Sectoral Climate Policies Exploring Multiple Sectoral Climate Policies to Achieve Economy Wide GHG Reductions JONATHAN BANKS FALL, 2009

Transcription

1 Sectoral Climate Policies Exploring Multiple Sectoral Climate Policies to Achieve Economy Wide GHG Reductions JONATHAN BANKS FALL, 2009

2 Purpose In late 2008, following the defeat of the Lieberman Warner bill, CATF decided to test some alternatives to economy wide climate legislation. We chose to analyze a combination of policies that target specific sectors, with the goal of reducing costs, creating more believable technology pathways, and maintaining environmental integrity. CATF conducted an initial set of modeling runs on a set of proxy policies. Since then, the economic downturn, and a number of additional changes have dramatically altered EIA s view of BAU. CATF has now updated our initial set of runs to reflect these changes and pegged the work to modeling EIA has performed on the Waxman-Markey legislation. The modeling conducted serves to test a variety of policy options but needs further refinement, development and discussion to achieve the necessary goals. For a more in depth discussion please see CATF s testimony before the Senate Energy and Natural Resources Committee. Sectoral Climate Policies 2

3 4,000 3,500 3,000 2,500 Purchased Offsets Other GHG Reductions Power Sector CO2 Transportation CO2 Industrial CO2 Commercial CO2 Residential CO2 Shares of GHG Abatement Under Waxman-Markey (EIA) MMTCO2e 2,000 1,500 1, Sectoral Climate Policies 3

4 Purchased Offsets 2,000 1,800 1,600 CATF Waxman-Markey/Sectoral 1,400 1,200 MMTCO2e 1, Sectoral Climate Policies 4

5 80% Purchased Offsets as a Fraction of Total Greenhouse Gas Reductions from the Reference Case Offsets as a Percentage of Total GHG Reduction 70% 60% 50% 40% 30% 20% 10% CATF Waxman-Markey/ Sectoral 0% Sectoral Climate Policies 5

6 Greenhouse Gas Allowance Prices $70.00 $ Dollars per MTCO2e $50.00 $40.00 $30.00 $20.00 CATF Waxman-Markey/ Sectoral $10.00 $0.00 Sectoral Climate Policies 6

7 Greenhouse Gas Emissions Less Offsets 9,000 8,000 7,000 Millions of Metric Tonnes CO2e 6,000 5,000 4,000 3,000 2,000 1,000 CATF Waxman-Markey/Sectoral 0 Sectoral Climate Policies 7

8 Total Energy Consumption Quadrillion BTUs CATF Waxman-Markey/Sectoral 0.00 Sectoral Climate Policies 8

9 Power Sector CO2 Emissions 3,000 2,500 Millions of Metric Tonnes of CO2 2,000 1,500 1, Sectoral Climate Policies 9

10 2,050 Transportation CO2 Emissions (not including electricity) 2,000 Millions of Metric Tonnes of CO2 1,950 1,900 1,850 1,800 1,750 CATF Waxman-Markey/Sectoral Sectoral Climate Policies 10

11 1,050 Industrial Sector CO2 Emissions (not including electricity) 1,000 Millions of Metric Tonnes of CO Sectoral Climate Policies 11

12 Residential Electricity Prices $0.16 $0.14 Residential Electric Price ($/kwh) $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 Sectoral Climate Policies 12

13 Residential Monthly Electric Bills $140 $120 Residential Monthly Electric Bills $100 $80 $60 $40 $20 $0 Sectoral Climate Policies 13

14 Residential Natural Gas Prices $18.00 $16.00 $14.00 Residential Gas Price ($/MMBTU) $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Sectoral Climate Policies 14

15 Residential Monthly Natural Gas Bills $60 $50 Residential Monthly Gas Bills $40 $30 $20 $10 $0 Sectoral Climate Policies 15

16 Industrial Electricity Prices $0.10 $0.09 $0.08 Industrial Electric Price ($/kwh) $0.07 $0.06 $0.05 $0.04 $0.03 $0.02 $0.01 $0.00 Sectoral Climate Policies 16

17 Industrial Annual Electric Bills per $1000 of Value Added $14.00 Industrial Annual Electric Bills per $1000 of Value Added $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Sectoral Climate Policies 17

18 Industrial Natural Gas Prices $12.00 $10.00 Industrial Gas Price ($/MMBTU) $8.00 $6.00 $4.00 $2.00 $0.00 Sectoral Climate Policies 18

19 Industrial Annual Natural Gas Bills per $1000 of Value Added $12.00 Industrial Annual Gas Bills per $1000 of Value Added $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Sectoral Climate Policies 19

20 Gasoline Price $4.50 $4.00 $3.50 Gasoline Price ($/Gallon) $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Sectoral Climate Policies 20

21 Total Coal Usage 1,400 1,200 Millions of Short Tons of Coal 1, CATF Waxman-Markey/ Sectoral 0 Sectoral Climate Policies 21

22 Coal Capacity Additions with Carbon Sequestration GW of New Coal Capacity with CCS Sectoral Climate Policies 22

23 Natural Gas Capacity Additions GW of New Gas-Fired Capacity Sectoral Climate Policies 23

24 Nuclear Capacity Additions GW of New Nuclear Capacity Sectoral Climate Policies 24

25 Renewable Capacity Additions GW of New Renewable Capacity Sectoral Climate Policies 25

26 Power Generation Fractions in % Coal Fraction Gas Fraction Nuclear Fraction 50% 49.0% 48.1% Renewable Fraction 46.1% 42.0% Percentage of Generation 40% 30% 20% 21.1% 20.0% 19.4% 19.2% 19.7% 15.6% 15.5% 15.6% 14.6% 20.1% 17.5% 10% 9.5% 0% Reference Case in 2006 Sectoral Climate Policies 26

27 Power Generation Fractions in % Coal Fraction Gas Fraction 50% 49.0% 45.7% Nuclear Fraction Renewable Fraction 45.2% Percentage of Generation 40% 30% 20% 20.0% 19.4% 19.3% 17.6% 15.8% 33.0% 28.8% 21.7% 15.0% 13.8% 19.4% 20.0% 10% 9.5% 0% Reference Case in 2006 Sectoral Climate Policies 27

28 Caveats on Modeling Models are useful tools, but do not reliably predict the future with great accuracy in part because: They rely on a great many assumptions including long-range fuel price forecasts. Energy technology performance and cost assumptions typically do not range far from current conditions in the model. They necessarily simplify reality for example, the complex power system consisting of several thousand different generating units is reduced in NEMS to about 200 model power plants that attempt to statistically reflect reality. Models will not capture the potentially significant psychological changes that might occur with enactment of climate policy we are really moving into a carbon constrained world that could materially impact investor behavior. Models cannot capture political opposition to certain technologies. Models are technology stagnant. Modeling can only employ technologies that at least exist today and must assume a cost curve and performance curve that may not reflect the real world. While models produce exact numbers, care should be taken to focus on the trends and the directionality of the model results. And finally, models have a hard time keeping up with major economic changes such as the recent global collapse. The current version of NEMS still does not reflect the full impact of this collapse. Sectoral Climate Policies 28