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|Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  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|Background and Scope of the Analysis
                      Background
                      This report  responds to a request 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).7  ACESA, as passed by  the U.S. House of Representatives on June 26, 2009, is a complex bill that regulates emissions  of greenhouse gases (GHGs) through a variety of market-based mechanisms,  efficiency programs, and economic incentives.   The bill includes four titles designed to spur clean energy development,  increase investment in energy efficiency, reduce global warming pollution, and  transition to a clean energy economy.
                      Clean Energy
                      Title I of H.R. 2454 focuses primarily on the development of  clean energy resources.  It establishes a  combined efficiency and renewable electricity standard (CERES) requiring that  all retail electricity suppliers with annual sales above 4 million  megawatthours meet 20 percent of their load with qualified renewable energy  sources or electricity efficiency savings by 2020.  One-fifth of the requirement can initially be  met with efficiency savings, with the possibility of an additional 20 percent  if approved by the Federal Energy Regulatory Commission.
                      Title I also includes provisions to  spur the commercialization of carbon capture and storage (CCS) technology, encourage increased investment in  energy efficiency through allowance distributions to States, stimulate  reductions in peak electricity loads, and motivate investment in an electric  vehicle infrastructure.  In addition, it establishes a Clean Energy Deployment  Administration to promote the domestic development and deployment of clean  energy technologies, including advanced or enabling infrastructure  technologies, energy efficiency technologies, and related manufacturing  technologies, through partnership with and support of the private capital  market.
                      Energy Efficiency
                      Title II of H.R. 2454 focuses  on improving energy efficiency.  It  requires revisions to building codes for both new construction and existing  facilities.  It provides financial  assistance for efficiency retrofit projects in existing buildings and calls for  the development of new efficiency standards for several lighting and appliance  applications, such as street lights, parking lot lights, portable light  fixtures, hot food holding cabinets, bottle-type drinking water dispensers,  commercial grade natural gas furnaces, and portable spas (hot tubs).
In order to address transportation efficiency, Title  II directs the Environmental Protection Agency (EPA) and the Department of Transportation  (DOT) to set GHG emission standards for heavy highway vehicles, non-road  vehicles, and aircraft. It requires States to develop transportation GHG  reduction plans and calls for EPA to expand its fuel-saving technologies  deployment program.  The Department of  Energy (DOE) is also directed to establish further standards for industrial energy efficiency, create an awards  program for increasing efficiency in the thermal electricity generation  process, and clarify the waste-to-heat energy incentives in the Energy  Independence and Security Act of 2007 (EISA 2007). 
Reducing Global  Warming Pollution
Title III of  H.R. 2454 focuses on reducing GHG emissions by establishing a cap on emissions  beginning in 2012 that covers electricity generators, liquid fuel refiners and  importers, and fluorinated gas manufacturers.   In 2014, the cap is expanded to include industrial sources that emit  greater than 25,000 tons of carbon dioxide-(CO2) equivalent  emissions, and in 2016 it is further expanded to include retail natural gas  distribution companies.  Relative to  their emissions in 2005, covered sources must reduce their emissions 3 percent  by 2012, 17 percent by 2020, 58 percent by 2030, and 83 percent by 2050.  It provides for unlimited banking of  allowances, while borrowing future allowances to meet current compliance  obligations is allowed with some restrictions.
Title III also allows covered entities to offset up to 2  billion metric tons (BMT) of CO2-equivalent emissions through the  use of domestic and international offsets.   The offset limits are applied on a pro-rata basis to individual covered  entities.  The annual percentage of  offsets a covered entity can use to comply with its limit is determined by  dividing 2 billion by the sum of 2 billion and the number of allowances issued  for the previous year.  The pro-rata  limit can therefore restrict offset usage independently of the overall 2-BMT  limit.  Under the overall limit, the title  allows 1 BMT of international offsets and 1 BMT of domestic offsets.  Furthermore, beginning in 2018, five  international offsets must be submitted to account for four allowances.  As with the overall limit, domestic and  international offsets under the pro-rata limit can each be no more than half  the total.  However, if the EPA Administrator  expects the availability of domestic offset credits to be less than 900 million  metric tons (MMT), given expected allowance prices, then the maximum percentage  of international offsets is increased to reflect an amount equal to 1,000 MMT  less the expected domestic offset availability, up to 500 MMT.  International allowances can also be used for  compliance, provided that they originate from a program with mandatory  emissions reductions and have not been used already to comply with another  program. The authority to designate a limit on the use of international  allowances is granted to EPA.  Title V  addresses the role of domestic agricultural and forestry-related offsets in the  Title III cap-and-trade  program.
Transitioning to  Clean Energy Economy
Title IV of H.R. 2454 includes provisions intended to  mitigate adverse economic impacts caused by the provisions of Title III.  It  directs EPA to provide rebates for industrial facilities that it determines  face significant additional costs as a result of Title III.  It also authorizes tax credits and refunds  for low income energy consumers, in order to compensate them for any losses in  purchasing power due to higher energy costs and provides for financial  assistance to workers who loose their job as a result of the Title III program.   In addition, it authorizes an increase in grants for colleges and  universities that are developing programs in clean energy technology and energy  efficiency.
Representing  H.R. 2454 in the National Energy Modeling System8
The analysis of energy sector and energy-related economic  impacts of the various GHG emission reduction proposals in this report is based  on results from the Energy Information Administration’s (EIA) National Energy  Modeling System (NEMS).  NEMS projects  emissions of energy-related CO2 emissions resulting from the  combustion of fossil fuels, representing about 84 percent of total U.S. GHG  emissions today.  The emissions in NEMS  account for the vast majority of total emissions covered by the main ACESA cap-and-trade  program.
The Reference Case used in this report was published in a  recent EIA report, *An Updated Annual  Energy Outlook 2009 Reference Case Reflecting Provisions of the American  Recovery and Reinvestment Act and Recent Changes in the Economic Outlook.*9  The Reference Case is designed to reflect  only current laws and policies, so it explicitly avoids assumptions about  “expected” policy changes such as future fuel economy standards, taxes, or new  regulatory requirements for conventional pollutants or GHGs.  For this reason, EIA Reference Case  projections are not directly comparable with private energy forecasts that  include estimates of policy change in their baseline scenarios.
NEMS endogenously calculates changes in energy-related CO2  emissions in the analysis cases. The cost of using each fossil fuel includes  the costs associated with the GHG allowances needed to cover the emissions  produced when they are used.  These  adjustments influence energy demand and energy-related CO2  emissions.  The GHG allowance price also  determines the reductions in projected baseline emissions of other GHGs based  on assumed abatement cost relationships.   With emission allowance banking, NEMS solves for the time path of permit  prices such that cumulative emissions match the cumulative emissions target  with price escalation consistent with the average cost of capital to the  electric power sector.
The NEMS Macroeconomic Activity Module (MAM), which is based  on the IHS Global Insight U.S. Model, interacts with the energy supply, demand,  and conversion modules of NEMS to solve for an energy-economy equilibrium.  In an iterative process within NEMS, MAM  reacts to changes in energy prices, energy consumption, and allowance revenues,  solving for the effect on macroeconomic and industry level variables such as  real gross domestic product (GDP),  the unemployment rate, inflation, and real industrial output.
Key provisions of ACESA that are represented in the policy  cases developed in this analysis include:
the cap-and-trade program for GHGs other than  hydrofluorocarbons (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 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.While 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.
Analysis Cases
Because of the complex interactions of the various policy  instruments called for in ACESA, a large number of cases were prepared.  These cases, while not exhaustive, are meant  to explore key areas of uncertainty that impact the analysis results.
The role of offsets is a large area of uncertainty in any  analysis of ACESA.  The 2-BMT annual  limit on total offsets in ACESA is equivalent to one-third of total  energy-related GHG emissions in 2008 and represents nearly six times the  projected growth in energy-related emissions through 2030 in the Reference Case  used in this analysis.
While the ceiling on offset use is clear, their actual use  is an open question.  Beyond the usual  uncertainties related to the technical, economic, and market supply of offsets,  the future use of offsets for ACESA compliance also depends both on regulatory  decisions that are yet to be made by the EPA, on the timing and scope of  negotiations on international agreements or arrangements between the United  States and countries where offset opportunities may exist, and on emissions  reduction commitments made by other countries.   Also, limits on offset use in ACESA apply individually to each covered  entity, so that offset “capacity” that goes unused by one or more covered  entities cannot be used by other covered entities.  For some major entities covered by the  cap-and-trade program, decisions regarding the use of offsets could potentially  be affected by regulation at the State level.   Given the many technical factors and implementation decisions involved,  it is hardly surprising that analysts’ estimates of international offset use  span an extremely wide range.  One recent  analysis doubts that even 150 MMT of international offsets will be used by 2020, while  anotherposits that 1 BMT of international offsets will be used  almost immediately from the start of the program in 2012, followed by a quick  rise towards an expanded 1.5-BMT ceiling shortly thereafter.
The other major area of uncertainty in assessing the energy  system and economic impacts of ACESA involves the timing, cost, and public  acceptance of low- and no-carbon technologies.    For the period prior to 2030, the availability and cost of low- and  no-carbon baseload electricity technologies, such as nuclear power and fossil  (coal and natural gas) with CCS,  which can potentially displace a large amount of conventional coal-fired  generation, is a key issue.  However,  technology availability over an extended horizon is a two-sided issue.  Research and development breakthroughs over  the next two decades could expand the set of reasonably priced and scalable  low- and no-carbon energy technologies across all energy uses, including  transportation, with opportunities for widespread deployment beyond 2030.  The achievement of significant near-term  progress towards such an outcome, however, could significantly reduce the size  of the bank of allowances that covered entities and other market participants  would want to carry forward to meet compliance requirements beyond 2030.
Main Analysis Cases
The ACESA  Basic Case represents an environment where key low-emissions technologies,  including nuclear, fossil with CCS,  and various renewables, are developed and deployed on a large scale in a  timeframe consistent with the emissions reduction requirements of ACESA without  encountering any major obstacles.  It  also assumes that the use of offsets, both domestic and international, is not  overly constrained by cost, regulation, or the pace of negotiations with key  countries covering key sectors.  In  anticipation of increasingly stringent caps and rising allowance prices after  2030, covered entities and investors are assumed to amass an aggregate allowance  bank of approximately 13 billion metric tons by 2030 through a combination of  offset usage and emission reductions that exceed the level required under the  emission caps.
  The ACESA  Zero Bank Caseis similar to the  ACESA Basic Case but assumes that there is no accumulation of excess allowances  for use beyond 2030.  Instead, over the  period 2012 to 2030 the cumulative covered emissions net of offsets are assumed  to match the cumulative quantity of allowances issued, leaving an approximate  zero balance in 2030.  This scenario might  occur if allowance prices were widely expected to stabilize or drop off after  2030, limiting the financial incentives to accumulate and hold allowances.  This would imply the availability of a broad  array of reasonably priced low- and no-carbon technologies that can provide an  alternative path to compliance with tighter emissions caps after 2030 through  reductions across all energy uses, including transportation.
  The ACESA  High Offsets Case is similar to the ACESA Basic Case except that it assumes  that covered entities use the maximum allowable amount of international offsets  beginning in 2012, with such offsets available at prices competitive with  allowances and the necessary bilateral agreements in place with the supplying  countries.  This case illustrates the  potential impacts where greater use of international compliance options reduces  the share of emissions reduction requirements that must be met  domestically.  In the ACESA Basic Case  and other cases, it is assumed that international offsets will penetrate the U.S.  market more gradually.
  The ACESA  High Cost Case is similar to the ACESA Basic Case except that the costs of  nuclear, fossil with CCS, and  biomass generating technologies are assumed to be 50 percent higher.  There is great uncertainty about the costs of  these technologies, as well as the feasibility of introducing them rapidly on a  large scale.  Cost estimates for these  technologies rose rapidly from 2000 through 2008 and have only recently begun to  moderate.  The actual costs of these technologies  will not become clearer until a number of full-scale projects are constructed  and brought on line.
  The ACESA  No International Case is similar to the ACESA Basic Case but represents an  environment where the use of international offsets is severely limited by cost,  regulation, and/or slow progress in reaching international agreements or  arrangements covering offsets in key countries and sectors.  The regulations that will govern the use of  offsets have yet to be developed and their availability will depend on actions  taken in the United States  and around the world.  It is possible  that some significant portion of the potential international offsets will not  be able to meet all of the requirements set forth in ACESA or, in meeting them,  will make them uneconomical.
  The ACESA  No International/Limited Case combines the treatment of offsets in the  ACESA No International Case with an assumption that deployment of key  technologies, including nuclear, fossil with CCS,  and dedicated biomass, cannot expand beyond their Reference Case levels through  2030.  There is great uncertainty about  how fast these technologies, the industries that support them, and the  regulatory infrastructure that licenses/permits them might be able to grow and,  for fossil with CCS, when the  technology will be fully commercialized.   For nuclear, this assumption limits new plant additions to roughly  11,000 megawatts, or 7 to 11 new generators, by 2030.  For fossil with CCS,  this assumption limits new plant additions to 2,000 megawatts of demonstration  projects or roughly 4 to 8 commercial-sized plants.Additional Analysis  Cases
The ACESA  High Tech Case is similar to the ACESA Basic Case except that it  incorporates the technology assumptions from the Integrated High Technology  Case published in the *Annual Energy  Outlook 2009*(*AEO2009*).  This case illustrates the impact of more  aggressive assumptions about technological improvements and their role in  reducing GHG emissions.
  The ACESA  Low Discount Case is similar to the ACESA Basic Case except that it assumes  a 5-percent discount rate for allowance-banking decisions.  There is significant uncertainty about how  the market for allowances will evolve and what rate of return investors in  allowances will require in order to hold allowance balances in anticipation of  future higher compliance costs.
  The ACESA  35CAFE2016 Case is similar to  the ACESA Basic Case except that it also incorporates an accelerated schedule  for raising the combined fuel economy standards for cars and light trucks to 35  miles per gallon in 2016, as announced by the White House in May 2009.
  The ACESA  High Banking Case similar to the ACESA Basic Case but assumes a greater  level of allowances is banked from 2012 through 2030 and that covered entities  and investors accumulate a 20-BMT allowance bank by 2030.  Such a scenario could occur if widespread  expectations of rising allowance prices spur market participants to make  greater use of offsets and invest more heavily in emissions reduction opportunities  early on, thus banking allowances for sale in the future.
  The ACESA  Limited Alternatives Case represents an environment where the deployment of  key technologies, including nuclear, fossil with CCS,  and biomass, is limited to their Reference Case levels through 2030.  There is great uncertainty about how fast  these technologies, the industries that support them, and the regulatory  infrastructure that license/permit them might be able to grow and, for fossil  with CCS, when the technology will  be fully commercialized.  For nuclear, this  assumption limits new plant additions to roughly 11,000 megawatts, or 7 to 11  new generators by 2030.  For fossil with CCS, this assumption limits new plant additions to  2,000 megawatts of demonstration projects or roughly 4 to 8 commercial-sized  plants.EIA cannot attach probabilities to the individual policy  cases.  However, both theory and common  sense suggest that cases that reflect an unbroken chain of either failures or  successes in a series of  independent  factors are inherently less likely than scenarios that do not assume that  everything goes either wrong or right.   In this respect, the No International/Limited and Zero Bank Cases might  be viewed as more pessimistic and optimistic scenarios, respectively, which  bracket a set of more likely cases.   Similarly, if actual access to international offsets is dependent on a  series of independent regulatory and negotiating outcomes, cases with  intermediate access to international offsets might be viewed as more likely  than those representing either complete and immediate success across the board  (High Offsets), or a permanent lack of progress (No International) in such  activities.
Results
This section presents the results of the analysis, focusing  on the effects of ACESA in the six main cases that vary technology and offset  assumptions.  The impacts on GHG  emissions, energy markets, and the economy are presented in turn.  A full set of report tables for all analysis  cases is available on the EIA website.
Greenhouse  Gas Emissions and Allowance Prices
Greenhouse Gas  Emissions and Compliance Patterns
The cap-and-trade provisions in ACESA impose a gradually  tightening cap on covered GHG emissions beginning in 2012, with some industrial  sector and natural gas coverage phased in between 2012 and 2016.  By 2016 about 84 percent of total U.S.GHG  emissions are covered emissions under the cap, including most sources of  energy-related CO2 and some industrial emissions of non-energy CO2,  nitrous oxide, perfluorocarbons, sulfur hexafluoride, and HFCs.
Figure 1 compares the total and covered portions of GHG  emissions in the reference case under the cap, with covered emissions prior to  2012 shown based on the bill’s 2012 coverage provisions.10  Cumulative covered emissions from 2012 to  2030 in the Reference Case are about 113 BMT, compared to 89 BMT tons allowed  under the cap, a 21-percent or 24.6-BMT reduction requirement.  Given incentives to bank allowances and an  increasingly stringent cap on emissions through 2050, in five of the main  analysis cases, an additional 13 BMT of abatement is assumed to occur over the  same period, leaving a 13-BMT allowance bank balance at the end of 2030.  In the Zero Bank Case, a target of 0 for the  2030 bank balance is assumed.
Although all of the main analysis cases start  from the same Reference Case, apply the same cap on covered emissions, and five  carry the same 13-BMT balance of banked allowances in 2030, the mix of offset  usage and reductions in covered emissions vary a great deal across these cases  (Figure 2).  In the ACESA Basic, ACESA  High Cost, and ACESA High Offset Cases, the cumulative use of offsets is  projected to substantially exceed the 13-BMT bank balance that is carried  forward beyond 2030.  Covered entities  are therefore able to meet the their obligations under the cap-and-trade  program between 2012 and 2030 in those cases even though the reduction in their  covered emissions, shown as the bottom three segments of the bars in Figure 2,  is significantly below the cumulative 24.6-BMT reduction target shown in Figure  1.  This effect is particularly evident  in the High Offsets Case, where the reduction in covered emissions over the  2012 to 2030 period is only 8.3 BMT.  In  the ACESA Zero Bank Case, cumulative abatement matches the minimum required,  yet the compliance mix includes a similarly large share of offsets, with international  offsets accounting for about half the total abatement.  In the two cases where no international  offsets are assumed to be available, reductions in covered emissions are much  greater, actually exceeding the cumulative 24.6 BMT reduction shown in Figure 1  in the cases that assume the ready availability of low- and no-carbon electric  generation technology.
The temporal pattern of compliance also varies  significantly across cases, as shown in Figure 3, which shows the accumulation  of allowance bank balances.  The build-up  of allowance bank balances is most rapid in the High Offsets Case, where the  maximum allowable quantity of offsets is assumed to be available immediately.  For the other main analysis cases, allowance  banks are generally accumulated more rapidly in the cases that assume  restricted access to international offsets and/or low- and-no carbon  technologies for electricity generation.   These assumptions, which lead to higher allowance prices, encourage  covered entities to take advantage of near-term fuel-switching opportunities in  the electric sector.  In the Zero Bank  Case, a relatively small negative allowance balance accumulates from 2019 to  2022, reflecting some allowance borrowing as permitted in the bill,  subject to some limitations and repayment penalties. The borrowing period is  followed by a similar length payoff period, leaving a near-zero balance over  the last 5 years of the projection, consistent with the terminal bank  assumption of the case.
Given the relatively generous limit on offsets and their  potential as a low-cost compliance option, the reductions in covered emissions are  projected to be smaller than the abatement from offsets in most cases.  In the ACESA Basic Case, which includes an  increasing availability of international offsets over time, abatement in  covered gases represents only 39 percent of cumulative total emission abatement  from 2012 to 2030.  In the ACESA High  Offsets Case, where the maximum quantity of international offsets are also used  beginning in 2012, abatement in covered gases represents even less of the  overall abatement, accounting for just 22 percent of the cumulative abatement  through 2030.  Reductions in the  emissions of energy-related CO2 account for more than half of the  cumulative abatement only in the cases where international offsets are not  assumed to be available.
The abatement measures used change over time,  depending on how quickly offsets and other abatement opportunities become  economical (Figure 4).  In the ACESA  Basic and ACESA High Cost Cases the “kink” in the international offsets trend  occurs due to the discounting rule change that goes into effect in 2018.  After 2018, 1.25 international offsets are  required for each allowance credit.  This  discounting is assumed to reduce the market price covered entities in the United  States are willing to pay for international offsets to 80 percent (1/1.25) of  the domestic allowance price and also reduce the quantity of offsets  supplied by international sources.  Both  the discounting and the market supply reaction to the lower international  offset price contribute to the reduced use of international offsets in  2018.  A second change in the  international offsets trend occurs in 2021 when the limit on international  offsets is reached.
The temporal abatement pattern in the Zero Bank Case is  distinct from the other cases.   Relatively low levels of abatement occur in the first 10 years of the  cap-and-trade policy in this case, as investors are assumed to forego possible  opportunities to bank allowances, as might occur with expectations of  stabilizing allowance prices after 2030 that would reduce profits from such  investments.****
Allowance Prices
Under the ACESA cap-and-trade provisions, the market price  of allowances will establish an incremental cost to emitting GHGs.  That cost provides an incentive to reduce  emissions whether or not some allowances are received for free, since operating  costs can be reduced by emitting less and any unused allowances can be  sold.
Prices in allowance markets will be influenced by the banking  provisions.  Covered entities or traders  may hold allowances if they expect higher allowance prices in the future.  Allowance prices and levels of emissions are  estimated such that covered emissions, less offsets, meet the emissions caps  over a time period.  The allowance price  path is estimated assuming a constant rate of growth matching the cost of  capital, or discount rate, assumed in financing the investment in allowance  banking.  The projected allowance prices  represent idealized paths.  In reality, allowance  prices would tend to fluctuate as markets respond to new information and as  unanticipated events unfold.
Allowance prices in the ACESA Basic Case are projected at  $32 per metric ton in 2020 and $65 per metric ton in 2030.  The projected allowances prices are highly  uncertain and sensitive to modeling assumptions, including such factors as the  cost and availability of low-emissions technology options and the potential  supplies of domestic and international offset credits (Figure 5 and Table  1).  Allowance prices in the main cases,  where these assumptions are analyzed, vary widely, from $20 to $93 per metric  ton of CO2-equivalent emissions in 2020 and from $41 to $191 per  metric ton in 2030.  The lower prices in  that range occur in cases where technological options such as CCS and adoption of new nuclear power plants become  available at relatively low costs, and the use of international offsets helps  to hold down compliance costs, as in the ACESA Basic and ACESA High Offset  Cases, and where aggregate banking of allowances is minimal, as in the ACESA  Zero Bank Case.  Significantly higher  allowances prices occur if international offsets are unavailable or  low-emitting electricity supply technologies are more costly, or the  development of these technologies is limited, as in the ACESA No International  Offsets, ACESA High Cost, and ACESA No International/Limited Cases.
Variation in allowances prices also occurs in some of  the additional cases examined (Figure 6 and Table 2).  Allowance prices in the ACESA Low Discount  Case are initially higher than in the ACESA Basic Case, but they grow at the  slower discount rate assumed and end up lower than in the ACESA Basic Case by  2024.  Generally, the lower the return  that investors in allowances are willing to accept, the greater the incentive  to reduce emissions early, building a larger bank of allowances that can be  used for compliance later.  Relatively  high allowance prices result in both the ACESA High Banking and ACESA Limited  Alternatives Cases, while relatively lower prices are projected in the ACESA  High Tech Case.  Not shown are the prices  in the ACESA 35CAFE2016 Case,  which are not significantly different than in the Basic Case.
The lower emissions under the somewhat higher Corporate  Average Fuel Economy (CAFE)  standards in the early part of the projection occur gradually and do not  significantly shift aggregate long-term abatement costs at the margin.
Domestic and international offset prices are closely tied to  allowance prices and ACESA’s limits on offset usage.  Estimated domestic offset usage, which may be  constrained by the pro-rata percentage limit imposed on covered emissions,  varies across the cases and over time, ranging from 75 to 290 MMT in 2012, from  177 to 580 MMT in 2020, and from 335 to 754 MMT in 2030.  In all but one of the main cases examined,  the ACESA No International/Limited Case, the estimated quantity of domestic  offset credits falls below the pro-rata limits throughout the projection. When  offset usage is below the limit, the offset credit price is assumed to match  the allowance price.  In the No  International/Limited Case, the case with the highest allowance prices, the  domestic offset limit is reached in 2024 through 2030.  Beginning in 2024, competition to supply a  limited quantity of offsets drives the offset price below the allowance price.
The limit on international offset credits is initially  established to match the domestic limit but is adjusted higher (by up to 500  MMT, or 1,000 MMT less the anticipated domestic offset usage) if domestic  offset usage is anticipated to be less than 900 MMT.  In the cases where international offsets are  assumed to be available, the adjusted international offset limit ranges from 1,196  to 1,479 MMT in 2030, with the estimated limit in the ACESA Basic Case of 1,320  MMT falling in the middle of that range.   Given the assumed offset supplies available, international offsets  limits are projected to be reached in all of these cases.  In the ACESA High Offsets Case, the maximum  allowable quantity of international offsets is assumed to be used beginning in  2012, resulting in much lower levels of abatement and allowance prices than in  the ACESA Basic Case.
Energy-Related  Carbon Dioxide Emissions
The allowance program and other incentives under ACESA  are expected to reduce energy-related CO2 emissions.  The vast majority of the energy-related  emissions reductions are expected to occur in the electricity sector (Figures 7 and 8).  In fact, across the ACESA main  cases, the electricity sector accounts for between 80 percent and 88 percent of  the total reduction in energy-related CO2 emissions relative to the  Reference Case in 2030.  The electricity  sector reductions stem from the use of more efficient, less carbon-intensive  sources of generation.  This results from  a variety of factors, particularly the industry’s current dependence on coal,  the availability and economics of technologies to switch from coal to less  carbon-intensive energy sources, and the comparative economics of fuel  switching in other sectors.  In addition,  a portion of the electricity-related CO2 emissions reductions  results from reduced electricity demand stimulated both by consumers’ responses  to higher electricity prices and incentives in ACESA to stimulate greater  efficiency in energy use.
Energy Market Impacts
Energy consumers are expected to face higher costs of using  energy as a result of the ACESA cap-and-trade program.  To the extent that they are not ameliorated  by the free distribution of allowances to regulated distribution companies, the  cost of the allowances required to be submitted by covered sources will tend to  be passed on to consumers of primary fuels through higher delivered energy  prices.  Table 1, presented earlier,  summarizes the projected impacts on the delivered cost of energy under  ACESA.  Detailed projection tables on  energy production, consumption, and prices for each case accompany the  presentation of this report on EIA’s web site.11
Energy-related emissions will be influenced by both the  higher energy costs from the allowance program, as well as the ACESA incentives  that promote energy efficiency and low-carbon fuel sources.  Overall, the use of fossil fuels generally  decreases relative to the Reference Case, while the use of renewable energy  sources and nuclear power increases (Figure 9).   As discussed earlier, the greatest changes occur in the electricity  sector, with reductions in the use of coal and increases in nuclear and  renewable fuels in most cases, relative to the Reference Case.  The impacts tend to grow over time as the  caps become more stringent and the allowance price increases.
Electricity Sector Emissions, Generation,  and Prices
The provisions of ACESA alter electric power projections by favoring  low-carbon technologies such as new nuclear, renewable, and fossil plants that  sequester CO2.  The impact on CCS technology is also affected by the provisions  that provide additional incentives for these plants.  The shifts in the generation mix caused by  ACESA lead to lower CO2 emissions from the electricity sector,  higher electricity prices (particularly after 2025) and lower electricity  demand than would otherwise occur.  The  higher electricity prices are due to the higher capital costs of cleaner, more  efficient technologies and the costs of holding allowances.
Emissions
In the Reference Case, which assumes no explicit  policy to reduce GHG emissions, power sector CO2 emissions are  projected to increase 8 percent between 2007 and 2030 as the industry increases  its use of fossil fuels (Figure 10). In the main ACESA cases, power sector CO2  emissions are expected to be 11 percent to 44 percent below the Reference Case  level in 2020 and 29 percent to 85 percent below the Reference Case level in 2030.  The electricity sector, in fact, accounts for the vast majority of the  energy-related CO2 emissions reductions expected to occur under  ACESA, with its share ranging from 79 to 88 percent in 2030 across the main  ACESA cases.  The largest changes in electricity  emissions occur in the cases where it is assumed that international offsets are  not available.  Without these offsets,  covered U.S.  entities must make larger reductions in their own emissions to comply with the  emissions cap established in ACESA.  In  contrast, the smallest change occurs in the ACESA High Offsets Case where  covered entities are assumed to be able to rely more on international offsets  as compliance options.
Capacity and Generation
In the Reference Case, which does take account of growing  concerns about GHG emissions, natural gas plants and renewable plants meet a  large share of new capacity requirements through 2030 (Figure 11).  Natural-gas-fired generation, with a CO2  emission rate roughly 40 percent that of conventional coal-fired generation,  gains competitiveness relative to coal but loses competitiveness relative to  carbon-free technologies under the ACESA cap-and-trade program.  The efficiency and cap-and-trade programs in  ACESA also have the effect of reducing projected growth in electricity demand,  which reduces the need for all generation sources.
Under ACESA, new coal builds without CCS  beyond those that are already under construction are almost eliminated. There  is also a large increase in coal power plant retirements with between 6 and 85  percent of existing coal capacity projected to retire by 2030 in the ACESA main  cases, well above the 1 percent of existing coal capacity projected to retire  in the Reference Case.  These retiring  coal plants are replaced by a combination of new nuclear, renewable, and coal  plants with CCS.   The Reference Case projects 11 gigawatts of  new nuclear capacity by 2030, but under ACESA, nuclear builds by 2030 range  from 15 gigawatts to 135 gigawatts, when allowed to grow.  Renewable capacity also grows significantly,  representing between 33 percent and 63 percent of all new capacity added  between 2008 and 2030 across the ACESA main cases.
When technologies with CCS,  nuclear, and biomass are limited to Reference Case levels, as could occur if  the technologies prove more costly, take longer to develop, and/or meet with  strong market resistance, the addition of new renewable and natural gas  capacity grows significantly.  In the  ACESA Basic Case, natural gas additions are below those in the Reference Case, since  CCS is not as economic on  combined-cycle plants as on coal plants, and other non-fossil technologies are  built instead of natural-gas-fired plants without CCS.
Changes in electricity generation are consistent with  capacity choices and are influenced by the GHG allowance price (Figures 12 and 13). In the Reference Case, coal generation grows to 2,311 billion  kilowatthours in 2030, an increase of 14 percent over 2007 levels, providing 46  percent of total electricity needs.  In  the ACESA main cases, coal generation drops, with its generation share in 2030  dropping to between 7 percent and 40 percent.   Although some new coal capacity with CCS  is added in most cases, the increased generation from these new plants is more  than offset by reductions from the retirement of existing coal capacity.  In the ACESA High Cost, Zero Bank, and High  Offsets Cases, coal generation is above that in the ACESA Basic Case, but still  much lower than the Reference Case.  In  those cases, the higher costs of new coal plants with CCS,  the availability of greater international offsets, and/or reduced banking result  in fewer coal retirements than in the ACESA Basic Case.
Nuclear generation follows the capacity additions, growing  most significantly in the ACESA No International and ACESA Basic Cases.  In the Reference Case, nuclear generation  grows by 10 percent between 2007 and 2030, reaching 890 billion kilowatthours  and providing 18 percent of total generation. In the ACESA Basic Case, nuclear grows to  1,548 billion kilowatthours in 2030, nearly 74 percent more than the Reference  Case level. If nuclear costs are higher than expected, then new nuclear capacity  additions are still projected but at a level only slightly above that seen in  the Reference Case in 2030.
In most of the ACESA cases, natural gas generation in 2030  is lower than in the Reference Case.  In  the Reference Case, natural gas generation increases 9 percent by 2030,  relative to the 2007 level.  However, in  the ACESA Basic Case, natural gas generation falls 21 percent between 2007 and  2030.  In the ACESA No  International/Limited Case, natural gas generation is 68 percent above the  Reference Case level by 2030, due to the assumed limited availability of new  plants with CCS, as well as new  nuclear and biomass capacity.  This case  demonstrates the role of the development and deployment of key low-carbon  generating technologies like nuclear, renewables, and fossil with CCS in a timeframe consistent with the emission  reduction requirements of ACESA.  Without  them, allowance prices would be higher and greater demands would be placed on  natural gas markets.
Renewable generation is dramatically higher under the  provisions of ACESA, growing to between 22 percent and 75 percent above the  generation level in the Reference Case in 2030.   The vast majority of the increase is from wind generation, followed by  biomass generation.  The increase in  biomass generation in the ACESA cases comes from a combination of increased  cofiring of biomass in existing coal plants and the addition of new dedicated  biomass plants.  In most cases, cofiring  dominates, particularly in the early years of the projections.  However, as new dedicated biomass plants are added,  they play a larger role in the later years.   Cofiring is generally an economic way to reduce CO2 emissions  without investing in new capacity, but as the allowance price increases  throughout the projections, the economics begin to shift towards less CO2-intensive  generation.
The share of renewable generation far exceeds that required  to comply with the combined efficiency and renewable electricity standard in  all of the ACESA cases.  As shown in Figure 14, the nominal share of renewables required to comply with the target,  assuming no efficiency credits, grows to a final target of 20 percent.  When the required share is adjusted for the  exemption of small utilities and the removal of hydroelectric generation from  the baseline, the national average required share falls to approximately 16.5  percent.  Moreover, the national average  required share falls to just over 10 percent when the generation contribution  from new nuclear and fossil plants with CCS  is removed from the baseline for renewable electricity standard calculations in  the ACESA Basic Case.  After these  adjustments, the level of renewable generation in the Reference Case exceeds  the requirement in 2025 and beyond, while the level in the ACESA Basic Case far  exceeds it.
Price and Demand
H.R. 2454 is projected to lead to higher electricity prices  and lower electricity demand, though most of the price impacts are expected  after 2025, as the allowances allocated to retail electricity providers are  phased out.  Except for the ACESA No  International/Limited Case, electricity prices in five of the six main ACESA  cases range from 9.5 to 9.6 cents per kilowatthour in 2020, only 3 to 4 percent  above the Reference Case level (Figure 15).12  Average impacts on electricity prices in 2030  are projected to be substantially greater, reflecting both higher allowance  prices and the phase-out of the free allocation of allowances to distributors  between 2025 and 2030.  By 2030,  electricity prices in the ACESA Basic Case are 12.0 cents per kilowatthour, 19  percent above the Reference Case level, with a wider band of 11.1 cents to 17.8  cents (10 to 77 percent above the Reference Case level) across all six main  policy cases.
The combination of higher electricity prices and  provisions in H.R. 2454 designed to improve energy efficiency causes growth in  the demand for electricity to slow relative to the Reference Case in the main  ACESA cases.  The long-term trend of  slowing growth in the demand for electricity is reflected in the Reference  Case.  After averaging nearly 2.4 percent  per year in the 1990s and 1.2 percent per year between 2000 and 2007, the  demand for electricity is projected to increase just 0.9 percent per year  between 2007 and 2030 in the Reference Case (Figure 16).  This projection reflects ongoing improvements  in appliance efficiency, new appliance standards, and consumer responses to  higher electricity prices.  Among the main  ACESA cases the growth slows further, ranging from 0.2 percent per year to 0.7  percent per year between 2007 and 2030.The impacts on regional electricity prices vary for many  reasons including the demand characteristics, the mix of generating sources  used, the availability and delivered prices of different resources and fuels,  the regulatory regime, and the local costs of construction (Figure 17).  Generally, the largest changes in prices  caused by the provisions of H.R. 2454 would be expected in regions that are  most reliant on coal, regions without large renewable resources that can be  developed, and regions where electricity prices are set competitively.  However, since retail distributers remain  regulated in all regions it is assumed that the benefit of allowances allocated  to them for free will be passed on to their consumers.  This significantly dampens the prices impacts  of ACESA through 2025 in all regions.
As shown in Figure 17, all regions are expected to see  prices increases in most of the ACESA cases by 2030.  Regions like the Northwest Power Pool (NWP)  and California,  which do not rely heavily on coal, continue to have regulated prices, and have  significant renewable resources, are projected to see relatively modest prices  increases in the ACESA main cases.
Coal Markets
Because coal has the highest carbon content of any of the  key fossil fuels, the cost of using coal when a GHG cap-and-trade program is  imposed increases dramatically (Figures 18 and 19).  For example, in 2020 the cost of using coal  in a plant that does not have CCS  equipment is between 92 percent and 435 greater in the main ACESA cases than in  the Reference Case.  By 2030 the increase  in coal costs to a plant without CCS  equipment is even larger, ranging from 179 percent to 848 percent greater than  in the Reference Case in the main ACESA cases.   The vast majority of this cost increase is due to the need to hold allowances  to cover the CO2 emissions that will be generated when the coal is  used to produce electricity.  The  underlying delivered price of coal without the allowance costs is actually  lower in the ACESA cases because of the reduced consumption of coal.
As a result of the reduced use of coal for electricity  generation, coal production volumes (in tons) are projected to be 19 to 83  percent lower in the ACESA main cases in 2030 compared to the Reference Case  (Figure 20).  Lower coal consumption in  the ACESA main cases disproportionately affects western coal producers, because  they are expected to meet most of the growth in coal demand in the Reference  Case.
Buildings
Residential and commercial buildings are affected by  programs targeting energy efficiency and the energy price consequences of the  GHG emissions cap.  Figures 21 and 22 depict buildings sector delivered energy consumption by fuel across the main  ACESA cases in 2020 and 2030, respectively.   Electricity and natural gas, which account for nearly 90 percent of the  delivered energy used in buildings, are also the fuels most impacted by  ACESA.
Electricity use in buildings is projected to be 1.5 percent  lower in the ACESA Basic Case relative to the Reference Case in 2020, with a  range of 1.1 to 4.8 percent across the main ACESA cases.  By 2030, electricity use is projected to be  4.9 percent lower in the ACESA Basic Case, with a range of 3.2 to 14.4 percent  across the ACESA main cases.  In the  ACESA Basic Case, most of the electricity savings in buildings is due to  price-induced conservation.
Natural gas use in buildings is more directly affected  by the energy efficiency provisions in ACESA, given the importance of building  codes and building retrofit programs which tend to affect heating fuels more  than electricity.  In 2020, natural gas  use in buildings in the ACESA Basic Case is projected to be 2.5 percent lower  than in the Reference Case, with a range of 2.0 to 7.1 percent across the ACESA  main cases.  By 2030, the ACESA Basic  Case is projected to be 7.8 percent lower than the Reference Case with a range  of 6.0 to 15.4 percent, across the ACESA main cases.  Most of the reduction in natural gas use is  due to the energy efficiency provisions in ACESA, particularly the building codes  and building retrofit programs.
Even with lower energy  consumption in the main ACESA cases, energy expenditures are projected to  increase, relative to the Reference Case, due to increases in delivered energy  prices to the buildings sector.  Figure 23 depicts the average projected energy expenditures per square foot in  residential and commercial buildings over the 2012 through 2030 period in the  main ACESA cases.  These estimates  include **only** expenditures for energy  used in buildings and not any additional costs associated with the purchase of  energy-efficient equipment or any transportation costs.  For all residential and commercial buildings,  energy expenditures in the ACESA Basic Case are projected to increase 4 percent  over the Reference Case average over the 2012–to-2030 period on a per–square-foot  basis (in real 2007 dollars).  Of all the  main ACESA cases, only the most restrictive case shows an increase in the  average expenditures per square foot relative to 2007, when energy expenditures  were at near-record highs in real terms.
Increases in energy prices  impact households not only for the energy used in the house, but also for  transportation costs and products they buy on an everyday basis.  Several provisions in ACESA direct that the  funds generated from emissions allowance auctions or the sale of freely  allocated allowances be used to ameliorate the adverse impact on  households.  In addition to the funds  generated for low-income households through the auctioning of 15 percent of the  allowances allocated each year, local electricity and natural gas distribution  companies are also directed to use freely allocated allowances to minimize the  impact on residential energy consumers.   These provisions, along with the energy efficiency programs such as  building codes, partially shield residential consumers from significant  increases in energy expenditures for uses inside the house.  Transportation costs, however, do increase  significantly on a per-household basis since there are no provisions designed  to dampen motor gasoline price impacts.
As a result of the provisions  in ACESA, the average household can expect increases in the cost of the energy  they use to heat and cool their homes as well as the cost to operate their  vehicles. Figures 24 and 25 depict these cost increases as well as the increase  in the cost to purchase more energy-efficient equipment as a result of more  stringent building codes.  Since the  building codes affect only new construction on an annual basis and the  annualized cost (over 15 years) is spread out over all households in Figures 24 and 25, the impact of the increase in this cost is relatively small.  Based on the three cost measures represented  in Figure 24, households can expect an increase of $165 in 2020 in the ACESA  Basic Case, with a range of $103 to $767 across the ACESA main cases.  Increases in light-duty vehicle energy  expenditures account for about 81 percent of the increase in 2020 in the ACESA  Basic Case.  In 2030, the cost to the  consumers increases to $501 per household in the ACESA Basic Case, with the  non-transportation costs accounting for about 52 percent of the increase  (Figure 25).  In 2030, the increased  costs to households range from $282 to $1,870 across the ACESA main cases.  The higher cost impacts in 2030 are stimulated  by the rising allowances costs and the phase-out of the freely allocated  allowances to electricity and natural gas distribution companies that begins in  2025.
The adoption of more  efficient technology can play a role in mitigating the cost to households due  to ACESA.  In the ACESA High Tech Case,  energy expenditures for household uses (excluding transportation costs) decline  by $63, relative to the Reference Case, in 2020.  In 2030, energy expenditures for household  uses increase by $26 relative to the Reference Case, but are much less than the  $191-increase projected in the Basic Case.   The increased adoption of more efficient technologies, including rooftop  photovoltaics, contributes to the reduction in household energy  expenditures.  Total per-household  expenditures are lower in this case, relative to any of the main cases, even  with a modest increase in annualized capital expenditures caused by the  adoption of more efficient equipment.   Per-household expenditures are 54 percent lower in 2020 relative to the Basic  Case and 40 percent lower than the Basic Case in 2030.
Transportation
The impact of ACESA on projections of CO2  emissions from the transportation sector are relatively small compared to  emissions reductions realized in the other demand sectors.  In 2020, CO2 emissions from the  transportation sector are reduced from1.0 percent to 3.5 percent (19 to 68 MMT)  across the main ACESA cases relative to the Reference Case.  By 2030, transportation-related CO2  emission reductions increase and range from 2.6 percent to 8.5 percent (53 to 174  MMT) across the main ACESA cases compared to the Reference Case.  Because reductions in transportation-related  emissions are not proportional to reductions in other sectors, by 2030 the  transportation sector accounts for a larger percentage of total U.S. GHG  emissions across all cases.  The  relatively small changes in the transportation sector are driven by the modest  changes in gasoline prices, which are expected by 2020 to range from $0.12 to  $0.66 per gallon higher than in the Reference Case (Figure 26).
However, ACESA does contain provisions aimed at stimulating  further advances in vehicle fuel efficiency and a more rapid penetration of  vehicles that rely at least partially on electricity.  Uncertainty about the impacts of these  provisions led to them not being explicitly analyzed in this report.  If they are successful, larger reductions in  transportation sector emissions would be expected.
These  results may also be impacted by proposed revisions to CAFE  standards.  On May 19, 2009,  President Obama unveiled new light vehicle  fuel economy standards increasing the minimum passenger car requirement to 39  miles per gallon and the light truck requirement to 30 miles per gallon by  model year 2016.  The proposed rule  making jointly developed by the EPA and the National Highway Traffic Safety  Administration mandates a 5-percent annual increase in fuel economy for model  years 2012 through 2016.  The new  standards will address both fuel economy and GHG emissions via a vehicle-attribute-based  CAFE standard and a tailpipe GHG  emission standard.
To evaluate their  potential impact, the proposed CAFE  standards were incorporated into the 35CAFE2016  Case.  Except for the revised CAFE standards, this case uses the same assumptions  as the ACESA Basic Case, to examine the impact on transportation-related GHG  emissions and how that effects total GHG emission reductions from all  sectors.  Relative to the ACESA Basic  Case, the proposed CAFE standards  reduce GHG emissions from the transportation sector by 0.5 percent in 2020 (9  MMT carbon-equivalent) and 0.8 percent in 2030 (16 MMT carbon-equivalent)  relative to the ACESA Basic Case.  Total  GHG emissions are unchanged between the two cases since reductions in the  transportation sector are offset by smaller reductions in other sectors.  This occurs because allowance prices decrease  in proportion to emissions reductions achieved in the transportation sector.
The  transportation sector could contribute more to emissions reductions if the  provisions of ACESA were to spur more rapid improvement in transportation  technology.  Relative to the ACESA Basic  Case, in the ACESA High Tech Case, transportation sector CO2  emissions are 32 million metric tons lower in 2030 (1.6 percent).
Economic  Impacts
Implementing the ACESA GHG cap-and-trade program will affect  the economy through two key mechanisms.   First, the cost of using energy, particularly fossil fuels and  electricity, will be increased by the requirement to submit allowances for  ongoing emissions.  Second, the  auctioning of allowances and the free distribution of allowances to emitting  and non-emitting sources will generate revenue, which, in turn, will be spent  by various government entities on programs designed to help businesses and  consumers reduce their emissions or ameliorate the impacts associated with  higher energy prices.  In the ACESA  cases, roughly 99 percent of the value of allowances, allocated freely or  auctioned, goes to producers and consumers of energy from 2012 to 2030, while 1  percent is devoted to deficit reduction.   Through 2025, the allocation of allowances under ACESA tends to dampen  the changes in energy prices, but energy prices begin to escalate and the  economy shows greater losses in the last 5 years of the projection horizon, as  many of the early programs are phased out..
Prices increase and real output declines as a result of  meeting the carbon reductions stipulated in ACESA.  If all of the revenue collected by the carbon  allowances were returned, deficits would be significantly higher, especially  during the period where the carbon allowance prices are at their highest  levels.  As a result, for all ACESA  cases, the full employment deficit was not allowed to change from the reference  case.  Government expenditures were  adjusted so that the deficit remained at reference case values.  The uses of the carbon allowance revenues as  stipulated by H.R. 2454 were modeled; however to the extent that the resulting  change in government expenditures were lower than the actual amounts specified  by the bill, other non-defense government expenditures would have to be reduced  to insure unchanged Federal deficits over time.
Allowance  Revenues
Figure 27 shows the detailed shares of allowances going to  different entities as called for in ACESA over the 2012 to 2030 time  period.  As shown, the share devoted to  the energy industry, mainly to be used to reduce impacts on their consumers,  drops off dramatically post-2025, with an increasing share rebated to consumers  via the climate change consumer refund program.   The amounts going to the energy industry and trade-vulnerable industries  are not directly collected as revenue in the macroeconomic model.  Those revenues are used by the industries  themselves to lessen the impact of rising energy prices to consumers.  The remaining uses of the allowances are  distributed through Federal transfer payments abroad (International Adaptation  and Clean Technology Deployment funds), imports of services (purchases of  international offsets), increased transfer payments to individuals (low income  allocations), or increased Federal non-defense expenditures (clean energy  innovation centers and energy efficient programs).  The cumulative amount of revenues (not  discounted) collected for redistribution by the government ranges from $1.3  trillion in the ACESA Zero Bank Case to $6.4 trillion in the ACESA No  International/Limited Case between 2012 and 2030.  These sums essentially include the value of  all the allowances that will fund increased local, State, and Federal  government expenditures for various purposes but exclude the value of allowances  going directly to businesses, including to local electricity and natural gas  distribution companies, or those that will be used for deficit reduction.  Figure 28 provides another view of the  distribution of allowances dividing them into five broad categories,  electricity, natural gas and oil distributors, trade- and energy-vulnerable  industries, international adaptation, consumers and efficiency, and deficit  reduction.
Impacts  on Energy and Aggregate Prices
Rising energy costs influence the aggregate economy through  their effect on prices and energy expenditures.  Figure 29 shows the percentage changes in both the consumer and producer  indices for energy in the ACESA cases.  Figure 30 highlights the All-Urban Consumer Price Index (CPI), a measure of aggregate consumer prices in the  economy.  The CPI  for energy, a summary measure of energy prices facing households at the retail  level, increases by approximately 15 percent above the Reference Case level by  2030 in the ACESA Basic Case.  Industrial  energy prices increase by 22 percent above the Reference Case by 2030.  However, between 2012 and 2025, when  electricity, natural gas, and heating oil distributors are assumed to use the  large amount of allowances they receive to mitigate the impacts that their  customers would otherwise see, industrial energy prices rise by roughly twice  as much in percentage terms as do consumer energy prices.
Both wholesale and consumer energy prices rise quickly in  the first 4 years, level off for the next 10 years and then sharply rise for  the last 5 years.  All cases show the  same pattern with the amount of increase depending on the allowance prices and  compliance options chosen in each case.   The relative stability of energy prices from 2014 to 2025 reduces  projected economic impacts from levels experienced following the initial energy  price shock.  However, when energy prices  start to escalate post-2025, economic impacts begin to grow.
Across the ACESA cases, consumer energy prices  increase between 8 and 62 percent above the Reference Case level in 2030, with  the ACESA High Offsets Case showing the smallest change in energy prices and  the ACESA No International/Limited Case showing the largest change, more than  twice that in the next highest case.
Ultimately, consumers will also see the impact of higher  energy prices directly through final prices paid for energy-related goods and  services and higher prices for other goods and services using energy as an  input, and, if the cost increases cannot be passed on to consumers, labor and  capital stock may be reallocated.  Figure  30 shows that the increase in consumer prices ranges from 1.5 percent to 12.0  percent above Reference Case levels in the main ACESA cases, with the increase  in the No International/Limited Case nearly twice that in the next highest case.
Real GDP and Consumption Impacts
The higher delivered energy prices lead to lower real  output for the economy.  They reduce  energy consumption, but also indirectly reduce real consumer spending for other  goods and services due to lower purchasing power.  The lower aggregate demand for goods and  services results in lower real GDP  relative to the Reference Case (Figure 31 and Table 3).  Over the entire projection period, the change  in the cumulative present value of GDP  from the Reference Case in the ACESA Basic Case is 0.3 percent ($566 billion in  2000 dollars), with a range from $432 billion (-0.2 percent) to $1,897 billion  (-0.9 percent) across the main ACESA cases.   Impacts in the No International/Limited Case are more than twice as high  as those in any other case.
Over time, the pattern of GDP  impacts mirrors the change in energy and allowance prices.  GDP  losses are fairly small for the first 10 years as energy prices increase  initially and then stabilize.  Real GDP impacts actually decline as prices stabilize,  but then increase again as energy prices start to escalate after 2025 as  allowance prices continue to rise and the allocation of allowances used to  mitigate the impacts on electricity, natural gas, and heating oil consumers is  phased out.
In 2030, the last year  explicitly modeled in this analysis, GDP  losses range from $104 billion to $453 billion (-0.5 to -2.3 percent), with the  losses in the ACESA No International/Limited Case, at the top of these ranges, again  more than twice as large as those in the case with the next highest level of  impacts.
While real GDP  is an overall measure of what the economy produces, the components of GDP, consumption, investment, government, and net  exports, may change considerably.  In the  ACESA cases, consumer expenditures, one indicator of consumers’ welfare, show smaller  relative losses than overall GDP.  Figure 32 shows consumption impacts over time  and the cumulative discounted percent change in consumption over the 2012 to  2030 time period relative to the Reference Case.  The cumulative percent losses for real consumption  range from 0.1 percent ($196 in billion 2000 dollars) in the ACESA Zero Bank  Case to 0.7 percent ($988 in billion 2000 dollars) in the No  International/Limited Case. As with GDP,  consumption losses during the first 10 years of the projection period are  relatively small because consumer energy prices increase by half of the change  in industrial energy prices and remain relatively steady until 2026 and roughly  15 percent of total nominal allowance revenue is returned to low-income  consumers.  In fact, until 2026, the  value of increased residential energy expenditures (including transportation  costs) is roughly equal to the amount of allowance revenue transferred to  low-income consumers.  After 2026, the  consumer climate change funds rebates in personal taxes, allowing for muted  consumer impacts of the rising energy costs.
By 2030, real consumption losses reach 0.4 percent ($63  billion in 2000 dollars) in the ACESA Basic Case.
On a per-household basis, average non-discounted consumption  losses ranges from $95 to $435 (in 2007 dollars) over the 2012 to 2030 period  in the ACESA cases.  When discounted, the  yearly losses average from $59 to $292 (in 2007 dollars) per household.  The consumption losses escalate starting in  2025 as the allowance prices increase to meet the more stringent emission  cap.  Therefore 2020 household  consumption costs are smaller than the losses in 2030 (Figure 33).  The household consumption losses grow over  time as energy prices escalate.  The 2030  consumption losses per household are larger than the losses in 2020 as both the  carbon allowance price and electricity prices increase rapidly post-2025  (Figure 34).  In 2020, household  consumption losses range from $30 to $362; while in 2030, the range in  consumption losses is from $157 to $850 per household.
Industrial  Impacts
Industrial energy prices increase more than consumer  energy prices because of the allowance revenue used to ameliorate energy price  impacts for consumers.  On average,  wholesale energy prices increase by double that of consumer energy prices.  Figure 35 indicates that industry13 shows larger percentage losses than consumption.  By 2030, industrial shipment losses range  from 1.2 percent in the High Offset Case to 6.8 percent in the No International/Limited  Case.  Manufacturing industries show  slightly larger percentage losses than the total industrial sector.
As allowance prices increase, the energy-intensive sectors,  including bulk chemicals, glass, cement, steel, and aluminum, receive permit  allocations of roughly 15 percent of the total allocated in 2013.  Their allocation share gradually declines  over time, such that by 2030 trade- and energy-vulnerable industries obtain  just under 7 percent of the allocated permits.   Receiving these permits ameliorates the impact of increased energy  prices and therefore industries face energy prices that are not impacted by the  permit values.14  As a result, when energy prices increase, the  reductions in output of these trade- and energy-vulnerable industries are less  than overall manufacturing impacts and mirror the impacts (in terms of  percentage change from the Reference Case) of total industrial shipments.  In past EIA analysis of industrial impacts of  energy price increases, these energy-intensive industries typically experience  larger losses compared to overall manufacturing (Figure 36).
Total non-farm employment percentage losses are  smaller than manufacturing primarily because gains in employment in the service  sectors (Figure 36).  The pattern of  manufacturing employment losses over time mirrors the pattern shown by real  manufacturing shipments in all cases.

The main ACESA cases give a wide range of industrial impacts  depending on which technology (and its costs) the electricity sector uses and  the availability of international offsets.   One additional source of uncertainty in the macroeconomic model is how  exchange rates will react to the imposition of a carbon allowance price.  Given no information on how other countries  would implement carbon emission caps and that the macroeconomic model used in  NEMS focuses on primarily domestic economic impacts, the exchange rates were  not allowed to change from Reference Case levels.  See Appendix B for a description of the  assumptions used in the macroeconomic model for the ACESA cases.
Comparison  to Earlier EIA Analysis
EIA has analyzed a number of cap-and-trade bills and policies  in recent years.  In 2008 EIA evaluated  S. 2191, the Lieberman-Warner Climate Security Act of 2007, which was  introduced in the 110th Congress.15  S. 2191 included an economy-wide  cap-and-trade provision covering about 87 percent of GHG emissions, with those  emissions capped at 40 percent below the 2005 level in 2030 and 72 percent  below the 2005 level in 2050.  The caps  in ACESA are more stringent than those under S. 2191, requiring reductions of  58 percent reduction from 2005 levels in 2030 and 83 percent in 2050 and  beyond; however, ACESA allows greater use of offsets as a compliance measure  compared to S. 2191.
For S. 2191, EIA estimated allowance prices in 2030 of  between $62 to $160, including $62 in the Core Case and $80 in the High Cost Case  (prices in 2007 dollars per metric ton CO2-equivalent).  This compares to EIA’s range of $41 to $191  for ACESA, including $65 in the ACESA Basic Case which is most similar to the  S. 2191 High Cost Case in terms of electricity cost assumptions.  EIA’s S. 2191 analysis was based on the *Annual Energy Outlook 2008* (*AEO2008*)that included different energy price paths and macroeconomic  growth assumptions from *AEO2009*,  among other differences.  In the *AEO2009*, long-run economic growth is  slightly lower at 2.4 percent between 2008 and 2030, compared to *AEO2008*’s projected growth at 2.5  percent.  Short-run growth is  substantially lower in the *AEO2009* relative to *AEO2008* as a result of  the current recession.  Compliance costs  as reflected in the estimated allowance prices would tend to be lower under the *AEO2009* Reference Case than under the *AEO2008* Reference Case,16  suggesting somewhat closer compliance costs  between ACESA and S. 2191, at least as reflected in allowance prices.
The ACESA allowance allocations and rebates help compensate  energy consumers and energy-intensive businesses for higher energy costs and  play a key role in the estimated energy market and macroeconomic response,  relative to the projected allowance prices.   For energy-intensive industries, output and employment impacts are less  than under S. 2191 since, under ACESA, energy-intensive industries are assumed  to be compensated for higher energy costs due to allowance prices.  Under S. 2191, energy-intensive industries  were assumed to face the full cost of allowance in higher energy prices.
Similarly, consumer and wholesale energy price increases are  mitigated under ACESA through 2025 as rebates from local distribution companies  offset the effect of rising allowance prices on electricity and natural gas  prices.  After 2025, these energy prices  grow more rapidly as rebates are phased out, a different pattern than under S.  2191.  Under ACESA, energy prices  increase immediately in 2012 and then stabilize until 2025, allowing the  economy to recover from the initial price increase.  After 2025, the rapid increase in energy  prices causes the economy to contract.
This effect of rebates on energy prices under ACESA  accounts for the different time paths of GDP  and consumption losses in the two studies.   Under S. 2191, the losses are immediate and increase gradually over  time.  Under ACESA, real GDP and consumption losses are relatively small  until 2025, but escalate rapidly late in the projection period.  As a result, the cumulative macroeconomic  impacts estimated under S. 2191, relative to the estimated allowance prices,  were greater than those observed under ACESA, even though the 2030 impacts are  less.  For example, in the S. 2191 Core  Case, with a 2030 allowance price of $62, the average undiscounted loss in real  consumption from 2012 to 2030 was estimated to be $47 billion (2000  dollars).  In the ACESA Basic Case, with  a 2030 allowance price of $65, the average undiscounted loss in real  consumption from 2012 to 2030 was $22 billion.   The pattern of carbon allowance recycling in S. 2191 and H.R. 2454  differed.  Revenue recycling to consumers did not have a sudden increase  post-2025 in S. 2191 as it does in H.R. 2454.  In H.R. 2454, since the consumer climate  change fund is rebated to the consumer in the form of lower personal taxes  post-2025, consumption impacts in S. 2191 and H.R. 2454 are similar, $68  billion for S. 2191 and $63 billion for H.R. 2454 in 2030.

Notes
|Background and Scope of the Analysis
                      Background
                      This report  responds to a request 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).7  ACESA, as passed by  the U.S. House of Representatives on June 26, 2009, is a complex bill that regulates emissions  of greenhouse gases (GHGs) through a variety of market-based mechanisms,  efficiency programs, and economic incentives.   The bill includes four titles designed to spur clean energy development,  increase investment in energy efficiency, reduce global warming pollution, and  transition to a clean energy economy.
                      Clean Energy
                      Title I of H.R. 2454 focuses primarily on the development of  clean energy resources.  It establishes a  combined efficiency and renewable electricity standard (CERES) requiring that  all retail electricity suppliers with annual sales above 4 million  megawatthours meet 20 percent of their load with qualified renewable energy  sources or electricity efficiency savings by 2020.  One-fifth of the requirement can initially be  met with efficiency savings, with the possibility of an additional 20 percent  if approved by the Federal Energy Regulatory Commission.
                      Title I also includes provisions to  spur the commercialization of carbon capture and storage (CCS) technology, encourage increased investment in  energy efficiency through allowance distributions to States, stimulate  reductions in peak electricity loads, and motivate investment in an electric  vehicle infrastructure.  In addition, it establishes a Clean Energy Deployment  Administration to promote the domestic development and deployment of clean  energy technologies, including advanced or enabling infrastructure  technologies, energy efficiency technologies, and related manufacturing  technologies, through partnership with and support of the private capital  market.
                      Energy Efficiency
                      Title II of H.R. 2454 focuses  on improving energy efficiency.  It  requires revisions to building codes for both new construction and existing  facilities.  It provides financial  assistance for efficiency retrofit projects in existing buildings and calls for  the development of new efficiency standards for several lighting and appliance  applications, such as street lights, parking lot lights, portable light  fixtures, hot food holding cabinets, bottle-type drinking water dispensers,  commercial grade natural gas furnaces, and portable spas (hot tubs).
In order to address transportation efficiency, Title  II directs the Environmental Protection Agency (EPA) and the Department of Transportation  (DOT) to set GHG emission standards for heavy highway vehicles, non-road  vehicles, and aircraft. It requires States to develop transportation GHG  reduction plans and calls for EPA to expand its fuel-saving technologies  deployment program.  The Department of  Energy (DOE) is also directed to establish further standards for industrial energy efficiency, create an awards  program for increasing efficiency in the thermal electricity generation  process, and clarify the waste-to-heat energy incentives in the Energy  Independence and Security Act of 2007 (EISA 2007). 
Reducing Global  Warming Pollution
Title III of  H.R. 2454 focuses on reducing GHG emissions by establishing a cap on emissions  beginning in 2012 that covers electricity generators, liquid fuel refiners and  importers, and fluorinated gas manufacturers.   In 2014, the cap is expanded to include industrial sources that emit  greater than 25,000 tons of carbon dioxide-(CO2) equivalent  emissions, and in 2016 it is further expanded to include retail natural gas  distribution companies.  Relative to  their emissions in 2005, covered sources must reduce their emissions 3 percent  by 2012, 17 percent by 2020, 58 percent by 2030, and 83 percent by 2050.  It provides for unlimited banking of  allowances, while borrowing future allowances to meet current compliance  obligations is allowed with some restrictions.
Title III also allows covered entities to offset up to 2  billion metric tons (BMT) of CO2-equivalent emissions through the  use of domestic and international offsets.   The offset limits are applied on a pro-rata basis to individual covered  entities.  The annual percentage of  offsets a covered entity can use to comply with its limit is determined by  dividing 2 billion by the sum of 2 billion and the number of allowances issued  for the previous year.  The pro-rata  limit can therefore restrict offset usage independently of the overall 2-BMT  limit.  Under the overall limit, the title  allows 1 BMT of international offsets and 1 BMT of domestic offsets.  Furthermore, beginning in 2018, five  international offsets must be submitted to account for four allowances.  As with the overall limit, domestic and  international offsets under the pro-rata limit can each be no more than half  the total.  However, if the EPA Administrator  expects the availability of domestic offset credits to be less than 900 million  metric tons (MMT), given expected allowance prices, then the maximum percentage  of international offsets is increased to reflect an amount equal to 1,000 MMT  less the expected domestic offset availability, up to 500 MMT.  International allowances can also be used for  compliance, provided that they originate from a program with mandatory  emissions reductions and have not been used already to comply with another  program. The authority to designate a limit on the use of international  allowances is granted to EPA.  Title V  addresses the role of domestic agricultural and forestry-related offsets in the  Title III cap-and-trade  program.
Transitioning to  Clean Energy Economy
Title IV of H.R. 2454 includes provisions intended to  mitigate adverse economic impacts caused by the provisions of Title III.  It  directs EPA to provide rebates for industrial facilities that it determines  face significant additional costs as a result of Title III.  It also authorizes tax credits and refunds  for low income energy consumers, in order to compensate them for any losses in  purchasing power due to higher energy costs and provides for financial  assistance to workers who loose their job as a result of the Title III program.   In addition, it authorizes an increase in grants for colleges and  universities that are developing programs in clean energy technology and energy  efficiency.
Representing  H.R. 2454 in the National Energy Modeling System8
The analysis of energy sector and energy-related economic  impacts of the various GHG emission reduction proposals in this report is based  on results from the Energy Information Administration’s (EIA) National Energy  Modeling System (NEMS).  NEMS projects  emissions of energy-related CO2 emissions resulting from the  combustion of fossil fuels, representing about 84 percent of total U.S. GHG  emissions today.  The emissions in NEMS  account for the vast majority of total emissions covered by the main ACESA cap-and-trade  program.
The Reference Case used in this report was published in a  recent EIA report, *An Updated Annual  Energy Outlook 2009 Reference Case Reflecting Provisions of the American  Recovery and Reinvestment Act and Recent Changes in the Economic Outlook.*9  The Reference Case is designed to reflect  only current laws and policies, so it explicitly avoids assumptions about  “expected” policy changes such as future fuel economy standards, taxes, or new  regulatory requirements for conventional pollutants or GHGs.  For this reason, EIA Reference Case  projections are not directly comparable with private energy forecasts that  include estimates of policy change in their baseline scenarios.
NEMS endogenously calculates changes in energy-related CO2  emissions in the analysis cases. The cost of using each fossil fuel includes  the costs associated with the GHG allowances needed to cover the emissions  produced when they are used.  These  adjustments influence energy demand and energy-related CO2  emissions.  The GHG allowance price also  determines the reductions in projected baseline emissions of other GHGs based  on assumed abatement cost relationships.   With emission allowance banking, NEMS solves for the time path of permit  prices such that cumulative emissions match the cumulative emissions target  with price escalation consistent with the average cost of capital to the  electric power sector.
The NEMS Macroeconomic Activity Module (MAM), which is based  on the IHS Global Insight U.S. Model, interacts with the energy supply, demand,  and conversion modules of NEMS to solve for an energy-economy equilibrium.  In an iterative process within NEMS, MAM  reacts to changes in energy prices, energy consumption, and allowance revenues,  solving for the effect on macroeconomic and industry level variables such as  real gross domestic product (GDP),  the unemployment rate, inflation, and real industrial output.
Key provisions of ACESA that are represented in the policy  cases developed in this analysis include:
the cap-and-trade program for GHGs other than  hydrofluorocarbons (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 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.While 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.
Analysis Cases
Because of the complex interactions of the various policy  instruments called for in ACESA, a large number of cases were prepared.  These cases, while not exhaustive, are meant  to explore key areas of uncertainty that impact the analysis results.
The role of offsets is a large area of uncertainty in any  analysis of ACESA.  The 2-BMT annual  limit on total offsets in ACESA is equivalent to one-third of total  energy-related GHG emissions in 2008 and represents nearly six times the  projected growth in energy-related emissions through 2030 in the Reference Case  used in this analysis.
While the ceiling on offset use is clear, their actual use  is an open question.  Beyond the usual  uncertainties related to the technical, economic, and market supply of offsets,  the future use of offsets for ACESA compliance also depends both on regulatory  decisions that are yet to be made by the EPA, on the timing and scope of  negotiations on international agreements or arrangements between the United  States and countries where offset opportunities may exist, and on emissions  reduction commitments made by other countries.   Also, limits on offset use in ACESA apply individually to each covered  entity, so that offset “capacity” that goes unused by one or more covered  entities cannot be used by other covered entities.  For some major entities covered by the  cap-and-trade program, decisions regarding the use of offsets could potentially  be affected by regulation at the State level.   Given the many technical factors and implementation decisions involved,  it is hardly surprising that analysts’ estimates of international offset use  span an extremely wide range.  One recent  analysis doubts that even 150 MMT of international offsets will be used by 2020, while  anotherposits that 1 BMT of international offsets will be used  almost immediately from the start of the program in 2012, followed by a quick  rise towards an expanded 1.5-BMT ceiling shortly thereafter.
The other major area of uncertainty in assessing the energy  system and economic impacts of ACESA involves the timing, cost, and public  acceptance of low- and no-carbon technologies.    For the period prior to 2030, the availability and cost of low- and  no-carbon baseload electricity technologies, such as nuclear power and fossil  (coal and natural gas) with CCS,  which can potentially displace a large amount of conventional coal-fired  generation, is a key issue.  However,  technology availability over an extended horizon is a two-sided issue.  Research and development breakthroughs over  the next two decades could expand the set of reasonably priced and scalable  low- and no-carbon energy technologies across all energy uses, including  transportation, with opportunities for widespread deployment beyond 2030.  The achievement of significant near-term  progress towards such an outcome, however, could significantly reduce the size  of the bank of allowances that covered entities and other market participants  would want to carry forward to meet compliance requirements beyond 2030.
Main Analysis Cases
The ACESA  Basic Case represents an environment where key low-emissions technologies,  including nuclear, fossil with CCS,  and various renewables, are developed and deployed on a large scale in a  timeframe consistent with the emissions reduction requirements of ACESA without  encountering any major obstacles.  It  also assumes that the use of offsets, both domestic and international, is not  overly constrained by cost, regulation, or the pace of negotiations with key  countries covering key sectors.  In  anticipation of increasingly stringent caps and rising allowance prices after  2030, covered entities and investors are assumed to amass an aggregate allowance  bank of approximately 13 billion metric tons by 2030 through a combination of  offset usage and emission reductions that exceed the level required under the  emission caps.
  The ACESA  Zero Bank Caseis similar to the  ACESA Basic Case but assumes that there is no accumulation of excess allowances  for use beyond 2030.  Instead, over the  period 2012 to 2030 the cumulative covered emissions net of offsets are assumed  to match the cumulative quantity of allowances issued, leaving an approximate  zero balance in 2030.  This scenario might  occur if allowance prices were widely expected to stabilize or drop off after  2030, limiting the financial incentives to accumulate and hold allowances.  This would imply the availability of a broad  array of reasonably priced low- and no-carbon technologies that can provide an  alternative path to compliance with tighter emissions caps after 2030 through  reductions across all energy uses, including transportation.
  The ACESA  High Offsets Case is similar to the ACESA Basic Case except that it assumes  that covered entities use the maximum allowable amount of international offsets  beginning in 2012, with such offsets available at prices competitive with  allowances and the necessary bilateral agreements in place with the supplying  countries.  This case illustrates the  potential impacts where greater use of international compliance options reduces  the share of emissions reduction requirements that must be met  domestically.  In the ACESA Basic Case  and other cases, it is assumed that international offsets will penetrate the U.S.  market more gradually.
  The ACESA  High Cost Case is similar to the ACESA Basic Case except that the costs of  nuclear, fossil with CCS, and  biomass generating technologies are assumed to be 50 percent higher.  There is great uncertainty about the costs of  these technologies, as well as the feasibility of introducing them rapidly on a  large scale.  Cost estimates for these  technologies rose rapidly from 2000 through 2008 and have only recently begun to  moderate.  The actual costs of these technologies  will not become clearer until a number of full-scale projects are constructed  and brought on line.
  The ACESA  No International Case is similar to the ACESA Basic Case but represents an  environment where the use of international offsets is severely limited by cost,  regulation, and/or slow progress in reaching international agreements or  arrangements covering offsets in key countries and sectors.  The regulations that will govern the use of  offsets have yet to be developed and their availability will depend on actions  taken in the United States  and around the world.  It is possible  that some significant portion of the potential international offsets will not  be able to meet all of the requirements set forth in ACESA or, in meeting them,  will make them uneconomical.
  The ACESA  No International/Limited Case combines the treatment of offsets in the  ACESA No International Case with an assumption that deployment of key  technologies, including nuclear, fossil with CCS,  and dedicated biomass, cannot expand beyond their Reference Case levels through  2030.  There is great uncertainty about  how fast these technologies, the industries that support them, and the  regulatory infrastructure that licenses/permits them might be able to grow and,  for fossil with CCS, when the  technology will be fully commercialized.   For nuclear, this assumption limits new plant additions to roughly  11,000 megawatts, or 7 to 11 new generators, by 2030.  For fossil with CCS,  this assumption limits new plant additions to 2,000 megawatts of demonstration  projects or roughly 4 to 8 commercial-sized plants.Additional Analysis  Cases
The ACESA  High Tech Case is similar to the ACESA Basic Case except that it  incorporates the technology assumptions from the Integrated High Technology  Case published in the *Annual Energy  Outlook 2009*(*AEO2009*).  This case illustrates the impact of more  aggressive assumptions about technological improvements and their role in  reducing GHG emissions.
  The ACESA  Low Discount Case is similar to the ACESA Basic Case except that it assumes  a 5-percent discount rate for allowance-banking decisions.  There is significant uncertainty about how  the market for allowances will evolve and what rate of return investors in  allowances will require in order to hold allowance balances in anticipation of  future higher compliance costs.
  The ACESA  35CAFE2016 Case is similar to  the ACESA Basic Case except that it also incorporates an accelerated schedule  for raising the combined fuel economy standards for cars and light trucks to 35  miles per gallon in 2016, as announced by the White House in May 2009.
  The ACESA  High Banking Case similar to the ACESA Basic Case but assumes a greater  level of allowances is banked from 2012 through 2030 and that covered entities  and investors accumulate a 20-BMT allowance bank by 2030.  Such a scenario could occur if widespread  expectations of rising allowance prices spur market participants to make  greater use of offsets and invest more heavily in emissions reduction opportunities  early on, thus banking allowances for sale in the future.
  The ACESA  Limited Alternatives Case represents an environment where the deployment of  key technologies, including nuclear, fossil with CCS,  and biomass, is limited to their Reference Case levels through 2030.  There is great uncertainty about how fast  these technologies, the industries that support them, and the regulatory  infrastructure that license/permit them might be able to grow and, for fossil  with CCS, when the technology will  be fully commercialized.  For nuclear, this  assumption limits new plant additions to roughly 11,000 megawatts, or 7 to 11  new generators by 2030.  For fossil with CCS, this assumption limits new plant additions to  2,000 megawatts of demonstration projects or roughly 4 to 8 commercial-sized  plants.EIA cannot attach probabilities to the individual policy  cases.  However, both theory and common  sense suggest that cases that reflect an unbroken chain of either failures or  successes in a series of  independent  factors are inherently less likely than scenarios that do not assume that  everything goes either wrong or right.   In this respect, the No International/Limited and Zero Bank Cases might  be viewed as more pessimistic and optimistic scenarios, respectively, which  bracket a set of more likely cases.   Similarly, if actual access to international offsets is dependent on a  series of independent regulatory and negotiating outcomes, cases with  intermediate access to international offsets might be viewed as more likely  than those representing either complete and immediate success across the board  (High Offsets), or a permanent lack of progress (No International) in such  activities.
Results
This section presents the results of the analysis, focusing  on the effects of ACESA in the six main cases that vary technology and offset  assumptions.  The impacts on GHG  emissions, energy markets, and the economy are presented in turn.  A full set of report tables for all analysis  cases is available on the EIA website.
Greenhouse  Gas Emissions and Allowance Prices
Greenhouse Gas  Emissions and Compliance Patterns
The cap-and-trade provisions in ACESA impose a gradually  tightening cap on covered GHG emissions beginning in 2012, with some industrial  sector and natural gas coverage phased in between 2012 and 2016.  By 2016 about 84 percent of total U.S.GHG  emissions are covered emissions under the cap, including most sources of  energy-related CO2 and some industrial emissions of non-energy CO2,  nitrous oxide, perfluorocarbons, sulfur hexafluoride, and HFCs.
Figure 1 compares the total and covered portions of GHG  emissions in the reference case under the cap, with covered emissions prior to  2012 shown based on the bill’s 2012 coverage provisions.10  Cumulative covered emissions from 2012 to  2030 in the Reference Case are about 113 BMT, compared to 89 BMT tons allowed  under the cap, a 21-percent or 24.6-BMT reduction requirement.  Given incentives to bank allowances and an  increasingly stringent cap on emissions through 2050, in five of the main  analysis cases, an additional 13 BMT of abatement is assumed to occur over the  same period, leaving a 13-BMT allowance bank balance at the end of 2030.  In the Zero Bank Case, a target of 0 for the  2030 bank balance is assumed.
Although all of the main analysis cases start  from the same Reference Case, apply the same cap on covered emissions, and five  carry the same 13-BMT balance of banked allowances in 2030, the mix of offset  usage and reductions in covered emissions vary a great deal across these cases  (Figure 2).  In the ACESA Basic, ACESA  High Cost, and ACESA High Offset Cases, the cumulative use of offsets is  projected to substantially exceed the 13-BMT bank balance that is carried  forward beyond 2030.  Covered entities  are therefore able to meet the their obligations under the cap-and-trade  program between 2012 and 2030 in those cases even though the reduction in their  covered emissions, shown as the bottom three segments of the bars in Figure 2,  is significantly below the cumulative 24.6-BMT reduction target shown in Figure  1.  This effect is particularly evident  in the High Offsets Case, where the reduction in covered emissions over the  2012 to 2030 period is only 8.3 BMT.  In  the ACESA Zero Bank Case, cumulative abatement matches the minimum required,  yet the compliance mix includes a similarly large share of offsets, with international  offsets accounting for about half the total abatement.  In the two cases where no international  offsets are assumed to be available, reductions in covered emissions are much  greater, actually exceeding the cumulative 24.6 BMT reduction shown in Figure 1  in the cases that assume the ready availability of low- and no-carbon electric  generation technology.
The temporal pattern of compliance also varies  significantly across cases, as shown in Figure 3, which shows the accumulation  of allowance bank balances.  The build-up  of allowance bank balances is most rapid in the High Offsets Case, where the  maximum allowable quantity of offsets is assumed to be available immediately.  For the other main analysis cases, allowance  banks are generally accumulated more rapidly in the cases that assume  restricted access to international offsets and/or low- and-no carbon  technologies for electricity generation.   These assumptions, which lead to higher allowance prices, encourage  covered entities to take advantage of near-term fuel-switching opportunities in  the electric sector.  In the Zero Bank  Case, a relatively small negative allowance balance accumulates from 2019 to  2022, reflecting some allowance borrowing as permitted in the bill,  subject to some limitations and repayment penalties. The borrowing period is  followed by a similar length payoff period, leaving a near-zero balance over  the last 5 years of the projection, consistent with the terminal bank  assumption of the case.
Given the relatively generous limit on offsets and their  potential as a low-cost compliance option, the reductions in covered emissions are  projected to be smaller than the abatement from offsets in most cases.  In the ACESA Basic Case, which includes an  increasing availability of international offsets over time, abatement in  covered gases represents only 39 percent of cumulative total emission abatement  from 2012 to 2030.  In the ACESA High  Offsets Case, where the maximum quantity of international offsets are also used  beginning in 2012, abatement in covered gases represents even less of the  overall abatement, accounting for just 22 percent of the cumulative abatement  through 2030.  Reductions in the  emissions of energy-related CO2 account for more than half of the  cumulative abatement only in the cases where international offsets are not  assumed to be available.
The abatement measures used change over time,  depending on how quickly offsets and other abatement opportunities become  economical (Figure 4).  In the ACESA  Basic and ACESA High Cost Cases the “kink” in the international offsets trend  occurs due to the discounting rule change that goes into effect in 2018.  After 2018, 1.25 international offsets are  required for each allowance credit.  This  discounting is assumed to reduce the market price covered entities in the United  States are willing to pay for international offsets to 80 percent (1/1.25) of  the domestic allowance price and also reduce the quantity of offsets  supplied by international sources.  Both  the discounting and the market supply reaction to the lower international  offset price contribute to the reduced use of international offsets in  2018.  A second change in the  international offsets trend occurs in 2021 when the limit on international  offsets is reached.
The temporal abatement pattern in the Zero Bank Case is  distinct from the other cases.   Relatively low levels of abatement occur in the first 10 years of the  cap-and-trade policy in this case, as investors are assumed to forego possible  opportunities to bank allowances, as might occur with expectations of  stabilizing allowance prices after 2030 that would reduce profits from such  investments.****
Allowance Prices
Under the ACESA cap-and-trade provisions, the market price  of allowances will establish an incremental cost to emitting GHGs.  That cost provides an incentive to reduce  emissions whether or not some allowances are received for free, since operating  costs can be reduced by emitting less and any unused allowances can be  sold.
Prices in allowance markets will be influenced by the banking  provisions.  Covered entities or traders  may hold allowances if they expect higher allowance prices in the future.  Allowance prices and levels of emissions are  estimated such that covered emissions, less offsets, meet the emissions caps  over a time period.  The allowance price  path is estimated assuming a constant rate of growth matching the cost of  capital, or discount rate, assumed in financing the investment in allowance  banking.  The projected allowance prices  represent idealized paths.  In reality, allowance  prices would tend to fluctuate as markets respond to new information and as  unanticipated events unfold.
Allowance prices in the ACESA Basic Case are projected at  $32 per metric ton in 2020 and $65 per metric ton in 2030.  The projected allowances prices are highly  uncertain and sensitive to modeling assumptions, including such factors as the  cost and availability of low-emissions technology options and the potential  supplies of domestic and international offset credits (Figure 5 and Table  1).  Allowance prices in the main cases,  where these assumptions are analyzed, vary widely, from $20 to $93 per metric  ton of CO2-equivalent emissions in 2020 and from $41 to $191 per  metric ton in 2030.  The lower prices in  that range occur in cases where technological options such as CCS and adoption of new nuclear power plants become  available at relatively low costs, and the use of international offsets helps  to hold down compliance costs, as in the ACESA Basic and ACESA High Offset  Cases, and where aggregate banking of allowances is minimal, as in the ACESA  Zero Bank Case.  Significantly higher  allowances prices occur if international offsets are unavailable or  low-emitting electricity supply technologies are more costly, or the  development of these technologies is limited, as in the ACESA No International  Offsets, ACESA High Cost, and ACESA No International/Limited Cases.
Variation in allowances prices also occurs in some of  the additional cases examined (Figure 6 and Table 2).  Allowance prices in the ACESA Low Discount  Case are initially higher than in the ACESA Basic Case, but they grow at the  slower discount rate assumed and end up lower than in the ACESA Basic Case by  2024.  Generally, the lower the return  that investors in allowances are willing to accept, the greater the incentive  to reduce emissions early, building a larger bank of allowances that can be  used for compliance later.  Relatively  high allowance prices result in both the ACESA High Banking and ACESA Limited  Alternatives Cases, while relatively lower prices are projected in the ACESA  High Tech Case.  Not shown are the prices  in the ACESA 35CAFE2016 Case,  which are not significantly different than in the Basic Case.
The lower emissions under the somewhat higher Corporate  Average Fuel Economy (CAFE)  standards in the early part of the projection occur gradually and do not  significantly shift aggregate long-term abatement costs at the margin.
Domestic and international offset prices are closely tied to  allowance prices and ACESA’s limits on offset usage.  Estimated domestic offset usage, which may be  constrained by the pro-rata percentage limit imposed on covered emissions,  varies across the cases and over time, ranging from 75 to 290 MMT in 2012, from  177 to 580 MMT in 2020, and from 335 to 754 MMT in 2030.  In all but one of the main cases examined,  the ACESA No International/Limited Case, the estimated quantity of domestic  offset credits falls below the pro-rata limits throughout the projection. When  offset usage is below the limit, the offset credit price is assumed to match  the allowance price.  In the No  International/Limited Case, the case with the highest allowance prices, the  domestic offset limit is reached in 2024 through 2030.  Beginning in 2024, competition to supply a  limited quantity of offsets drives the offset price below the allowance price.
The limit on international offset credits is initially  established to match the domestic limit but is adjusted higher (by up to 500  MMT, or 1,000 MMT less the anticipated domestic offset usage) if domestic  offset usage is anticipated to be less than 900 MMT.  In the cases where international offsets are  assumed to be available, the adjusted international offset limit ranges from 1,196  to 1,479 MMT in 2030, with the estimated limit in the ACESA Basic Case of 1,320  MMT falling in the middle of that range.   Given the assumed offset supplies available, international offsets  limits are projected to be reached in all of these cases.  In the ACESA High Offsets Case, the maximum  allowable quantity of international offsets is assumed to be used beginning in  2012, resulting in much lower levels of abatement and allowance prices than in  the ACESA Basic Case.
Energy-Related  Carbon Dioxide Emissions
The allowance program and other incentives under ACESA  are expected to reduce energy-related CO2 emissions.  The vast majority of the energy-related  emissions reductions are expected to occur in the electricity sector (Figures 7 and 8).  In fact, across the ACESA main  cases, the electricity sector accounts for between 80 percent and 88 percent of  the total reduction in energy-related CO2 emissions relative to the  Reference Case in 2030.  The electricity  sector reductions stem from the use of more efficient, less carbon-intensive  sources of generation.  This results from  a variety of factors, particularly the industry’s current dependence on coal,  the availability and economics of technologies to switch from coal to less  carbon-intensive energy sources, and the comparative economics of fuel  switching in other sectors.  In addition,  a portion of the electricity-related CO2 emissions reductions  results from reduced electricity demand stimulated both by consumers’ responses  to higher electricity prices and incentives in ACESA to stimulate greater  efficiency in energy use.
Energy Market Impacts
Energy consumers are expected to face higher costs of using  energy as a result of the ACESA cap-and-trade program.  To the extent that they are not ameliorated  by the free distribution of allowances to regulated distribution companies, the  cost of the allowances required to be submitted by covered sources will tend to  be passed on to consumers of primary fuels through higher delivered energy  prices.  Table 1, presented earlier,  summarizes the projected impacts on the delivered cost of energy under  ACESA.  Detailed projection tables on  energy production, consumption, and prices for each case accompany the  presentation of this report on EIA’s web site.11
Energy-related emissions will be influenced by both the  higher energy costs from the allowance program, as well as the ACESA incentives  that promote energy efficiency and low-carbon fuel sources.  Overall, the use of fossil fuels generally  decreases relative to the Reference Case, while the use of renewable energy  sources and nuclear power increases (Figure 9).   As discussed earlier, the greatest changes occur in the electricity  sector, with reductions in the use of coal and increases in nuclear and  renewable fuels in most cases, relative to the Reference Case.  The impacts tend to grow over time as the  caps become more stringent and the allowance price increases.
Electricity Sector Emissions, Generation,  and Prices
The provisions of ACESA alter electric power projections by favoring  low-carbon technologies such as new nuclear, renewable, and fossil plants that  sequester CO2.  The impact on CCS technology is also affected by the provisions  that provide additional incentives for these plants.  The shifts in the generation mix caused by  ACESA lead to lower CO2 emissions from the electricity sector,  higher electricity prices (particularly after 2025) and lower electricity  demand than would otherwise occur.  The  higher electricity prices are due to the higher capital costs of cleaner, more  efficient technologies and the costs of holding allowances.
Emissions
In the Reference Case, which assumes no explicit  policy to reduce GHG emissions, power sector CO2 emissions are  projected to increase 8 percent between 2007 and 2030 as the industry increases  its use of fossil fuels (Figure 10). In the main ACESA cases, power sector CO2  emissions are expected to be 11 percent to 44 percent below the Reference Case  level in 2020 and 29 percent to 85 percent below the Reference Case level in 2030.  The electricity sector, in fact, accounts for the vast majority of the  energy-related CO2 emissions reductions expected to occur under  ACESA, with its share ranging from 79 to 88 percent in 2030 across the main  ACESA cases.  The largest changes in electricity  emissions occur in the cases where it is assumed that international offsets are  not available.  Without these offsets,  covered U.S.  entities must make larger reductions in their own emissions to comply with the  emissions cap established in ACESA.  In  contrast, the smallest change occurs in the ACESA High Offsets Case where  covered entities are assumed to be able to rely more on international offsets  as compliance options.
Capacity and Generation
In the Reference Case, which does take account of growing  concerns about GHG emissions, natural gas plants and renewable plants meet a  large share of new capacity requirements through 2030 (Figure 11).  Natural-gas-fired generation, with a CO2  emission rate roughly 40 percent that of conventional coal-fired generation,  gains competitiveness relative to coal but loses competitiveness relative to  carbon-free technologies under the ACESA cap-and-trade program.  The efficiency and cap-and-trade programs in  ACESA also have the effect of reducing projected growth in electricity demand,  which reduces the need for all generation sources.
Under ACESA, new coal builds without CCS  beyond those that are already under construction are almost eliminated. There  is also a large increase in coal power plant retirements with between 6 and 85  percent of existing coal capacity projected to retire by 2030 in the ACESA main  cases, well above the 1 percent of existing coal capacity projected to retire  in the Reference Case.  These retiring  coal plants are replaced by a combination of new nuclear, renewable, and coal  plants with CCS.   The Reference Case projects 11 gigawatts of  new nuclear capacity by 2030, but under ACESA, nuclear builds by 2030 range  from 15 gigawatts to 135 gigawatts, when allowed to grow.  Renewable capacity also grows significantly,  representing between 33 percent and 63 percent of all new capacity added  between 2008 and 2030 across the ACESA main cases.
When technologies with CCS,  nuclear, and biomass are limited to Reference Case levels, as could occur if  the technologies prove more costly, take longer to develop, and/or meet with  strong market resistance, the addition of new renewable and natural gas  capacity grows significantly.  In the  ACESA Basic Case, natural gas additions are below those in the Reference Case, since  CCS is not as economic on  combined-cycle plants as on coal plants, and other non-fossil technologies are  built instead of natural-gas-fired plants without CCS.
Changes in electricity generation are consistent with  capacity choices and are influenced by the GHG allowance price (Figures 12 and 13). In the Reference Case, coal generation grows to 2,311 billion  kilowatthours in 2030, an increase of 14 percent over 2007 levels, providing 46  percent of total electricity needs.  In  the ACESA main cases, coal generation drops, with its generation share in 2030  dropping to between 7 percent and 40 percent.   Although some new coal capacity with CCS  is added in most cases, the increased generation from these new plants is more  than offset by reductions from the retirement of existing coal capacity.  In the ACESA High Cost, Zero Bank, and High  Offsets Cases, coal generation is above that in the ACESA Basic Case, but still  much lower than the Reference Case.  In  those cases, the higher costs of new coal plants with CCS,  the availability of greater international offsets, and/or reduced banking result  in fewer coal retirements than in the ACESA Basic Case.
Nuclear generation follows the capacity additions, growing  most significantly in the ACESA No International and ACESA Basic Cases.  In the Reference Case, nuclear generation  grows by 10 percent between 2007 and 2030, reaching 890 billion kilowatthours  and providing 18 percent of total generation. In the ACESA Basic Case, nuclear grows to  1,548 billion kilowatthours in 2030, nearly 74 percent more than the Reference  Case level. If nuclear costs are higher than expected, then new nuclear capacity  additions are still projected but at a level only slightly above that seen in  the Reference Case in 2030.
In most of the ACESA cases, natural gas generation in 2030  is lower than in the Reference Case.  In  the Reference Case, natural gas generation increases 9 percent by 2030,  relative to the 2007 level.  However, in  the ACESA Basic Case, natural gas generation falls 21 percent between 2007 and  2030.  In the ACESA No  International/Limited Case, natural gas generation is 68 percent above the  Reference Case level by 2030, due to the assumed limited availability of new  plants with CCS, as well as new  nuclear and biomass capacity.  This case  demonstrates the role of the development and deployment of key low-carbon  generating technologies like nuclear, renewables, and fossil with CCS in a timeframe consistent with the emission  reduction requirements of ACESA.  Without  them, allowance prices would be higher and greater demands would be placed on  natural gas markets.
Renewable generation is dramatically higher under the  provisions of ACESA, growing to between 22 percent and 75 percent above the  generation level in the Reference Case in 2030.   The vast majority of the increase is from wind generation, followed by  biomass generation.  The increase in  biomass generation in the ACESA cases comes from a combination of increased  cofiring of biomass in existing coal plants and the addition of new dedicated  biomass plants.  In most cases, cofiring  dominates, particularly in the early years of the projections.  However, as new dedicated biomass plants are added,  they play a larger role in the later years.   Cofiring is generally an economic way to reduce CO2 emissions  without investing in new capacity, but as the allowance price increases  throughout the projections, the economics begin to shift towards less CO2-intensive  generation.
The share of renewable generation far exceeds that required  to comply with the combined efficiency and renewable electricity standard in  all of the ACESA cases.  As shown in Figure 14, the nominal share of renewables required to comply with the target,  assuming no efficiency credits, grows to a final target of 20 percent.  When the required share is adjusted for the  exemption of small utilities and the removal of hydroelectric generation from  the baseline, the national average required share falls to approximately 16.5  percent.  Moreover, the national average  required share falls to just over 10 percent when the generation contribution  from new nuclear and fossil plants with CCS  is removed from the baseline for renewable electricity standard calculations in  the ACESA Basic Case.  After these  adjustments, the level of renewable generation in the Reference Case exceeds  the requirement in 2025 and beyond, while the level in the ACESA Basic Case far  exceeds it.
Price and Demand
H.R. 2454 is projected to lead to higher electricity prices  and lower electricity demand, though most of the price impacts are expected  after 2025, as the allowances allocated to retail electricity providers are  phased out.  Except for the ACESA No  International/Limited Case, electricity prices in five of the six main ACESA  cases range from 9.5 to 9.6 cents per kilowatthour in 2020, only 3 to 4 percent  above the Reference Case level (Figure 15).12  Average impacts on electricity prices in 2030  are projected to be substantially greater, reflecting both higher allowance  prices and the phase-out of the free allocation of allowances to distributors  between 2025 and 2030.  By 2030,  electricity prices in the ACESA Basic Case are 12.0 cents per kilowatthour, 19  percent above the Reference Case level, with a wider band of 11.1 cents to 17.8  cents (10 to 77 percent above the Reference Case level) across all six main  policy cases.
The combination of higher electricity prices and  provisions in H.R. 2454 designed to improve energy efficiency causes growth in  the demand for electricity to slow relative to the Reference Case in the main  ACESA cases.  The long-term trend of  slowing growth in the demand for electricity is reflected in the Reference  Case.  After averaging nearly 2.4 percent  per year in the 1990s and 1.2 percent per year between 2000 and 2007, the  demand for electricity is projected to increase just 0.9 percent per year  between 2007 and 2030 in the Reference Case (Figure 16).  This projection reflects ongoing improvements  in appliance efficiency, new appliance standards, and consumer responses to  higher electricity prices.  Among the main  ACESA cases the growth slows further, ranging from 0.2 percent per year to 0.7  percent per year between 2007 and 2030.The impacts on regional electricity prices vary for many  reasons including the demand characteristics, the mix of generating sources  used, the availability and delivered prices of different resources and fuels,  the regulatory regime, and the local costs of construction (Figure 17).  Generally, the largest changes in prices  caused by the provisions of H.R. 2454 would be expected in regions that are  most reliant on coal, regions without large renewable resources that can be  developed, and regions where electricity prices are set competitively.  However, since retail distributers remain  regulated in all regions it is assumed that the benefit of allowances allocated  to them for free will be passed on to their consumers.  This significantly dampens the prices impacts  of ACESA through 2025 in all regions.
As shown in Figure 17, all regions are expected to see  prices increases in most of the ACESA cases by 2030.  Regions like the Northwest Power Pool (NWP)  and California,  which do not rely heavily on coal, continue to have regulated prices, and have  significant renewable resources, are projected to see relatively modest prices  increases in the ACESA main cases.
Coal Markets
Because coal has the highest carbon content of any of the  key fossil fuels, the cost of using coal when a GHG cap-and-trade program is  imposed increases dramatically (Figures 18 and 19).  For example, in 2020 the cost of using coal  in a plant that does not have CCS  equipment is between 92 percent and 435 greater in the main ACESA cases than in  the Reference Case.  By 2030 the increase  in coal costs to a plant without CCS  equipment is even larger, ranging from 179 percent to 848 percent greater than  in the Reference Case in the main ACESA cases.   The vast majority of this cost increase is due to the need to hold allowances  to cover the CO2 emissions that will be generated when the coal is  used to produce electricity.  The  underlying delivered price of coal without the allowance costs is actually  lower in the ACESA cases because of the reduced consumption of coal.
As a result of the reduced use of coal for electricity  generation, coal production volumes (in tons) are projected to be 19 to 83  percent lower in the ACESA main cases in 2030 compared to the Reference Case  (Figure 20).  Lower coal consumption in  the ACESA main cases disproportionately affects western coal producers, because  they are expected to meet most of the growth in coal demand in the Reference  Case.
Buildings
Residential and commercial buildings are affected by  programs targeting energy efficiency and the energy price consequences of the  GHG emissions cap.  Figures 21 and 22 depict buildings sector delivered energy consumption by fuel across the main  ACESA cases in 2020 and 2030, respectively.   Electricity and natural gas, which account for nearly 90 percent of the  delivered energy used in buildings, are also the fuels most impacted by  ACESA.
Electricity use in buildings is projected to be 1.5 percent  lower in the ACESA Basic Case relative to the Reference Case in 2020, with a  range of 1.1 to 4.8 percent across the main ACESA cases.  By 2030, electricity use is projected to be  4.9 percent lower in the ACESA Basic Case, with a range of 3.2 to 14.4 percent  across the ACESA main cases.  In the  ACESA Basic Case, most of the electricity savings in buildings is due to  price-induced conservation.
Natural gas use in buildings is more directly affected  by the energy efficiency provisions in ACESA, given the importance of building  codes and building retrofit programs which tend to affect heating fuels more  than electricity.  In 2020, natural gas  use in buildings in the ACESA Basic Case is projected to be 2.5 percent lower  than in the Reference Case, with a range of 2.0 to 7.1 percent across the ACESA  main cases.  By 2030, the ACESA Basic  Case is projected to be 7.8 percent lower than the Reference Case with a range  of 6.0 to 15.4 percent, across the ACESA main cases.  Most of the reduction in natural gas use is  due to the energy efficiency provisions in ACESA, particularly the building codes  and building retrofit programs.
Even with lower energy  consumption in the main ACESA cases, energy expenditures are projected to  increase, relative to the Reference Case, due to increases in delivered energy  prices to the buildings sector.  Figure 23 depicts the average projected energy expenditures per square foot in  residential and commercial buildings over the 2012 through 2030 period in the  main ACESA cases.  These estimates  include **only** expenditures for energy  used in buildings and not any additional costs associated with the purchase of  energy-efficient equipment or any transportation costs.  For all residential and commercial buildings,  energy expenditures in the ACESA Basic Case are projected to increase 4 percent  over the Reference Case average over the 2012–to-2030 period on a per–square-foot  basis (in real 2007 dollars).  Of all the  main ACESA cases, only the most restrictive case shows an increase in the  average expenditures per square foot relative to 2007, when energy expenditures  were at near-record highs in real terms.
Increases in energy prices  impact households not only for the energy used in the house, but also for  transportation costs and products they buy on an everyday basis.  Several provisions in ACESA direct that the  funds generated from emissions allowance auctions or the sale of freely  allocated allowances be used to ameliorate the adverse impact on  households.  In addition to the funds  generated for low-income households through the auctioning of 15 percent of the  allowances allocated each year, local electricity and natural gas distribution  companies are also directed to use freely allocated allowances to minimize the  impact on residential energy consumers.   These provisions, along with the energy efficiency programs such as  building codes, partially shield residential consumers from significant  increases in energy expenditures for uses inside the house.  Transportation costs, however, do increase  significantly on a per-household basis since there are no provisions designed  to dampen motor gasoline price impacts.
As a result of the provisions  in ACESA, the average household can expect increases in the cost of the energy  they use to heat and cool their homes as well as the cost to operate their  vehicles. Figures 24 and 25 depict these cost increases as well as the increase  in the cost to purchase more energy-efficient equipment as a result of more  stringent building codes.  Since the  building codes affect only new construction on an annual basis and the  annualized cost (over 15 years) is spread out over all households in Figures 24 and 25, the impact of the increase in this cost is relatively small.  Based on the three cost measures represented  in Figure 24, households can expect an increase of $165 in 2020 in the ACESA  Basic Case, with a range of $103 to $767 across the ACESA main cases.  Increases in light-duty vehicle energy  expenditures account for about 81 percent of the increase in 2020 in the ACESA  Basic Case.  In 2030, the cost to the  consumers increases to $501 per household in the ACESA Basic Case, with the  non-transportation costs accounting for about 52 percent of the increase  (Figure 25).  In 2030, the increased  costs to households range from $282 to $1,870 across the ACESA main cases.  The higher cost impacts in 2030 are stimulated  by the rising allowances costs and the phase-out of the freely allocated  allowances to electricity and natural gas distribution companies that begins in  2025.
The adoption of more  efficient technology can play a role in mitigating the cost to households due  to ACESA.  In the ACESA High Tech Case,  energy expenditures for household uses (excluding transportation costs) decline  by $63, relative to the Reference Case, in 2020.  In 2030, energy expenditures for household  uses increase by $26 relative to the Reference Case, but are much less than the  $191-increase projected in the Basic Case.   The increased adoption of more efficient technologies, including rooftop  photovoltaics, contributes to the reduction in household energy  expenditures.  Total per-household  expenditures are lower in this case, relative to any of the main cases, even  with a modest increase in annualized capital expenditures caused by the  adoption of more efficient equipment.   Per-household expenditures are 54 percent lower in 2020 relative to the Basic  Case and 40 percent lower than the Basic Case in 2030.
Transportation
The impact of ACESA on projections of CO2  emissions from the transportation sector are relatively small compared to  emissions reductions realized in the other demand sectors.  In 2020, CO2 emissions from the  transportation sector are reduced from1.0 percent to 3.5 percent (19 to 68 MMT)  across the main ACESA cases relative to the Reference Case.  By 2030, transportation-related CO2  emission reductions increase and range from 2.6 percent to 8.5 percent (53 to 174  MMT) across the main ACESA cases compared to the Reference Case.  Because reductions in transportation-related  emissions are not proportional to reductions in other sectors, by 2030 the  transportation sector accounts for a larger percentage of total U.S. GHG  emissions across all cases.  The  relatively small changes in the transportation sector are driven by the modest  changes in gasoline prices, which are expected by 2020 to range from $0.12 to  $0.66 per gallon higher than in the Reference Case (Figure 26).
However, ACESA does contain provisions aimed at stimulating  further advances in vehicle fuel efficiency and a more rapid penetration of  vehicles that rely at least partially on electricity.  Uncertainty about the impacts of these  provisions led to them not being explicitly analyzed in this report.  If they are successful, larger reductions in  transportation sector emissions would be expected.
These  results may also be impacted by proposed revisions to CAFE  standards.  On May 19, 2009,  President Obama unveiled new light vehicle  fuel economy standards increasing the minimum passenger car requirement to 39  miles per gallon and the light truck requirement to 30 miles per gallon by  model year 2016.  The proposed rule  making jointly developed by the EPA and the National Highway Traffic Safety  Administration mandates a 5-percent annual increase in fuel economy for model  years 2012 through 2016.  The new  standards will address both fuel economy and GHG emissions via a vehicle-attribute-based  CAFE standard and a tailpipe GHG  emission standard.
To evaluate their  potential impact, the proposed CAFE  standards were incorporated into the 35CAFE2016  Case.  Except for the revised CAFE standards, this case uses the same assumptions  as the ACESA Basic Case, to examine the impact on transportation-related GHG  emissions and how that effects total GHG emission reductions from all  sectors.  Relative to the ACESA Basic  Case, the proposed CAFE standards  reduce GHG emissions from the transportation sector by 0.5 percent in 2020 (9  MMT carbon-equivalent) and 0.8 percent in 2030 (16 MMT carbon-equivalent)  relative to the ACESA Basic Case.  Total  GHG emissions are unchanged between the two cases since reductions in the  transportation sector are offset by smaller reductions in other sectors.  This occurs because allowance prices decrease  in proportion to emissions reductions achieved in the transportation sector.
The  transportation sector could contribute more to emissions reductions if the  provisions of ACESA were to spur more rapid improvement in transportation  technology.  Relative to the ACESA Basic  Case, in the ACESA High Tech Case, transportation sector CO2  emissions are 32 million metric tons lower in 2030 (1.6 percent).
Economic  Impacts
Implementing the ACESA GHG cap-and-trade program will affect  the economy through two key mechanisms.   First, the cost of using energy, particularly fossil fuels and  electricity, will be increased by the requirement to submit allowances for  ongoing emissions.  Second, the  auctioning of allowances and the free distribution of allowances to emitting  and non-emitting sources will generate revenue, which, in turn, will be spent  by various government entities on programs designed to help businesses and  consumers reduce their emissions or ameliorate the impacts associated with  higher energy prices.  In the ACESA  cases, roughly 99 percent of the value of allowances, allocated freely or  auctioned, goes to producers and consumers of energy from 2012 to 2030, while 1  percent is devoted to deficit reduction.   Through 2025, the allocation of allowances under ACESA tends to dampen  the changes in energy prices, but energy prices begin to escalate and the  economy shows greater losses in the last 5 years of the projection horizon, as  many of the early programs are phased out..
Prices increase and real output declines as a result of  meeting the carbon reductions stipulated in ACESA.  If all of the revenue collected by the carbon  allowances were returned, deficits would be significantly higher, especially  during the period where the carbon allowance prices are at their highest  levels.  As a result, for all ACESA  cases, the full employment deficit was not allowed to change from the reference  case.  Government expenditures were  adjusted so that the deficit remained at reference case values.  The uses of the carbon allowance revenues as  stipulated by H.R. 2454 were modeled; however to the extent that the resulting  change in government expenditures were lower than the actual amounts specified  by the bill, other non-defense government expenditures would have to be reduced  to insure unchanged Federal deficits over time.
Allowance  Revenues
Figure 27 shows the detailed shares of allowances going to  different entities as called for in ACESA over the 2012 to 2030 time  period.  As shown, the share devoted to  the energy industry, mainly to be used to reduce impacts on their consumers,  drops off dramatically post-2025, with an increasing share rebated to consumers  via the climate change consumer refund program.   The amounts going to the energy industry and trade-vulnerable industries  are not directly collected as revenue in the macroeconomic model.  Those revenues are used by the industries  themselves to lessen the impact of rising energy prices to consumers.  The remaining uses of the allowances are  distributed through Federal transfer payments abroad (International Adaptation  and Clean Technology Deployment funds), imports of services (purchases of  international offsets), increased transfer payments to individuals (low income  allocations), or increased Federal non-defense expenditures (clean energy  innovation centers and energy efficient programs).  The cumulative amount of revenues (not  discounted) collected for redistribution by the government ranges from $1.3  trillion in the ACESA Zero Bank Case to $6.4 trillion in the ACESA No  International/Limited Case between 2012 and 2030.  These sums essentially include the value of  all the allowances that will fund increased local, State, and Federal  government expenditures for various purposes but exclude the value of allowances  going directly to businesses, including to local electricity and natural gas  distribution companies, or those that will be used for deficit reduction.  Figure 28 provides another view of the  distribution of allowances dividing them into five broad categories,  electricity, natural gas and oil distributors, trade- and energy-vulnerable  industries, international adaptation, consumers and efficiency, and deficit  reduction.
Impacts  on Energy and Aggregate Prices
Rising energy costs influence the aggregate economy through  their effect on prices and energy expenditures.  Figure 29 shows the percentage changes in both the consumer and producer  indices for energy in the ACESA cases.  Figure 30 highlights the All-Urban Consumer Price Index (CPI), a measure of aggregate consumer prices in the  economy.  The CPI  for energy, a summary measure of energy prices facing households at the retail  level, increases by approximately 15 percent above the Reference Case level by  2030 in the ACESA Basic Case.  Industrial  energy prices increase by 22 percent above the Reference Case by 2030.  However, between 2012 and 2025, when  electricity, natural gas, and heating oil distributors are assumed to use the  large amount of allowances they receive to mitigate the impacts that their  customers would otherwise see, industrial energy prices rise by roughly twice  as much in percentage terms as do consumer energy prices.
Both wholesale and consumer energy prices rise quickly in  the first 4 years, level off for the next 10 years and then sharply rise for  the last 5 years.  All cases show the  same pattern with the amount of increase depending on the allowance prices and  compliance options chosen in each case.   The relative stability of energy prices from 2014 to 2025 reduces  projected economic impacts from levels experienced following the initial energy  price shock.  However, when energy prices  start to escalate post-2025, economic impacts begin to grow.
Across the ACESA cases, consumer energy prices  increase between 8 and 62 percent above the Reference Case level in 2030, with  the ACESA High Offsets Case showing the smallest change in energy prices and  the ACESA No International/Limited Case showing the largest change, more than  twice that in the next highest case.
Ultimately, consumers will also see the impact of higher  energy prices directly through final prices paid for energy-related goods and  services and higher prices for other goods and services using energy as an  input, and, if the cost increases cannot be passed on to consumers, labor and  capital stock may be reallocated.  Figure  30 shows that the increase in consumer prices ranges from 1.5 percent to 12.0  percent above Reference Case levels in the main ACESA cases, with the increase  in the No International/Limited Case nearly twice that in the next highest case.
Real GDP and Consumption Impacts
The higher delivered energy prices lead to lower real  output for the economy.  They reduce  energy consumption, but also indirectly reduce real consumer spending for other  goods and services due to lower purchasing power.  The lower aggregate demand for goods and  services results in lower real GDP  relative to the Reference Case (Figure 31 and Table 3).  Over the entire projection period, the change  in the cumulative present value of GDP  from the Reference Case in the ACESA Basic Case is 0.3 percent ($566 billion in  2000 dollars), with a range from $432 billion (-0.2 percent) to $1,897 billion  (-0.9 percent) across the main ACESA cases.   Impacts in the No International/Limited Case are more than twice as high  as those in any other case.
Over time, the pattern of GDP  impacts mirrors the change in energy and allowance prices.  GDP  losses are fairly small for the first 10 years as energy prices increase  initially and then stabilize.  Real GDP impacts actually decline as prices stabilize,  but then increase again as energy prices start to escalate after 2025 as  allowance prices continue to rise and the allocation of allowances used to  mitigate the impacts on electricity, natural gas, and heating oil consumers is  phased out.
In 2030, the last year  explicitly modeled in this analysis, GDP  losses range from $104 billion to $453 billion (-0.5 to -2.3 percent), with the  losses in the ACESA No International/Limited Case, at the top of these ranges, again  more than twice as large as those in the case with the next highest level of  impacts.
While real GDP  is an overall measure of what the economy produces, the components of GDP, consumption, investment, government, and net  exports, may change considerably.  In the  ACESA cases, consumer expenditures, one indicator of consumers’ welfare, show smaller  relative losses than overall GDP.  Figure 32 shows consumption impacts over time  and the cumulative discounted percent change in consumption over the 2012 to  2030 time period relative to the Reference Case.  The cumulative percent losses for real consumption  range from 0.1 percent ($196 in billion 2000 dollars) in the ACESA Zero Bank  Case to 0.7 percent ($988 in billion 2000 dollars) in the No  International/Limited Case. As with GDP,  consumption losses during the first 10 years of the projection period are  relatively small because consumer energy prices increase by half of the change  in industrial energy prices and remain relatively steady until 2026 and roughly  15 percent of total nominal allowance revenue is returned to low-income  consumers.  In fact, until 2026, the  value of increased residential energy expenditures (including transportation  costs) is roughly equal to the amount of allowance revenue transferred to  low-income consumers.  After 2026, the  consumer climate change funds rebates in personal taxes, allowing for muted  consumer impacts of the rising energy costs.
By 2030, real consumption losses reach 0.4 percent ($63  billion in 2000 dollars) in the ACESA Basic Case.
On a per-household basis, average non-discounted consumption  losses ranges from $95 to $435 (in 2007 dollars) over the 2012 to 2030 period  in the ACESA cases.  When discounted, the  yearly losses average from $59 to $292 (in 2007 dollars) per household.  The consumption losses escalate starting in  2025 as the allowance prices increase to meet the more stringent emission  cap.  Therefore 2020 household  consumption costs are smaller than the losses in 2030 (Figure 33).  The household consumption losses grow over  time as energy prices escalate.  The 2030  consumption losses per household are larger than the losses in 2020 as both the  carbon allowance price and electricity prices increase rapidly post-2025  (Figure 34).  In 2020, household  consumption losses range from $30 to $362; while in 2030, the range in  consumption losses is from $157 to $850 per household.
Industrial  Impacts
Industrial energy prices increase more than consumer  energy prices because of the allowance revenue used to ameliorate energy price  impacts for consumers.  On average,  wholesale energy prices increase by double that of consumer energy prices.  Figure 35 indicates that industry13 shows larger percentage losses than consumption.  By 2030, industrial shipment losses range  from 1.2 percent in the High Offset Case to 6.8 percent in the No International/Limited  Case.  Manufacturing industries show  slightly larger percentage losses than the total industrial sector.
As allowance prices increase, the energy-intensive sectors,  including bulk chemicals, glass, cement, steel, and aluminum, receive permit  allocations of roughly 15 percent of the total allocated in 2013.  Their allocation share gradually declines  over time, such that by 2030 trade- and energy-vulnerable industries obtain  just under 7 percent of the allocated permits.   Receiving these permits ameliorates the impact of increased energy  prices and therefore industries face energy prices that are not impacted by the  permit values.14  As a result, when energy prices increase, the  reductions in output of these trade- and energy-vulnerable industries are less  than overall manufacturing impacts and mirror the impacts (in terms of  percentage change from the Reference Case) of total industrial shipments.  In past EIA analysis of industrial impacts of  energy price increases, these energy-intensive industries typically experience  larger losses compared to overall manufacturing (Figure 36).
Total non-farm employment percentage losses are  smaller than manufacturing primarily because gains in employment in the service  sectors (Figure 36).  The pattern of  manufacturing employment losses over time mirrors the pattern shown by real  manufacturing shipments in all cases.

The main ACESA cases give a wide range of industrial impacts  depending on which technology (and its costs) the electricity sector uses and  the availability of international offsets.   One additional source of uncertainty in the macroeconomic model is how  exchange rates will react to the imposition of a carbon allowance price.  Given no information on how other countries  would implement carbon emission caps and that the macroeconomic model used in  NEMS focuses on primarily domestic economic impacts, the exchange rates were  not allowed to change from Reference Case levels.  See Appendix B for a description of the  assumptions used in the macroeconomic model for the ACESA cases.
Comparison  to Earlier EIA Analysis
EIA has analyzed a number of cap-and-trade bills and policies  in recent years.  In 2008 EIA evaluated  S. 2191, the Lieberman-Warner Climate Security Act of 2007, which was  introduced in the 110th Congress.15  S. 2191 included an economy-wide  cap-and-trade provision covering about 87 percent of GHG emissions, with those  emissions capped at 40 percent below the 2005 level in 2030 and 72 percent  below the 2005 level in 2050.  The caps  in ACESA are more stringent than those under S. 2191, requiring reductions of  58 percent reduction from 2005 levels in 2030 and 83 percent in 2050 and  beyond; however, ACESA allows greater use of offsets as a compliance measure  compared to S. 2191.
For S. 2191, EIA estimated allowance prices in 2030 of  between $62 to $160, including $62 in the Core Case and $80 in the High Cost Case  (prices in 2007 dollars per metric ton CO2-equivalent).  This compares to EIA’s range of $41 to $191  for ACESA, including $65 in the ACESA Basic Case which is most similar to the  S. 2191 High Cost Case in terms of electricity cost assumptions.  EIA’s S. 2191 analysis was based on the *Annual Energy Outlook 2008* (*AEO2008*)that included different energy price paths and macroeconomic  growth assumptions from *AEO2009*,  among other differences.  In the *AEO2009*, long-run economic growth is  slightly lower at 2.4 percent between 2008 and 2030, compared to *AEO2008*’s projected growth at 2.5  percent.  Short-run growth is  substantially lower in the *AEO2009* relative to *AEO2008* as a result of  the current recession.  Compliance costs  as reflected in the estimated allowance prices would tend to be lower under the *AEO2009* Reference Case than under the *AEO2008* Reference Case,16  suggesting somewhat closer compliance costs  between ACESA and S. 2191, at least as reflected in allowance prices.
The ACESA allowance allocations and rebates help compensate  energy consumers and energy-intensive businesses for higher energy costs and  play a key role in the estimated energy market and macroeconomic response,  relative to the projected allowance prices.   For energy-intensive industries, output and employment impacts are less  than under S. 2191 since, under ACESA, energy-intensive industries are assumed  to be compensated for higher energy costs due to allowance prices.  Under S. 2191, energy-intensive industries  were assumed to face the full cost of allowance in higher energy prices.
Similarly, consumer and wholesale energy price increases are  mitigated under ACESA through 2025 as rebates from local distribution companies  offset the effect of rising allowance prices on electricity and natural gas  prices.  After 2025, these energy prices  grow more rapidly as rebates are phased out, a different pattern than under S.  2191.  Under ACESA, energy prices  increase immediately in 2012 and then stabilize until 2025, allowing the  economy to recover from the initial price increase.  After 2025, the rapid increase in energy  prices causes the economy to contract.
This effect of rebates on energy prices under ACESA  accounts for the different time paths of GDP  and consumption losses in the two studies.   Under S. 2191, the losses are immediate and increase gradually over  time.  Under ACESA, real GDP and consumption losses are relatively small  until 2025, but escalate rapidly late in the projection period.  As a result, the cumulative macroeconomic  impacts estimated under S. 2191, relative to the estimated allowance prices,  were greater than those observed under ACESA, even though the 2030 impacts are  less.  For example, in the S. 2191 Core  Case, with a 2030 allowance price of $62, the average undiscounted loss in real  consumption from 2012 to 2030 was estimated to be $47 billion (2000  dollars).  In the ACESA Basic Case, with  a 2030 allowance price of $65, the average undiscounted loss in real  consumption from 2012 to 2030 was $22 billion.   The pattern of carbon allowance recycling in S. 2191 and H.R. 2454  differed.  Revenue recycling to consumers did not have a sudden increase  post-2025 in S. 2191 as it does in H.R. 2454.  In H.R. 2454, since the consumer climate  change fund is rebated to the consumer in the form of lower personal taxes  post-2025, consumption impacts in S. 2191 and H.R. 2454 are similar, $68  billion for S. 2191 and $63 billion for H.R. 2454 in 2030.

Notes