The perceived cost of implementing emissions reductions appears to be limiting factor the adoption of programs for reducing emissions. When President Bush rejected the Kyoto Protocol in 2001, he did it for economic reasons. His justification was, “It would have cost our economy up to $400 billion and we would have lost 4.9 million jobs.”(1) President Bush did not say that Kyoto was rejected because he did not believe that Global Climate Change was happening or that he did not believe in the science behind the climate change analysis. Basically, President Bush said that he would not be re-elected if he implemented Kyoto, it caused a massive recession and 4.9 million Americans lost their jobs. Many in the public and in the political arena appear to believe that the cost of reducing GHG emissions is very large.

This article attempts to show that there are ways to reduce GHG emissions that are low cost. That is, implementing these emissions reductions options would not adversely impact the economy. GDP growth would be basically the same if these options were implemented. In the case of utility options, the options discussed here cost about the same as the standard set of utility options. As a result, the selection of emissions reduction options will not have a significant impact on customers.

The GHG reductions approach discussed in this article builds on the experience of the cap-and-trade program for sulfur dioxide (SOx) emissions reductions. The author was a consultant to the administration in the development of the cap-and-trade program for SOx emissions reductions in what became the Clean Air Act Amendments of 1990 (CAAA). The CAAA’s cap-and-trade program is credited with reducing SOx emissions at low cost, but it is necessary to examine what options were undertaken in order to understand how this happened. The CAAA’s cap-and-trade program was able to achieve low cost emission reductions because there were cost effective emission reduction options available. Two of the principal cost-effective options in the CAAA case were the use of low-cost coal from the Powder River Basin and the consolidation of railroads that reduced rail haulage costs, particularly on long hauls that would have involved several rail companies prior to consolidation. In addition, at about the time that the CAAA went into effect, many coal contracts had escalation clauses that caused high-sulfur coal to be quite expensive. This might be referred to as a “high-cost base case” and resulted in emission reduction options being cost effective. Thus, the lessons to be learned from the implementation of the cap-and-trade program are that a high cost base case makes more options cost effective, that there need to be cost-effective emission reduction options available in order to reduce emissions at low cost, and neither cap-and-trade nor any other approach will be able to reduce emissions at low cost if there are not cost-effective emission reduction options available.

Energy costs are much higher now than in 2001 when President Bush rejected the Kyoto Protocol. As a result of high energy costs, many more emissions reduction options are now cost effective. In part because of high energy costs, GHG emissions reduction scenarios can be developed that do not have an adverse impact on the economy or utility customer costs.

Many discussions of climate change focus on the problem but offer little in the way of solutions. It is time to move the discussion to solutions. One GHG emissions solution was presented by the energy and economic consulting firm Global Insight in a special study titled, “A Scenario for Reducing Greenhouse Gas Emissions.”(2) The Low-Cost Scenario reported here builds on the Global Insight work and incorporates several of its components. The Global Insight GHG Scenario, as it is referred to in this article, resulted in GHG emissions leveling off after 2015 at about 6,200 million metric tons of Carbon Dioxide (mmt CO2) and then declining slightly. The Global Insight GHG Scenario is particularly noteworthy because Global Insight used its detailed energy and economic modeling capabilities to demonstrate that GHG emissions can be addressed without an adverse impact on the economy.

Summary of GHG Emissions Reduction under this Low-Cost Scenario

The results of this Low-Cost Scenario for reducing GHG emissions are summarized in Figure 1. GHG emissions are reduced to by approximately 44% or 3,600 mmt CO2 compared to the base case (AEO 2006). GHG emissions are reduced to the target level of the Kyoto Protocol. This level of emissions reduction is not achieved until 2030 while the Kyoto Protocol called for this level to be reached by 2012. It is worthwhile to point out that emissions are declining at the end of the period, which implies that emissions will continue to decline long term.

There are eight options employed in the Low-Cost Scenario for GHG emissions reduction reported here. These are:

The targets for the various options, such as doubling nuclear capacity or 40 miles per gallon, are but one suggestion. Further analysis is needed to determine if this is the appropriate target. Additional scenarios are also needed to determine whether there are better targets than those used here. The target selected here for some options may be too aggressive while the target for other options may be too conservative. This Low-Cost Solution should not be considered the definitive answer but one step on a long path. This article shows that there are low cost paths and not that this is the only path.

The options used in the Low-Cost Scenario are described below.

Electricity Generation

1. Nuclear Generation

Doubling nuclear generating capacity between now and 2030 would be a key step in reducing America’s GHG emissions, is highly economic, and has already started. Approximately thirty new nuclear units have been announced – see Table 1 below. This interest in nuclear generating capacity appears to be because of the cost effectiveness of existing units in today’s electricity markets and because of incentives included in EPAct 2005. Not all of the units listed in Table 1 may get built, but others might take their place.(3) Given the 30 announced units in Table 1 and the fact that they cannot all be built at once, spreading them over the 2015 to 2020 time frame (inclusive) would mean an average construction rate of about five units per year. If nuclear unit construction maintained an average rate of 5 units per year from 2015 to 2030, 80 new units would be built. A construction rate of 5 units per year would average less than 2 units per year from each of the three nuclear suppliers, GE, Westinghouse and the French-American AREVA. Continuing to aggressively construct nuclear units long-term might require incentives beyond those included in EPAct 2005 (and also implies that the nuclear waste disposal issue needs to be resolved).

If 80 new units were built, this would represent roughly 104,000 MW of new capacity assuming the next generation of units would average about 1,300 MW each. This 104,000 MW of new nuclear capacity is approximately double the current capacity of 99,600 MW(4) and would roughly double current generation. Most of the new units would be additional units at existing plant sites, so this new construction breaks down to about two additional units at a little over half of the 65 existing plant sites. The 104,000 MW included in this scenario compares to 6,000 MW in AEO 2006(5) and 25,000 MW in the more recent EIA studies(6) and in the Global Insight GHG Scenario.

Some readers might believe that this Low-Cost Scenario is nothing more than a nuclear scenario. As shown in Figure 3 (which is in tomorrow’s article), nuclear generation accounts for about 17% of the total GHG emissions reduction in 2030. Nuclear is not even the largest contributor to emissions reduction among the electric generation options. This illustrates the difficulty of reducing America’s GHG emissions. There is no single silver bullet that is going to solve the problem or even a large part of the problem. Reducing GHG emissions requires a significant reduction in every major emissions sector.

2. Renewable Generation

The second part of the generation solution would come from renewable generation technologies such as wind, biomass, bio-gas, small hydro and geothermal (large hydro is excluded). A move to renewables is already under way. Twenty one states already have some form of renewable portfolio standard, according to Global Insight. These statewide programs would be expanded to a national renewable portfolio standard in this scenario. The proposed targets for this option are 10% of generation from renewables by 2015, 15% of generation by 2020, and 25% by 2025 (excluding large hydro). In order to avoid the start and stop nature of the industry that has historically plagued the renewable industry, the renewable target is increased by 1% each year from 2008 when renewables’ share of generation in the AEO 2006 projection is 3%. A continuation of the federal production tax credit for renewables long-term would be needed in order to avoid a significant impact on utility customer costs. Tradable renewable energy credits would also appear to be a way to take advantage of areas that have good renewable potential. This Low-Cost Scenario used the Global Insight GHG Scenario target of 20% of generation, but reaches it 5 years earlier in 2025. AEO 2006 includes little additional renewable generation beyond increases in the few couple of years, reaching 3.9% of generation in 2030.

3. Carbon Sequestration at Coal-Fired Power Plants

The goal in this Low-Cost Scenario would be to install carbon sequestration at 2,000 MW of coal-fired power plants each year from 2010 to 2030. Like many other steps in this scenario, the carbon sequestration step has already started. Xcel Energy, Duke Energy, NRG, Southern Company and Orlando Utilities, AEP (2 units), and various government projects are all pursuing integrated gasification combined cycle (IGCC) plants either with carbon sequestration or ready for carbon sequestration. In addition to IGCC, Sunflower Electric Cooperative is evaluating bio-sequestration (using algae) at 2,100 MW of new super-critical coal units being developed in Kansas. At a rate of 2,000 MW per year, there would be roughly 42,000 MW of coal-fired generation with sequestration by 2030 under this scenario.

The amount of carbon sequestration is deliberately selected so that it does not represent an onerous or expensive burden on the utility industry and their customers. It will be difficult to obtain the support of the utility industry if a GHG emissions reduction scenario places too great of a burden on utility customers. The standard design for new IGCC plants results in a capacity of a little over 600 MW, so 2,000 MW per year with sequestration represents about three plants per year. The 42,000 MW of carbon sequestration in this Low-Cost Scenario compares with 5,000 MW of carbon sequestration in the Global Insight GHG Scenario (there does not appear to be any sequestration in AEO 2006). It is estimated that this 2,000 MW per year would represent only a portion of the total capacity of coal plants constructed – not every plant would be required to sequester carbon.

Unlike other aspects of this plan, the addition of carbon sequestration to coal-fired generating plants is not economic and will result in additional costs to consumers. This impact is anticipated to be small given that a relatively small proportion of coal-fired generating capacity that will be required to sequester carbon compared to the total amount of existing and future generating capacity. Other proposals that require more sequestration would move them further from a low-cost scenario.

4. Energy Efficiency in Electricity-Consuming Equipment

The next part of the plan is energy efficiency in appliances and electric equipment. Like other aspects of the plan, energy efficiency improvements are already underway. Significant efficiency improvements are forthcoming from federal appliance efficiency standards that went into effect in 2006 for residential air-conditioners and in 2004 for refrigerators and freezers, for example. As appliance stocks roll over in the next 10 to 15 years, they will be replaced by more efficient appliances. The Global Insight GHG Scenario target is adopted for this option. It calls for a 20% improvement in federal appliance and building efficiency standards over current standards, phased in over 20 years. The result is a 3.7% reduction in overall electricity demand in 2030 compared to the base (no additional standards) case.

Electric Generation Summary

The mix of energy used for electric generation will be different in the future under the Low-Cost Scenario. Electric generation in 2005 was about 53% coal, 17% oil and gas, 21% nuclear, and 9% renewables and hydro, according to the AEO 2006 numbers (see Figure 2). By 2030, the generation mix in this Low-Cost Scenario is crudely estimated to consist of 29% conventional coal, 6% coal with sequestration, 7% natural gas and oil, 32% nuclear and 26% renewables and hydro. Natural gas generation was not discussed above. Some natural gas-fired generation will still be required in the future, particularly in places where natural gas is used extensively such as California, the northeast, Texas and Florida. More detailed dispatch modeling is needed to determine the specific amount of natural gas-fired generation in the future. A conservative estimate was included here, but it may be that more natural gas-fired generation would be required and, therefore, less coal and fewer emissions.

A comparison of electric generation between AEO 2006 and the Low-Cost Scenario is presented in Table 2.

The second part of the emissions reduction program applies to transportation-related activities and to residential, commercial and industrial energy (non-electric) use. These emission reduction options are discussed in a companion article to be released tomorrow. Tomorrow’s article also provides a comparison of the sources of emissions reductions and the overall conclusions.

The opinions expressed here are solely those of the author and do not reflect the position of any other organization.

References

(1) President Announces Clear Skies & Global Climate Change Initiatives,
http://www.whitehouse.gov/news/releases/2002/02/20020214-5.html

(2) Lindemer, Kevin and Gil Rodgers, A Scenario for Reducing Greenhouse Gas Emissions, U.S. Energy Price Outlook, Global Insight, Winter 2005-06, p. 17.

(3) Some lists include 2 units for FPL. During final editing, TXU announced their intent to build 2,000 to 6,000 MW of nuclear capacity.

(4) Energy Information Administration, Annual Energy Outlook 2006, capacity in 2004, p. 149.

(5) Energy Information Administration, Annual Energy Outlook 2006, p. 149.

(6) Energy Information Administration, Analysis of Energy and Economic Impacts of H.R. 5049, the Keep America Competitive Global Warming Policy Act, August, 2006 at
http://www.eia.doe.gov/oiaf/servicerpt/economicimpacts/pdf/sroiaf2006(03).pdf, p. 13.

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