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Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009

Aug 17, 2009

This report responds to a request to the Energy Information Administration (EIA) from Chairman Henry Waxman and Chairman Edward Markey for an analysis of H.R. 2454, the American Clean Energy and Security Act of 2009 (ACESA).1 ACESA, as passed by the House of Representatives on June 26, 2009, is a complex bill that regulates emissions of greenhouse gases through market-based mechanisms, efficiency programs, and economic incentives.

This report responds to a request to the Energy Information Administration (EIA) from Chairman Henry Waxman and Chairman Edward Markey for an analysis of H.R. 2454, the American Clean Energy and Security Act of 2009 (ACESA).1 ACESA, as passed by the House of Representatives on June 26, 2009, is a complex bill that regulates emissions of greenhouse gases through market-based mechanisms, efficiency programs, and economic incentives.

The Title III cap-and-trade program for greenhouse gas (GHG) emissions, which covers roughly 84 percent of total U.S. GHG emissions by 2016, is in many respects the centerpiece of the bill and the primary driver of the results presented in this report. The program subjects covered emissions to a cap that declines steadily between 2012 and 2050. The cap requires a 17- percent reduction in covered emissions by 2020 and an 83-percent reduction by 2050, both relative to a 2005 baseline, with targets that decline steadily for intermediate years. Compliance is enforced through a requirement for entities subject to the cap to submit allowances, which are bankable, sufficient to cover their emissions. Allowance obligations may also be offset by reductions in domestic emissions of exempted sources, by international offsets, or by emission allowances from other countries with comparable laws limiting emissions. Maximum offsets from domestic and international sources are each capped separately at 1 billion metric tons (BMT) in each year of the program, with the proviso that up to 500 million metric tons (MMT) of the domestic offset cap may be shifted to the international offset cap if the Administrator of the Environmental Protection Agency (EPA) determines that a sufficient supply of domestic offsets is not available. In addition to its centerpiece cap-and-trade program, Title III also includes additional GHG standards, dedicated programs to limit hydrofluorocarbon (HFC) emissions and black carbon, and provisions governing markets in carbon-related derivatives.

Title I contains provisions related to a Federal combined efficiency and renewable electricity standard for electricity sellers, carbon capture and storage technology, performance standards for new coal-fueled power plants, research and development support for electric vehicles, support for deployment of a smart grid, and establishment of a Clean Energy Deployment Administration. Title II includes provisions related to building, lighting, appliance, and vehicle energy efficiency programs.

Title IV includes provisions to preserve domestic competitiveness and support workers, provide assistance to consumers, and support domestic and international adaptation initiatives. Title V addresses the role of domestic agricultural and forestry-related offsets in the Title III cap-and-trade program.

This report considers the energy-related provisions in ACESA that can be analyzed using EIA’s National Energy Modeling System (NEMS). The Reference Case used as the starting point for the analysis in this report is an updated version of the Annual Energy Outlook 2009 (AEO2009) Reference Case issued in April 2009 that reflects the projected impacts of the American Recovery and Reinvestment Act as well as other significant energy legislation, including the Energy Improvement and Extension Act of 2008, the Energy Independence and Security Act of 2007, and 1 The request letter from Chairman Waxman and Chairman Markey is provided in Appendix A. Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 v the Energy Policy Act of 20052. Cumulative GHG emissions covered by the Title III cap-and-trade program over the 2012 to 2030 period are estimated to be 113.4 BMT in CO2-equivalent terms.

Key provisions of ACESA that are represented in the policy cases developed in this analysis include:

  • The GHG cap-and-trade program for gases other than HFCs, including provisions for the allocation of allowances to electricity and natural gas distribution utilities, low-income consumers, State efficiency programs, rebate programs, energy-intensive industries, and other specified purposes;
  • The combined efficiency and renewable electricity standard for electricity sellers;
  • The carbon capture and storage (CCS) demonstration and early deployment program;
  • Federal building code updates for both residential and commercial buildings;
  • Federal efficiency standards for lighting and other appliances;
  • Technology improvements driven by the Centers for Energy and Environmental Knowledge and Outreach; and
  • The smart grid peak savings program.
W hile this analysis is as comprehensive as possible given its timing, it does not address all the provisions of ACESA. Provisions that are not represented include the Clean Energy Deployment Administration, the strategic allowance reserve, the separate cap-and-trade program for HFC emissions, the GHG performance standards for activities not subject to the cap-and-trade program, the distribution of allowances to coal merchant plants, new efficiency standards for transportation equipment, and the effects of increased investment in energy research and development. Of these provisions, the Clean Energy Deployment Administration may have the most significant potential to alter the reported results.

Like other EIA analyses of energy and environmental policy proposals, this report focuses on the impacts of those proposals on energy choices made by consumers in all sectors and the implications of those decisions for the economy. This focus is consistent with EIA’s statutory mission and expertise. The study does not account for any possible health or environmental benefits that might be associated with curtailing GHG emissions.

Finally, while the emissions caps in the ACESA cap-and-trade program decline through the year 2050, the modeling horizon in this report runs only through 2030, the projection limit of NEMS. As in EIA analyses of earlier cap-and-trade proposals, the need to pursue higher-cost emissions reductions beyond 2030, driven by tighter caps and continued economic and population growth, can be reflected in the modeling by assuming that a positive bank of allowances is held at the end of 2030 in all but one case.