010 in the 50-, 65-, and 75-Percent cases, respectively. In 2020 the corresponding
values are $4.8 billion, $9.1 billion, and $12.3 billion.
16 Emission leakage occurs when control programs
in a covered sector lead to actions that increase emissions in sectors not
covered by the programs.
17 The SGM supply and demand curves were modified
to be consistent with the Energy Information Administration’s International
Energy Outlook 2001, DOE/EIA-0484(2001) (Washington, DC, March 2001).
Essentially the percentage change in carbon emissions reflected in the
SGM curves at different allowance prices was applied to the International
Energy Outlook emissions projections for various parts of the world to develop
revised abatement demand and supply curves. For more information on the SGM
model, see J.A. Edmonds, H.M. Pitcher, D. Barns, R. Baron, and M.A. Wise,
“Modeling Future Greenhouse Gas Emissions: The Second Generation Model
Description,” in Modeling Global Change, L.R. Klein and Fu-chen
Lo, eds (New York, NY: United Nations University Press, 1993).
18 For discussion of an enhanced Hg control
technology case and other emission cap sensitivity cases, see Energy Information
Administration, Analysis of Strategies for Reducing Multiple Emissions
from Electric Power Plants: Sulfur Dioxide, Nitrogen Oxides, Carbon Dioxide,
and Mercury and a Renewable Portfolio Standard, SR/OIAF/2001-03 (Washington,
DC, July 2001), web site www.eia.doe.gov/oiaf/servicerpt/epp/.
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