Let’s set aside for the moment that the Energy Information Administration (EIA) doesn’t fully model the House climate and clean energy bill — they utterly ignore a major cost containment provision and the clean energy bank, while underestimating likely efficiency gains.
The EIA analysis, “Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009,” still finds that the average cost to households from 2012 to 2030 (discounted) is $83! A fact sheet can be found here.
As The Hill wrote in “EIA says costs of climate bill modest at first“:
The move by bill sponsors to give away pollution allowances rather than selling them appears to be a good one; the EIA credits the free distribution of credits with keeping energy costs from rising precipitously….
Electric bills would increase only 3 to 4 percent by 2020 under a carbon cap imposed by the bill.
Reuters reports that EIA finds the clean energy bill would “increase the energy costs of the average family by $142 a year in 2020 and by $583 in 2030,” adding:
The estimate from the U.S. Energy Information Administration is in line with cost impact projections made by the Congressional Budget Office and the Environmental Protection Agency, and contradict claims by energy and business trade groups that consumers would pay thousands of dollars more a year under a government plan to fight global warming.
In fact, the only reason the energy costs rise so much in 2030 compared to 2025 is that the allowance distribution to regulated utilities phases out after 2025. While the EIA is stuck in a relatively rigid analysis and reporting methodology, in the real world, the increased auction revenues would be given back to consumers, which would again offset their increased energy costs with tax cuts. So while energy costs might jump post-2050, net impacts on consumers would not.
The EIA projects an allowance price of $32 per metric ton of CO2 equivalent in 2020 — about double what EPA and I project and 50% higher than CBO’s projection. Very unlikely.
The EIA has historically lowballed the prospects for energy efficiency, and here again they find a total drop in energy use under the climate bill of only about 3% in 2020 (3 quadrillion BTUs) and 6% in 2030 (6.5 quads). According to the EPA analysis of the bill, Waxman-Markey lowers demand 7 quads in 2020 compared to business as usual, and 10.4 quads in 2030 (see “New EPA analysis of Waxman-Markey: Consumer electric bills 7% lower in 2020 thanks to efficiency “” plus 22 GW of extra coal retirements and no new dirty plants“). That is similar to what the the American Council for an Energy-Efficient Economy (ACEEE) calculates for the savings from W-M’s efficiency provisions “” 5 quads saved in 2020 and 12.3 quads in 2030 (see “The triumph of energy efficiency: Waxman-Markey could save $3,900 per household and create 650,000 jobs by 2030“).
If EIA had a decent model of energy efficiency, and if they had calculated the tax reduction from returning auction allowances back to consumers, I am quite certain that they would have again found the net cost to American families of close to a postage stamp a day even in 2030.
Even with all its flaws, the “total discounted GDP losses over the 2012 to 2030 time period” are a whopping 0.2%, which is pretty much what every major analysis of climate action finds (“Intro to climate economics: Why even strong climate action has such a low total cost — one tenth of a penny on the dollar“).
EIA has some interesting findings of the bill’s impact on how we use energy.
Even though they lowball energy efficiency — and don’t even model Obama’s big fuel economy deal in their main case — they find a savings in liquid fuel use in 2030 of some 320 million barrels, nearly 900,000 barrels of oil a day.
EIA finds that under W-M
… new coal bill without CCS beyond those that are already under construction are almost eliminated. There is also a large increase in coal power plant retirements [and a 60% drop in coal use in power plants] by 2030 from current levels in the ACESA main cases, well above the 1% of existing coal capacity projected to retire in the reference case.
The fact sheet notes:
Nuclear power would expand dramatically without added financial assistance.
Whether that is good news to you or not, it does suggest that the Senate bill doesn’t need to put many nuclear incentives into the bill.
New renewable capacity added from 2007 through 2030 under the bill is 119 GW — 38 GW higher than in the reference case.
Two final points. First, EIA didn’t even bother trying to model W-M’s strategic reserve, which presumably would have helped lower costs. My guess is that it was just too darn complicated for them to figure out. It needs changing.
Second, like EPA (but unlike CBO), the EIA concludes that large numbers of international offsets will be purchased in the early years, which simply defies logic. Since the EIA lowballs efficiency and fuel switching to natural gas in the bill, they overestimate allowance costs and hence offset purchases.
Mysteriously, the EIA notes:
One recent analysis doubts that even 150 MMT of international offsets will be used by 2020.
They never specify what recent analysis, but it is suspiciously similar to my conclusion here: “I doubt even 150 million tons of offsets will be used by emitters in 2020.” Since I haven’t seen anyone else use a similar 150 MMT figure, I guess EIA reads my blog, even if they ignore its conclusions.
The bottom line: Yet another analysis makes clear the House climate and clean energy bill would dramatically reduce greenhouse gas emissions and accelerate the clean energy transition at a very low cost. And this from an independent, nonpartisan agency known for underestimating the potential and overestimating the cost of clean energy.