SR/OIAF/2009-05

Energy Market and Economic Impacts of H.R. 2454, 

the American Clean Energy and Security Act of 2009

August 2009

Energy Information Administration

Office of Integrated Analysis and Forecasting

U.S. Department of Energy

Washington, DC 20585

This report was prepared by the Energy Information Administration, the independent statistical and 

analytical agency within the Department of Energy. The information contained herein should be attributed 

to the Energy Information Administration and should not be construed as advocating or reflecting any 

policy position of the Department of Energy or any other organization. Service Reports are prepared by 

the Energy Information Administration upon special request and are based on assumptions specified by 

the requester.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 i

Preface and Contacts

The Energy Information Administration (EIA) is the independent statistical and analytical 

agency within the Department of Energy. EIA provides timely, high-quality energy information 

and prepares objective, transparent analyses for use by the Congress, the Administration, and the 

public. EIA does not, however, take positions on policy issues. Because of EIA’s statutory 

independence with respect to the content of its energy information program, the analysis 

presented herein is strictly its own and should not be construed as representing the views of the 

U.S. Department of Energy or the Administration.

The model projections in this report are not statements of what will happen but of what might

happen, given the assumptions and methodologies used. The Reference Case projections are 

business-as-usual trend forecasts, given known technology, technological and demographic 

trends, and current laws and regulations. Thus, they provide a policy-neutral starting point that 

can be used to analyze policy initiatives. EIA does not propose, advocate, or speculate on future 

legislative and regulatory changes. All laws are assumed to remain as currently enacted; 

however, the impacts of scheduled regulatory changes, when defined, are reflected.

The Office of Integrated Analysis and Forecasting prepared this report. General questions 

concerning the report can be directed to John J. Conti (john.conti@eia.doe.gov, 202/586-2222), 

Director of the Office of Integrated Analysis and Forecasting; J. Alan Beamon 

(joseph.beamon@eia.doe.gov, 202/586-2025), Director of its Coal and Electric Power Division; 

Michael Schaal (michael.schaal@eia.doe.gov, 202/586-5590, Director of its Oil and Natural Gas 

Division; Paul Holtberg (paul.holtberg@eia.doe.gov, 202/586-1284, Director of its Demand and 

Integration Division; Glen Sweetnam (glen.sweetnam@eia.doe.gov, 202/586-2188, Director of 

its International, Economic and Greenhouse Gases Division; and Andy S. Kydes 

(akydes@eia.doe.gov, 202/586-0883) Senior Technical Advisor to the Office Director. Specific 

questions about the report can be directed to the following analysts:

Greenhouse Gas Analysis........Dan Skelly (daniel.skelly@eia.doe.gov, 202/586-1722)

Macroeconomic Analysis.........Kay Smith (kay.smith@eia.doe.gov, 202/586-1132)

Buildings..................................John Cymbalsky (john.cymbalsky@eia.doe.gov, 202/586-4815)

Erin Boedecker (erin.boedecker@eia.deo.gov, 202/586-4791)

Industrial ..................................Amelia Elson (amelia.elson@eia.doe.gov

Elizabeth Sendich (

, 202/586-1420)

elizabeth.sendich@eia.doe.gov, 202/5867145)

Transportation John Maples (john.maples@eia.doe.gov, 202/586-1757)

Nicholas Chase (nicholas.chase@eia.doe.gov, 202/586-8851)

Electricity.................................Laura Martin (laura.martin@eia.doe.gov, 202/586-1494)

Jeffrey Jones (jeffrey.jones@eia.doe.gov, 202/586-2038)

Michael Leff (michael.leff@eia.doe.gov, 202/586-1297)

Coal..........................................Diane Kearney (diane.kearney@eia.doe.gov, 202/586-2415)

Michael Mellish (michael.mellish@eia.doe.gov, 202/586-2136)

Renewables..............................Chris Namovicz (cnamovicz@eia.doe.gov, 202/586-7120)

Robert Smith (robert.smith@eia.doe.gov, 202/586-9413)

Liquid Fuels.............................William Brown (William.brown@eia.doe.gov, 202/586-8181)

Natural Gas..............................Joe Benneche (jbennech@eia.doe.gov, 202/586-6132)
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 ii

For ordering information and questions on other energy information products available from 

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Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 iii

Contents

Preface and Contacts........................................................................................................................ i

Contents......................................................................................................................................... iii

Executive Summary.........................................................................................................................v

Analysis Cases........................................................................................................................ vii

Key Findings............................................................................................................................ ix

Additional Insights.................................................................................................................. xv

Background and Scope of the Analysis...........................................................................................1

Background............................................................................................................................... 1

Representing H.R. 2454 in the National Energy Modeling System ......................................... 3

Analysis Cases.......................................................................................................................... 4

Results....................................................................................................................................... 7

Greenhouse Gas Emissions and Allowance Prices................................................................... 8

Energy-Related Carbon Dioxide Emissions........................................................................... 16

Energy Market Impacts........................................................................................................... 18

Electricity Sector Emissions, Generation, and Prices............................................................. 18

Capacity and Generation......................................................................................................... 20

Price and Demand................................................................................................................... 24

Coal Markets........................................................................................................................... 26

Buildings................................................................................................................................. 29

Economic Impacts................................................................................................................... 36

Impacts on Energy and Aggregate Prices............................................................................... 38

Real GDP and Consumption Impacts..................................................................................... 40

Industrial Impacts.................................................................................................................... 43

Comparison to Earlier EIA Analysis ...................................................................................... 46

Appendix A: Analysis Request Letter ..........................................................................................48

Appendix B: Representing H.R. 2454 in the National Energy Modeling System........................50

Emissions Modeling................................................................................................................ 51

Buildings Sector...................................................................................................................... 58

Industrial Sector...................................................................................................................... 60

Transportation Sector.............................................................................................................. 61

Macroeconomic....................................................................................................................... 62

Electric Power and Coal.......................................................................................................... 63

Tables

Table ES-1. Summary Results............................................................................................................ xi

Table ES-2. Macroeconomic Impacts of ACESA Cases Relative to the Reference Case................ xiv

Table 1. Summary Results in ACESA Main Cases........................................................................... 14

Table 2. Summary Results in ACESA Sensitivity Cases .................................................................. 15

Table 3. Macroeconomic Impacts of ACESA Main Cases Relative to the Reference Case ............. 42

Table B1. Revisions to the GHG Cap for Emissions Accounting and Limitations in Modeling Detail

..................................................................................................................................................... 52

Table B2. Assumed International Abatement Demand, Excluding the United States....................... 55
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 iv

Table B3. Assumed Gross and Net Supply Schedule of International Offsets from Developing 

Countries..................................................................................................................................... 57

Figures

Figure ES-1. Components of Cumulative Compliance in ACESA Main Cases, 2012-2030 .............. x

Figure ES-2. Primary Energy Consumption by Fuel in Main ACESA Cases, 2030......................... xii

Figure ES-3. Allowance Prices in Main ACESA Cases, 2012-2030................................................ xiii

Figure 1. Reference Case GHG Emissions, Covered Emissions, and Cap, 2005-2030 ...................... 8

Figure 2. Components of Cumulative Abatement in ACESA Main Cases, 2012-2030...................... 9

Figure 3. Cumulative Allowance Bank Balance in ACESA Main Cases, 2012-2030 ...................... 10

Figure 4. Sources of Cumulative Compliance in ACESA Main Cases, 2010-2030.......................... 11

Figure 5. Projected Allowance Prices in ACESA Main Cases, 2012-2030....................................... 13

Figure 6. Projected Allowance Prices in ACESA Sensitivity Cases, 2012-2030.............................. 13

Figure 7. Energy-Related CO2 Emissions by Sector in ACESA Main Cases, 2020 ......................... 17

Figure 8. Energy-Related CO2 Emissions by Sector in ACESA Main Cases, 2030 ......................... 17

Figure 9. Total Energy Consumption by Source in ACESA Main Cases ......................................... 19

Figure 10. Electricity Sector CO2 Emissions in ACESA Main Cases, 2005-2030............................ 20

Figure 11. Cumulative Capacity Additions in ACESA Main Cases, 2007-2030 .............................. 21

Figure 12. Generation by Fuel in ACESA Main Cases, 2020 ........................................................... 22

Figure 13. Generation by Fuel in ACESA Main Cases, 2030 ........................................................... 22

Figure 14. Renewable Electricity Standard Compliance in the ACESA Basic Case, 2012-2030 ..... 24

Figure 15. Electricity Prices in Main ACESA Cases, 2005-2030 ..................................................... 25

Figure 16. Electricity Demand Growth in Main ACESA Cases, 2007-2030 .................................... 25

Figure 17. Regional Electricity Prices in ACESA Main Cases, 2030 ............................................... 26

Figure 18. Coal Costs to Electricity Producers in ACESA Main Cases, 2020.................................. 28

Figure 19. Coal Costs to Electricity Producers in ACESA Main Cases, 2030.................................. 28

Figure 20. Coal Production in ACESA Main Cases, 2005-2030....................................................... 28

Figure 21. Buildings Sector Delivered Energy Consumption by Fuel in Main ACESA................... 30

Figure 22. Buildings Sector Delivered Energy Consumption by Fuel in Main ACESA Cases, 2030

..................................................................................................................................................... 30

Figure 23. Buildings Sector Energy Expenditures in Main ACESA Cases, 2007 and 2012-2030 

Average ....................................................................................................................................... 31

Figure 24. Average Change in Household Energy Expenditures in Main ACESA Cases, 2020 ...... 34

Figure 25. Average Change in Household Energy Expenditures in Main ACESA Cases, 2030 ...... 34

Figure 26. Motor Gasoline Prices in Main ACESA Cases, 2020 ...................................................... 34

Figure 27. ACESA Allocation Shares, 2012-2030 ........................................................................... 37

Figure 28. ACESA H.R. 2454 Allocation of Revenue by Major Category, 2012-2030 ................... 38

Figure 29. Wholesale and Consumer Energy Prices in ACESA Main Cases, 2012-2030 ................. 39

Figure 30. Change in Consumer Prices in ACESA Main Cases, 2012-2030 .................................... 39

Figure 31. Change in Real GDP in ACESA Main Cases, 2012-2030 ............................................... 40

Figure 32. Change in Real Consumption in ACESA Main Cases, 2012-2030.................................. 41

Figure 33. Household Consumption Cost in ACESA Main Cases.................................................... 43

Figure 34. Change in Household Consumption in ACESA Main Cases, 2020 and 2030 ................. 44

Figure 35. Industrial Impacts in ACESA Main Cases, 2012-2030.................................................... 44

Figure 36. Industrial and Employment Impacts in the ACESA Basic Case, 2012-2030................... 45
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 v

Executive Summary

This report responds to a request to the Energy Information Administration (EIA) from Chairman 

Henry Waxman and Chairman Edward Markey for an analysis of H.R. 2454, the American Clean 

Energy and Security Act of 2009 (ACESA).1

 ACESA, as passed by the House of Representatives on 

June 26, 2009, is a complex bill that regulates emissions of greenhouse gases through market-based 

mechanisms, efficiency programs, and economic incentives.

The Title III cap-and-trade program for greenhouse gas (GHG) emissions, which covers roughly 84 

percent of total U.S. GHG emissions by 2016, is in many respects the centerpiece of the bill and the 

primary driver of the results presented in this report. The program subjects covered emissions to a 

cap that declines steadily between 2012 and 2050. The cap requires a 17- percent reduction in 

covered emissions by 2020 and an 83-percent reduction by 2050, both relative to a 2005 baseline, 

with targets that decline steadily for intermediate years. Compliance is enforced through a 

requirement for entities subject to the cap to submit allowances, which are bankable, sufficient to 

cover their emissions. Allowance obligations may also be offset by reductions in domestic emissions 

of exempted sources, by international offsets, or by emission allowances from other countries with 

comparable laws limiting emissions. Maximum offsets from domestic and international sources are 

each capped separately at 1 billion metric tons (BMT) in each year of the program, with the proviso 

that up to 500 million metric tons (MMT) of the domestic offset cap may be shifted to the 

international offset cap if the Administrator of the Environmental Protection Agency (EPA) 

determines that a sufficient supply of domestic offsets is not available. In addition to its centerpiece 

cap-and-trade program, Title III also includes additional GHG standards, dedicated programs to limit 

hydrofluorocarbon (HFC) emissions and black carbon, and provisions governing markets in carbonrelated derivatives. 

Title I contains provisions related to a Federal combined efficiency and renewable electricity 

standard for electricity sellers, carbon capture and storage technology, performance standards for 

new coal-fueled power plants, research and development support for electric vehicles, support for 

deployment of a smart grid, and establishment of a Clean Energy Deployment Administration. Title 

II includes provisions related to building, lighting, appliance, and vehicle energy efficiency 

programs. Title IV includes provisions to preserve domestic competitiveness and support workers, 

provide assistance to consumers, and support domestic and international adaptation initiatives. Title 

V addresses the role of domestic agricultural and forestry-related offsets in the Title III cap-andtrade program. 

This report considers the energy-related provisions in ACESA that can be analyzed using EIA’s 

National Energy Modeling System (NEMS). The Reference Case used as the starting point for the 

analysis in this report is an updated version of the Annual Energy Outlook 2009 (AEO2009) 

Reference Case issued in April 2009 that reflects the projected impacts of the American Recovery 

and Reinvestment Act as well as other significant energy legislation, including the Energy 

Improvement and Extension Act of 2008, the Energy Independence and Security Act of 2007, and 

 1 The request letter from Chairman Waxman and Chairman Markey is provided in Appendix A. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 vi

the Energy Policy Act of 20052

. Cumulative GHG emissions covered by the Title III cap-and-trade 

program over the 2012 to 2030 period are estimated to be 113.4 BMT in CO2-equivalent terms. 

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

include3

• the GHG cap-and-trade program for gases other than HFCs, including provisions for the 

allocation of allowances to electricity and natural gas distribution utilities, low-income 

consumers, State efficiency programs, rebate programs, energy-intensive industries, and other 

specified purposes; 

: 

• the combined efficiency and renewable electricity standard for electricity sellers;

• the carbon capture and storage (CCS) demonstration and early deployment program;

• Federal building code updates for both residential and commercial buildings; 

• Federal efficiency standards for lighting and other appliances; 

• technology improvements driven by the Centers for Energy and Environmental Knowledge and 

Outreach; and

• the smart grid peak savings program.

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 

 2 The development of the updated Reference Case is described 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, SR/OIAF/2009-03 (Washington, DC, April 2009), web site 

http://www.eia.doe.gov/oiaf/servicerpt/stimulus/index.html. 3 Detailed descriptions of the assumptions used and changes made to the National Energy Modeling System to represent 

the provisions of the American Clean Energy and Security Act are provided in Appendix B.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 vii

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

EIA prepared a range of analysis cases for this report. The six main analysis cases discussed in this 

Executive Summary, while not exhaustive, focus on two 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 another posits 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. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 viii

With these key uncertainties in mind, the main analysis cases discussed in this report are as follows: 

• 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 severely 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 BMT by 2030 through a combination of offset usage and 

emission reductions that exceed the level required under the emission caps.

• The ACESA Zero Bank Case is similar to the Basic Case except that no banked allowances are 

held in 2030, reflecting the assumed 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 Basic Case except that it assumes the nearimmediate use of international offsets at levels at or close to the specified aggregate ceiling, 

without regard to possible institutional or market impediments.

• The ACESA High Cost Case is similar to the Basic Case except that the costs of nuclear, coal 

with CCS, and dedicated biomass generating technologies are assumed to be 50 percent higher. 

• The ACESA No International Case is similar to the 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 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 2030.4

The full report discusses a number of additional analysis cases, including an accelerated Corporate 

Average Fuel Efficiency (CAFE) standards (35CAFE2016) case that incorporates the acceleration in 

fuel economy standards for light-duty vehicles announced by the Administration in May 2009, a 5-

percent discount case that adopts an alternative view of real escalation in allowance prices (Low 

Discount), a case with limitations to the penetration of nuclear, CCS, and biomass gasification 

capacity (Limited Alternatives), an accelerated energy technology (High Tech) case, and a higher 

level of allowance banking (High Banking) case.

 4 This case was originally included in EIA’s April 2008 analysis of the Lieberman-Warner Climate Security Act (S. 

2191) pursuant to a request from Senators Barrasso, Inhofe, and Voinovich. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 ix

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 cases 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. 

 

Key Findings

Given the potential of offsets as a low-cost compliance option, the amount of reduction in 

covered emissions is exceeded by the amount of compliance generated through offsets in most 

of the main analysis cases (Figure ES-1). Cumulative compliance between 2012 and 2030, 

including reductions both in domestic emissions of covered gases and in domestic and international 

offsets, ranges from 24.4 BMT to 37.6 BMT carbon dioxide (CO2)-equivalent emissions in the main 

analysis cases, representing a 21-percent to 33-percent reduction from the level of cumulative 

covered emissions projected in the Reference Case.

5

 In the ACESA Basic Case, domestic abatement 

of covered gases represents only 39 percent of cumulative compliance. In the ACESA High Offsets 

Case, where the maximum quantity of international offsets is used immediately at the start of the 

program in 2012, domestic abatement in covered gases accounts for just 22 percent of the 

cumulative compliance. Reductions in the emissions of energy-related CO2 account for more than 

half of projected cumulative compliance through 2030 only in the cases where international offsets 

are not assumed to be available. 

The vast majority of reductions in energy-related emissions are expected to occur in the 

electric power sector. 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. Reductions in electricity-sector emissions are primarily achieved by 

reducing the role of conventional coal-fired generation, which in 2007 provided 50 percent of total 

U.S. generation, and increasing the use of no- or low-carbon generation technologies that either exist 

today (e.g. renewables and nuclear) or are under development (fossil with CCS). In addition, a 

portion of the electricity-related CO2 emissions reductions results from reduced electricity demand 

stimulated both by consumer responses to higher electricity prices and incentives in ACESA to 

stimulate greater efficiency in energy use.

If new nuclear, renewable, and fossil plants with CCS are not developed and deployed in a 

timeframe consistent with emissions reduction requirements under ACESA, covered entities 

are expected to respond by increasing their use of offsets, if available, and by turning to 

increased natural gas use to offset reductions in coal generation. While natural gas generation is 

expected to fall below the Reference Case level in most ACESA Cases, in the ACESA No 

International/Limited Case natural gas generation is 68 percent above the Reference Case level by 

 5 This overall compliance level includes both the projected cumulative 24.6–BMT-difference between the Reference 

Case projection and the ACESA cap on covered CO2-equivalent emissions between 2012 and 2030 and the accumulation 

of an additional 13 BMT in allowances that are banked for use in post-2030 compliance. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 x

2030, due to the assumed limited availability of international offsets, new plants with CCS, as well 

as new nuclear and dedicated biomass capacity (Table ES-1).

Figure ES-1. Components of Cumulative Compliance in ACESA Main Cases, 2012-2030

 (billion metric tons CO2-equivalent)

0

5

10

15

20

25

30

35

40

Basic Zero Bank High Offsets High Cost No 

International

No Int'l/Limited

- - - - - Required Abatement - - - - - Offsets, International

Offsets, Noncovered emissions Offsets, Biosequestration

Non-Energy-CO2 covered emissions Carbon Capture and Storage

Energy-Related CO2

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Emissions reductions from changes in fossil fuel use in the residential, commercial, industrial 

and transportation sectors are small relative to those in the electric power sector. Taken 

together, changes in fossil fuel use in these sectors account for between 12 percent and 20 percent of 

the total reduction in energy-related CO2 emissions relative to the Reference Case in 2030, reflecting 

both lesser percentage changes in delivered fossil fuel prices than experienced by the electricity 

generation sector and the low availability of alternatives in many applications (Figure ES-2). For 

example, motor gasoline prices in the ACESA Basic Case are only 20 cents per gallon higher than in 

the Reference Case in 2020 and 35 cents per gallon higher in 2030 (in 2007 dollars). In addition, 

since all cases include the 35-mile-per-gallon CAFE standard enacted in the Energy Independence 

and Security Act of 2007, many of the most cost-effective vehicle efficiency options are adopted in 

all cases, including the Reference Case. Beyond reductions in direct fuel use, the reduction in 

electricity demand, which ranges from 4.1 percent to 14.7 percent below the Reference Case level in 

2030 across the main policy cases, makes an important contribution to the overall reduction in 

electricity-related emissions. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 xi

Table ES-1. Summary Results

Basic

Zero 

Bank

High 

Offsets High Cost

No International 

Offsets

No International / 

Limited Basic Zero Bank

High 

Offsets High Cost

No International 

Offsets

No International / 

Limited

Greenhouse gas emissions (mmt)

 Covered emissions

 Energy-related carbon dioxide 4948 5910 5355 5560 5553 5417 4691 4655 6212 4408 5286 5233 4883 3626 4041

 Other covered emissions 167 171 150 152 152 149 148 146 177 152 153 154 152 150 146

 Total covered emissions 5114 6081 5505 5712 5705 5566 4839 4801 6389 4560 5440 5387 5034 3776 4187

 Noncovered emissions 2242 1411 1388 1401 1400 1385 1377 1358 1665 1624 1634 1633 1613 1604 1599

 Total greenhouse gas emissions 7357 7492 6893 7113 7105 6951 6216 6158 8054 6184 7074 7020 6647 5380 5786

Offset credits (mmt)

 Noncovered gases 0 0 35 22 23 38 46 65 0 53 43 44 64 73 78

 Biogenic sequestration 0 0 251 155 161 278 385 515 0 448 292 301 481 596 676

 Total domestic offset credits 0 0 286 177 183 315 431 580 0 501 335 345 545 669 754

 International offset credits (post exchange) 0 0 966 135 1305 1272 0 0 0 1320 1479 1470 1361 0 0

 Total domestic and international 0 0 1252 312 1488 1587 431 580 0 1821 1814 1814 1906 669 754

Total emissions net of biosequestration and 

international reductions (mmt) 7357 7492 5435 6789 5313 5084 5831 5643 8054 4086 4932 4882 4465 4784 5109

Cap and trade compliance summary (mmt)

 Allowances issued (cap) n.a 5086 5086 5086 5086 5086 5086 5086 3554 3554 3554 3554 3554 3554 3554

 Covered emissions, less offset credits 5114 6081 4254 5400 4217 3979 4409 4221 6389 2739 3625 3573 3128 3107 3433

 Net allowance bank change 0 0 833 -313 870 1107 678 866 0 815 -71 -18 426 447 122

 Allowance bank balance 0 0 4616 -930 10122 6221 6033 8720 0 13085 -35 13069 13040 12774 13186

Allowance and offset prices (2007 dollars per metric 

ton CO2 equivalent)

 Emission allowance 0.0 0.0 31.7 19.9 20.5 35.4 52.1 93.3 0.0 64.8 40.6 41.9 72.2 106.4 190.5

 Domestic offset 0.0 0.0 31.7 19.9 20.5 35.4 52.1 93.3 0.0 64.8 40.6 41.9 72.2 106.4 134.0

 International offset 0.0 0.0 25.4 15.9 16.4 28.3 41.7 74.6 0.0 22.6 23.3 33.5 22.8 85.1 152.4

Delivered energy prices (including allowance cost 

after adjustment for free allocations) (2007 dollars 

per unit indicated)

 Motor gasoline, transport (per gallon) 2.82 3.62 3.82 3.74 3.74 3.84 3.97 4.29 3.82 4.17 4.02 4.03 4.31 4.51 5.10

 Jet fuel (per gallon) 2.17 3.02 3.28 3.18 3.18 3.32 3.48 3.85 3.33 3.80 3.58 3.59 3.85 4.18 4.97

 Diesel (per gallon) 2.87 3.64 3.90 3.79 3.79 3.92 4.08 4.48 3.88 4.36 4.13 4.15 4.44 4.75 5.61

 Natural gas (per thousand cubic feet)

 Residential 13.05 12.91 13.27 13.07 13.10 13.59 13.72 15.91 14.35 16.81 15.49 15.51 18.00 19.06 25.17

 Electric power 7.22 7.22 8.52 7.93 8.00 9.08 9.65 13.89 8.57 10.44 9.18 9.20 11.84 12.72 19.49

 Coal, electric power sector (per million Btu) 1.78 1.96 4.84 3.76 3.82 5.18 6.60 10.47 2.04 7.82 5.71 5.83 8.64 11.49 19.38

 Electricity (cents per kilowatthour) 9.10 9.27 9.51 9.51 9.55 9.65 9.59 10.69 10.05 12.01 11.08 11.12 12.98 12.69 17.83

Energy consumption (quadrillion Btu)

 Liquid fuels 40.8 38.7 37.5 37.7 37.8 37.6 37.3 37.0 40.3 38.3 38.9 38.9 38.4 37.7 37.0

 Natural gas 23.7 22.1 21.5 21.6 21.6 22.0 21.5 25.4 24.2 21.1 21.4 21.5 23.0 21.0 26.5

 Coal 22.7 24.4 20.6 22.0 21.9 20.2 14.4 10.5 25.4 14.0 20.5 20.2 16.5 6.2 3.9

 Nuclear power 8.4 9.1 9.8 9.4 9.4 9.1 10.6 9.1 9.3 16.2 12.0 12.0 9.6 19.4 9.3

 Renewable/Other 6.3 10.4 12.2 11.4 11.5 12.5 17.0 15.3 11.8 14.9 14.1 14.2 15.5 18.8 19.3

 Total 101.9 104.7 101.6 102.1 102.1 101.3 100.8 97.5 111.0 104.5 106.8 106.7 103.0 103.2 96.0

 Purchased electricity 12.8 14.1 13.8 13.8 13.8 13.7 13.7 13.3 15.4 14.5 14.7 14.7 14.2 14.3 13.0

Electricity generation (billion kilowatthours)

 Petroleum 66 49 46 47 46 47 44 45 50 43 46 46 45 41 43

 Natural gas 892 714 694 696 704 770 700 1320 976 704 717 721 1040 739 1638

 Coal 2021 2198 1875 2003 1987 1833 1309 943 2311 1354 1912 1897 1574 540 300

 Nuclear power 806 876 940 904 904 869 1018 876 890 1548 1147 1151 923 1863 890

 Renewable/Other 374 736 907 832 837 930 1364 1118 827 1048 1007 1015 1004 1426 1346

 Total 4159 4573 4462 4481 4479 4449 4436 4303 5055 4697 4830 4829 4587 4608 4216

mmt: million metric tons of carbon dioxide equivalent

Source: National Energy Modeling System, runs STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, HR2454HIOFF.D072909A, HR2454HC.D072909A, 

HR2454NOINT.D072909A, and HR2454NIBIV.D072909A

2007 2020 2030

Reference

ACESA Cases

Reference

ACESA Cases

Note: 2007 total covered emissions reflect the coverage of H.R. 2454 as defined in 2012.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 xii

Figure ES-2. Primary Energy Consumption by Fuel in Main ACESA Cases, 2030

 (quadrillion Btu)

0

5

10

15

20

25

30

35

40

Liquid Fuels Natural Gas Coal Nuclear Renewable

Reference

Basic

Zero Bank

High Offsets

High Cost

No International

No Int / Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

GHG allowance prices are sensitive to the cost and availability of emissions offsets and low-and 

no-carbon generating technologies. Allowance prices in the ACESA Basic Case are projected at 

$32 per metric ton in 2020 and $65 per metric ton in 2030. Across all main analysis cases, 

allowance prices range from $20 to $93 per metric ton in 2020 and from $41 to $191 (2007 dollars) 

per metric ton in 2030 (Figure ES-3). The lower prices in the range occur in cases where 

technological options such as CCS and adoption of new nuclear power plants can be deployed on a 

large scale before 2030 at relatively low costs, the use of international offsets helps to hold down 

compliance costs, and/or optimism about future technology availability holds down the near-term 

incentive to bank allowances for use beyond 2030 (ACESA Basic, ACESA High Offset, and/or 

ACESA Zero Bank cases). Higher allowance prices occur if international offsets are unavailable, 

particularly if it is also the case that low- or no-emission baseload electricity supply technologies 

cannot be expanded beyond the Reference Case level (ACESA No International and ACESA No 

International/Limited cases).

ACESA increases energy prices, but effects on electricity and natural gas bills of consumers 

are substantially mitigated through 2025 by the allocation of free allowances to regulated 

electricity and natural gas distribution companies. 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.6

 6 The average electricity price in the No International/Limited case in 2020 is 10.7 cents per kilowatthour. 

 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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 xiii

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. 

Figure ES-3. Allowance Prices in Main ACESA Cases, 2012-2030

 (2007 dollars per metric ton CO2-equivalent)

0

20

40

60

80

100

120

140

160

180

200

2012 2015 2020 2025 2030

Basic Zero Bank High Offsets

High Cost No International No Int / Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

ACESA increases the cost of using energy, which reduces real economic output, reduces 

purchasing power, and lowers aggregate demand for goods and services. The result is that 

projected real gross domestic product (GDP) generally falls relative to the Reference Case. 

Total discounted GDP losses over the 2012 to 2030 time period are $566 billion (-0.3 percent) in the 

ACESA Basic Case, with a range from $432 billion (-0.2 percent) to $1,897 billion (-0.9 percent) 

across the main ACESA cases (Table ES-2). Similarly, the cumulative discounted losses for 

personal consumption are $273 billion (-0.2 percent) in the ACESA Basic Case and range from $196

billion (-0.1 percent) to $988 billion (-0.7 percent). GDP losses in 2030, the last year explicitly 

modeled in this analysis, range from $104 billion to $453 billion (-0.5 to -2.3 percent), while 

consumption losses in that year range from $36 billion to $180 billion (-0.3 to -1.3 percent). The 

estimated 2030 GDP and consumption losses in the ACESA No International/Limited Case, at the 

top of these ranges, are nearly or more than twice as large as those in the ACESA No International 

and High Cost Cases, which have the next highest level of impacts. 

Consumption and energy bill impacts can also be expressed on a per household basis in 

particular years. In 2020, the reduction in household consumption is $134 (2007 dollars) in the 

ACESA Basic Case, with a range of $30 to $362 across all main ACESA cases. In 2030, household 

consumption is reduced by $339 in the ACESA Basic Case, with a range of $157 to $850 per 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 xiv

household across all main ACESA cases. By 2030, the estimated reductions in household 

consumption in the ACESA No International/Limited Case, at the top of these ranges, are 

approximately double the impacts in the ACESA High Cost Case, which has the next highest level 

of impacts. 

Table ES-2. Macroeconomic Impacts of ACESA Cases Relative to the Reference Case

 (billion 2000 dollars, except where noted)

Basic Zero 

Bank

High 

Offsets

High 

Cost

No 

Internati

onal

No Int / 

Limited

Cumulative Real Impacts 2012-2030 (present value using 4-percent discount rate)

GDP

 Change -566 -432 -523 -781 -717 -1897

 Percent Change -0.3% -0.2% -0.2% -0.4% -0.3% -0.9%

Consumption

 Change -273 -196 -252 -384 -323 -988

 Percent Change -0.2% -0.1% -0.2% -0.3% -0.2% -0.7%

Industrial Shipments (excludes services)

 Change -910 -753 -480 -958 -1720 -2877

 Percent Change -1.0% -0.8% -0.5% -1.1% -1.9% -3.2%

Nominal Revenue 

Collected 2012-2030a 2971 1292 1332 2299 3462 6350

2020 Impacts (not discounted)

GDP

 Change -50 -19 -26 -70 -34 -112

 Percent Change -0.3% -0.1% -0.2% -0.5% -0.2% -0.7%

Consumption

 Change -21 -7 -11 -30 -15 -64

 Percent Change -0.2% -0.1% -0.1% -0.3% -0.1% -0.6%

Industrial Shipments (excludes services)

 Change -68 -54 -32 -69 -108 -186

 Percent Change -1.0% -0.8% -0.5% -1.0% -1.6% -2.8%

Nominal Revenue 

Collecteda 71 44 46 79 118 215

2030 Impacts (not discounted)

GDP

 Change -161 -104 -120 -214 -226 -453

 Percent Change -0.8% -0.5% -0.6% -1.1% -1.1% -2.3%

Consumption

 Change -63 -36 -50 -97 -69 -180

 Percent Change -0.4% -0.3% -0.4% -0.7% -0.5% -1.3%

Industrial Shipments (excludes services)

 Change -183 -125 -87 -198 -338 -506

 Percent Change -2.5% -1.7% -1.2% -2.7% -4.6% -6.8%

Nominal Revenue 

Collecteda 330 205 211 367 556 1030

a Includes revenues from allowance auctions and revenues generated by the resale of allowances distributed to non-emitters. These values are not 

discounted.

Note: All changes shown are relative to the updated AEO2009 Reference Case.

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 xv

The free allocation of output-based allowances reduces the impact of ACESA on energyintensive, trade- vulnerable industries. Receiving free allowances in proportion to output softens 

the impacts of increased energy prices on these industries. As a result, when energy prices increase

under ACESA, the reductions in output of these trade- and energy-vulnerable industries are less than 

overall manufacturing impacts and mirror the impacts of total industrial shipments. The discounted 

cumulative percent losses of energy-intensive industrial output range from -0.5 percent to -3.6

percent from 2012-2030 compared to manufacturing losses of -0.5 percent to -4.3 percent.

Additional Insights

The role of baseline assumptions. The choice of a baseline is one of the most influential 

assumptions for any analysis of global climate change legislation. This analysis uses the updated 

Reference Case of the AEO2009 as a starting point. These projections and our analysis are not 

meant to be exact predictions of the future but represent plausible energy futures given technological 

and demographic trends, current laws and regulations, and consumer behavior as derived from 

available data. EIA recognizes that projections of energy markets over a nearly 25-year period are 

highly uncertain and subject to many events that cannot be foreseen, such as supply disruptions, 

policy changes, and technological breakthroughs. In addition to these phenomena, long-term trends 

in technology development, demographics, economic growth, and energy resources may evolve 

along a different path than expected in the projections. Generally, differences between cases, which 

are the focus of our report, are likely to be more robust than the specific projections for any one case. 

The published AEO2009, which includes numerous cases reflecting a variety of alternative futures 

for the economy, energy markets, and technology, is a resource that can be used to examine the 

implications of alternative baselines. 

The strategic allowance reserve. The strategic allowance reserve, which focuses on the important 

issue of short-term volatility in allowance prices, is not addressed in this analysis. As currently 

structured, the strategic allowance reserve, following a startup period, relies on a “trigger price” for 

auctions that is set in relation to recent allowance prices. Such an approach does not appear to 

preclude a scenario in which allowance prices evolve along a “high” trajectory given underlying 

conditions that would support such an outcome, such as those examined in the No International and 

No International/Limited cases. Also, the strategic allowance reserve, in contrast to other costcontainment mechanisms that more directly tie compliance pressure to the level of compliance costs 

or other measures of economic impact, would be unlikely to discourage stakeholders who view GHG 

emissions limitation as the highest environmental protection priority from pursuing efforts to block 

the deployment of nuclear power, CCS, or other technologies that, from their perspective, may raise 

important, but lesser, concerns. Therefore, as discussed in earlier EIA analyses, decisions regarding 

the design of a cost-containment mechanism can affect the public acceptance of key low- and nocarbon technologies that may be part of a cost-effective compliance mix. 

Free allowance allocation to electricity and natural gas distributors. The analysis shows that the 

free allocation of allowances to electricity and natural gas distributors significantly ameliorates 

impacts on consumer electricity and natural gas prices prior to 2025, when it starts to be phased out. 

While this result may serve goals related to regional and overall fairness of the program, the overall 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 xvi

efficiency of the cap-and-trade program is reduced to the extent that the price signal that would 

encourage cost-effective changes by consumers in their use of electricity and natural gas is delayed. 

Electricity capacity siting challenges. Besides changing the projected mix of new electricity 

generation capacity, compliance with ACESA will also significantly increase the total amount of 

new electric capacity that must be added between now and 2030 due to the retirement of many 

existing coal-fired power plants that otherwise would be expected to continue operating beyond 

2030. Obstacles to siting major electricity generation projects and/or the transmission facilities 

needed to support the greatly expanded use of renewable energy sources are not explicitly

considered in this report. However, the additional capacity needs in all of the ACESA cases suggest 

the need for review of siting processes so that they will be able to support a large-scale 

transformation of the Nation’s electricity infrastructure by 2030. 

Challenges beyond 2030. As previously noted, the modeling horizon for this analysis ends in 2030. 

Unless substantial progress is made in identifying low- and no-carbon technologies outside of 

electricity generation, the ACESA emissions targets for the 2030-to-2050 period are likely to be very 

challenging as opportunities for further reductions in power sector emissions are exhausted and 

reductions in other sectors are thought to be more expensive. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 1

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 

 7 The request letter from Chairman Waxman and Chairman Markey is provided in Appendix A. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 2

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.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 3

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,

 8 Detailed discussion of the changes made to the NEMS to represent ACESA is provided in Appendix B.

9 Energy Information Administration, An Updated Annual Energy Outlook 2009 Reference Case Reflecting 

Provisions of the American Recovery and Reinvestment Act and Recent Changes in the Economic Outlook, 

SR/OIAF/2009-03 (Washington, DC, April 2009), http://www.eia.doe.gov/oiaf/servicerpt/stimulus/index.html.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 4

• 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
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 5

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 another posits 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 Case is 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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 6

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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 7

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.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 8

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. 

Figure 1. Reference Case GHG Emissions, Covered Emissions, and Cap, 2005-2030

 (million metric ton CO2-equivalent)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2005 2010 2015 2020 2025 2030

Total Greenhouse Gas Emissions, Reference Case

Covered Emissions, Reference Case

Cap on Covered Emissions

Cumulative 24.6 BMT

Source: National Energy Modeling System run, STIMULUS.D041409A.

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, 

 10 Due to the Energy Information Administration’s limited disaggregation of the non-CO2 gases for modeling 

purposes, some non-CO2 gases are modeled as being covered beginning in 2012 rather than 2014. As a result, the 

percentage of covered gases assumed before 2014 is about 2 percentage points higher than the 66-percent figure 

cited in ACESA Sec. 721. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 9

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. 

Figure 2. Components of Cumulative Abatement in ACESA Main Cases, 2012-2030

 (billion metric ton CO2-equivalent) 

0

5

10

15

20

25

30

35

40

Basic Zero Bank High Offsets High Cost No 

International

No Int'l/Limited

- - - - - Required Abatement - - - - - Offsets, International

Offsets, Noncovered emissions Offsets, Biosequestration

Non-Energy-CO2 covered emissions Carbon Capture and Storage

Energy-Related CO2

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 10

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 nearzero balance over the last 5 years of the projection, consistent with the terminal bank assumption 

of the case.

 

Figure 3. Cumulative Allowance Bank Balance in ACESA Main Cases, 2012-2030

 (million metric ton CO2-equivalent) 

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2010 2015 2020 2025 2030

Reference

Basic

Zero Bank

High Offsets

High Cost

No International

No Int / Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 11

Figure 4. Sources of Cumulative Compliance in ACESA Main Cases, 2010-2030

 (million metric ton CO2-equivalent) 

Basic No International / Limited 

High Cost High Offsets

No International Zero Bank

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)

Offsets, Noncovered emissions

Offsets, Biosequestration

Non-Energy-CO2 covered emissions

Carbon Capture and Storage

Energy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)

Offsets, Noncovered emissions

Offsets, Biosequestration

Non-Energy-CO2 covered emissions

Carbon Capture and Storage

Energy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)

Offsets, Noncovered emissions

Offsets, Biosequestration

Non-Energy-CO2 covered emissions

Carbon Capture and Storage

Energy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)

Offsets, Noncovered emissions

Offsets, Biosequestration

Non-Energy-CO2 covered emissions

Carbon Capture and Storage

Energy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)

Offsets, Noncovered emissions

Offsets, Biosequestration

Non-Energy-CO2 covered emissions

Carbon Capture and Storage

Energy-Related CO2

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2010 2015 2020 2025 2030

Offsets, International (discounted 2018-on)

Offsets, Noncovered emissions

Offsets, Biosequestration

Non-Energy-CO2 covered emissions

Carbon Capture and Storage

Energy-Related CO2

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 12

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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 13

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.

 

Figure 5. Projected Allowance Prices in ACESA Main Cases, 2012-2030

 (2007 dollars per metric ton CO2-equivalent)

0

20

40

60

80

100

120

140

160

180

200

2012 2015 2020 2025 2030

Basic Zero Bank High Offsets

High Cost No International No Int / Limited

Source: National Energy Modeling System runs, HR2454CAP.D072909A, HR2454NOBNK.D072909A, HR2454HIOFF.D072909A, 

HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 6. Projected Allowance Prices in ACESA Sensitivity Cases, 2012-2030

 (2007 dollars per metric ton CO2-equivalent)

0

10

20

30

40

50

60

70

80

2012 2015 2020 2025 2030

Basic High Tech

Low Discount High Bank

Limited

Source: National Energy Modeling System runs HR2454CAP.D072909A, HR2454DSCT5.D072909A, HR2454HIBNK.D072909A, 

HR2454BIV.D072909A, and HR2454HITEK.D072909A..
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 14

Table 1. Summary Results in ACESA Main Cases

Basic Zero Bank

High 

Offsets High Cost

No International 

Offsets

No International / 

Limited Basic Zero Bank

High 

Offsets High Cost

No International 

Offsets

No International / 

Limited

Greenhouse gas emissions (mmt)

 Covered emissions

 Energy-related carbon dioxide 4948 5910 5355 5560 5553 5417 4691 4655 6212 4408 5286 5233 4883 3626 4041

 Other covered emissions 167 171 150 152 152 149 148 146 177 152 153 154 152 150 146

 Total covered emissions 5114 6081 5505 5712 5705 5566 4839 4801 6389 4560 5440 5387 5034 3776 4187

 Noncovered emissions 2242 1411 1388 1401 1400 1385 1377 1358 1665 1624 1634 1633 1613 1604 1599

 Total greenhouse gas emissions 7357 7492 6893 7113 7105 6951 6216 6158 8054 6184 7074 7020 6647 5380 5786

Offset credits (mmt)

 Noncovered gases 0 0 35 22 23 38 46 65 0 53 43 44 64 73 78

 Biogenic sequestration 0 0 251 155 161 278 385 515 0 448 292 301 481 596 676

 Total domestic offset credits 0 0 286 177 183 315 431 580 0 501 335 345 545 669 754

 International offset credits (post exchange) 0 0 966 135 1305 1272 0 0 0 1320 1479 1470 1361 0 0

 Total domestic and international 0 0 1252 312 1488 1587 431 580 0 1821 1814 1814 1906 669 754

Total emissions net of biosequestration and 

international reductions (mmt) 7357 7492 5435 6789 5313 5084 5831 5643 8054 4086 4932 4882 4465 4784 5109

Cap and trade compliance summary (mmt)

 Allowances issued (cap) n.a 5086 5086 5086 5086 5086 5086 5086 3554 3554 3554 3554 3554 3554 3554

 Covered emissions, less offset credits 5114 6081 4254 5400 4217 3979 4409 4221 6389 2739 3625 3573 3128 3107 3433

 Net allowance bank change 0 0 833 -313 870 1107 678 866 0 815 -71 -18 426 447 122

 Allowance bank balance 0 0 4616 -930 10122 6221 6033 8720 0 13085 -35 13069 13040 12774 13186

Allowance and offset prices (2007 dollars per metric 

ton CO2 equivalent)

 Emission allowance 0.0 0.0 31.7 19.9 20.5 35.4 52.1 93.3 0.0 64.8 40.6 41.9 72.2 106.4 190.5

 Domestic offset 0.0 0.0 31.7 19.9 20.5 35.4 52.1 93.3 0.0 64.8 40.6 41.9 72.2 106.4 134.0

 International offset 0.0 0.0 25.4 15.9 16.4 28.3 41.7 74.6 0.0 22.6 23.3 33.5 22.8 85.1 152.4

Delivered energy prices (including allowance cost 

after adjustment for free allocations) (2007 dollars 

per unit indicated)

 Motor gasoline, transport (per gallon) 2.82 3.62 3.82 3.74 3.74 3.84 3.97 4.29 3.82 4.17 4.02 4.03 4.31 4.51 5.10

 Jet fuel (per gallon) 2.17 3.02 3.28 3.18 3.18 3.32 3.48 3.85 3.33 3.80 3.58 3.59 3.85 4.18 4.97

 Diesel (per gallon) 2.87 3.64 3.90 3.79 3.79 3.92 4.08 4.48 3.88 4.36 4.13 4.15 4.44 4.75 5.61

 Natural gas (per thousand cubic feet)

 Residential 13.05 12.91 13.27 13.07 13.10 13.59 13.72 15.91 14.35 16.81 15.49 15.51 18.00 19.06 25.17

 Electric power 7.22 7.22 8.52 7.93 8.00 9.08 9.65 13.89 8.57 10.44 9.18 9.20 11.84 12.72 19.49

 Coal, electric power sector (per million Btu) 1.78 1.96 4.84 3.76 3.82 5.18 6.60 10.47 2.04 7.82 5.71 5.83 8.64 11.49 19.38

 Electricity (cents per kilowatthour) 9.10 9.27 9.51 9.51 9.55 9.65 9.59 10.69 10.05 12.01 11.08 11.12 12.98 12.69 17.83

Energy consumption (quadrillion Btu)

 Liquid fuels 40.8 38.7 37.5 37.7 37.8 37.6 37.3 37.0 40.3 38.3 38.9 38.9 38.4 37.7 37.0

 Natural gas 23.7 22.1 21.5 21.6 21.6 22.0 21.5 25.4 24.2 21.1 21.4 21.5 23.0 21.0 26.5

 Coal 22.7 24.4 20.6 22.0 21.9 20.2 14.4 10.5 25.4 14.0 20.5 20.2 16.5 6.2 3.9

 Nuclear power 8.4 9.1 9.8 9.4 9.4 9.1 10.6 9.1 9.3 16.2 12.0 12.0 9.6 19.4 9.3

 Renewable/Other 6.3 10.4 12.2 11.4 11.5 12.5 17.0 15.3 11.8 14.9 14.1 14.2 15.5 18.8 19.3

 Total 101.9 104.7 101.6 102.1 102.1 101.3 100.8 97.5 111.0 104.5 106.8 106.7 103.0 103.2 96.0

 Purchased electricity 12.8 14.1 13.8 13.8 13.8 13.7 13.7 13.3 15.4 14.5 14.7 14.7 14.2 14.3 13.0

Electricity generation (billion kilowatthours)

 Petroleum 66 49 46 47 46 47 44 45 50 43 46 46 45 41 43

 Natural gas 892 714 694 696 704 770 700 1320 976 704 717 721 1040 739 1638

 Coal 2021 2198 1875 2003 1987 1833 1309 943 2311 1354 1912 1897 1574 540 300

 Nuclear power 806 876 940 904 904 869 1018 876 890 1548 1147 1151 923 1863 890

 Renewable/Other 374 736 907 832 837 930 1364 1118 827 1048 1007 1015 1004 1426 1346

 Total 4159 4573 4462 4481 4479 4449 4436 4303 5055 4697 4830 4829 4587 4608 4216

mmt: million metric tons of carbon dioxide equivalent

Source: National Energy Modeling System, runs STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, HR2454HIOFF.D072909A, HR2454HC.D072909A, 

HR2454NOINT.D072909A, and HR2454NIBIV.D072909A

2007 2020 2030

Reference

ACESA Cases

Reference

ACESA Cases

Note: 2007 total covered emissions reflect the coverage of H.R. 2454 as defined in 2012.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 15

Table 2. Summary Results in ACESA Sensitivity Cases

Basic

High 

Tech

Low 

Discount

35CAFE2016High 

Bank

Limited 

Alternatives Basic

High 

Tech

Low 

Discount

35CAFE2016 High Bank

Limited 

Alternatives

Greenhouse gas emissions (mmt)

 Covered emissions

 Energy-related carbon dioxide 4948 5910 5355 5259 5361 5352 5173 5486 6212 4408 4300 4906 4392 4015 4856

 Other covered emissions 167 171 150 151 150 150 150 149 177 152 154 153 153 152 151

 Total covered emissions 5114 6081 5505 5410 5511 5502 5323 5635 6389 4560 4454 5059 4545 4167 5007

 Noncovered emissions 2242 1411 1388 1392 1386 1388 1384 1384 1665 1624 1627 1628 1624 1611 1611

 Total greenhouse gas emissions 7357 7492 6893 6802 6897 6890 6707 7020 8054 6184 6081 6687 6169 5778 6618

Offset credits (mmt)

 Noncovered gases 0 0 35 31 36 34 38 38 0 53 50 49 52 66 66

 Biogenic sequestration 0 0 251 220 266 249 285 285 0 448 408 395 446 489 488

 Total domestic offset credits 0 0 286 251 303 284 323 323 0 501 458 444 498 555 554

 International offset credits (post exchange) 0 0 966 662 1136 945 1251 1295 0 1320 1302 1411 1318 1195 1347

 Total domestic and international 0 0 1252 912 1439 1229 1574 1618 0 1821 1760 1855 1816 1750 1902

Total emissions net of biosequestration and 

international reductions (mmt) 7357 7492 5435 5755 5211 5459 4858 5116 8054 4086 4045 4528 4075 3795 4445

Cap and trade compliance summary (mmt)

 Allowances issued (cap) n.a 5086 5086 5086 5086 5086 5086 5086 3554 3554 3554 3554 3554 3554 3554

 Covered emissions, less offset credits 5114 6081 4254 4498 4072 4273 3748 4017 6389 2739 2694 3204 2728 2417 3105

 Net allowance bank change 0 0 833 589 1015 814 1338 1069 0 815 861 350 826 1137 449

 Allowance bank balance 0 0 4616 3649 6700 4518 8067 6305 0 13085 12680 12937 13000 19856 13051

Allowance and offset prices (2007 dollars per metric 

ton CO2 equivalent)

 Emission allowance 0.0 0.0 31.7 27.8 33.8 31.5 36.4 36.3 0.0 64.8 56.8 55.0 64.3 74.3 74.2

 Domestic offset 0.0 0.0 31.7 27.8 33.8 31.5 36.4 36.3 0.0 64.8 56.8 55.0 64.3 74.3 74.2

 International offset 0.0 0.0 25.4 22.2 27.0 25.2 28.1 28.5 0.0 22.6 22.5 23.0 22.6 22.1 22.7

Delivered energy prices (including allowance cost 

after adjustment for free allocations) (2007 dollars 

per unit indicated)

 Motor gasoline, transport (per gallon) 2.82 3.62 3.82 3.77 3.83 3.80 3.85 3.85 3.82 4.17 4.12 4.11 4.15 4.34 4.33

 Jet fuel (per gallon) 2.17 3.02 3.28 3.24 3.31 3.28 3.32 3.33 3.33 3.80 3.70 3.70 3.79 3.88 3.87

 Diesel (per gallon) 2.87 3.64 3.90 3.84 3.91 3.88 3.93 3.93 3.88 4.36 4.24 4.27 4.36 4.46 4.45

 Natural gas (per thousand cubic feet)

 Residential 13.05 12.91 13.27 13.01 13.23 13.21 13.22 13.64 14.35 16.81 16.13 16.26 16.78 17.30 18.66

 Electric power 7.22 7.22 8.52 8.08 8.60 8.44 8.58 9.15 8.57 10.44 9.72 9.94 10.40 10.99 12.67

 Coal, electric power sector (per million Btu) 1.78 1.96 4.84 4.43 5.03 4.82 5.24 5.29 2.04 7.82 6.96 7.00 7.77 8.58 8.74

 Electricity (cents per kilowatthour) 9.10 9.27 9.51 9.15 9.61 9.47 9.42 9.65 10.05 12.01 11.32 11.62 11.97 12.33 13.36

Energy consumption (quadrillion Btu)

 Liquid fuels 40.8 38.7 37.5 37.3 37.6 37.3 37.6 37.6 40.3 38.3 37.9 38.6 38.0 38.1 38.5

 Natural gas 23.7 22.1 21.5 21.1 22.0 21.4 21.2 22.0 24.2 21.1 20.3 21.4 21.1 20.8 24.1

 Coal 22.7 24.4 20.6 19.8 20.2 20.8 18.9 20.8 25.4 14.0 12.3 18.0 13.9 10.0 12.8

 Nuclear power 8.4 9.1 9.8 10.3 9.5 9.8 10.0 9.1 9.3 16.2 17.0 13.0 16.5 18.5 9.3

 Renewable/Other 6.3 10.4 12.2 12.2 12.2 12.2 14.4 11.5 11.8 14.9 15.8 14.3 14.7 16.7 17.2

 Total 101.9 104.7 101.6 100.8 101.5 101.4 102.1 101.1 111.0 104.5 103.4 105.3 104.3 104.1 101.9

 Purchased electricity 12.8 14.1 13.8 13.6 13.7 13.8 13.8 13.7 15.4 14.5 14.1 14.6 14.5 14.4 14.1

Electricity generation (billion kilowatthours)

 Petroleum 66 49 46 46 46 46 45 46 50 43 42 44 43 42 45

 Natural gas 892 714 694 645 755 681 646 780 976 704 593 731 699 671 1256

 Coal 2021 2198 1875 1802 1837 1893 1726 1906 2311 1354 1154 1712 1341 947 1179

 Nuclear power 806 876 940 989 909 937 963 876 890 1548 1634 1249 1582 1775 890

 Renewable/Other 374 736 907 932 907 910 1092 836 827 1048 1212 1011 1039 1227 1182

 Total 4159 4573 4462 4481 4479 4449 4436 4303 5055 4697 4830 4829 4587 4608 4216

mmt: million metric tons of carbon dioxide equivalent

Source: National Energy Modeling System, runs STIMULUS.D041409A, HR2454CAP.D072909A, HR2454HITEK.D072909A, HR2454DSCT5.D072909A, HR2454CAFE.D072909A, HR2454HIBNK.D072909A, and 

HR2454BIV.D072909A

2007 2020 2030

Reference

ACESA Cases

Reference

ACESA Cases

Note: 2007 total covered emissions reflect the coverage of H.R. 2454 as defined in 2012.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 16

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 energyrelated 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 Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 17

Figure 7. Energy-Related CO2 Emissions by Sector in ACESA Main Cases, 2020

 (million metric ton CO2) 

561 568 553 556 556 551 548 530

987 947 893 900 901 894 879 874

2009 1924 1890 1906 1906 1895 1888 1858

2433 2466

2026 2205 2197 2084

1383 1400

0

1,000

2,000

3,000

4,000

5,000

6,000

2007 Reference Basic Zero Bank High Offsets High Cost No 

International

No Int / 

Limited

Electric Power

Transportation

Industrial

Buildings

2020

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 8. Energy-Related CO2 Emissions by Sector in ACESA Main Cases, 2030

 (million metric ton CO2) 

561 576 534 543 543 527 519 494

987 955 855 879 880 847 815 779

2009 2037 1952 1985 1986 1942 1915 1868

2433 2639

1074

1886 1831

1573

384 908

0

1,000

2,000

3,000

4,000

5,000

6,000

2007 Reference Basic Zero Bank High Offsets High Cost No 

International

No Int / 

Limited

Electric Power

Transportation

Industrial

Buildings

2030

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 18

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 

 11 See www.eia.doe.gov/oiaf/service_rpts.htm.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 19

covered entities are assumed to be able to rely more on international offsets as compliance 

options.

Figure 9. Total Energy Consumption by Source in ACESA Main Cases 

 (quadrillion Btu)

0

5

10

15

20

25

30

35

40

Liquid Fuels Natural Gas Coal Nuclear Renewable

0

5

10

15

20

25

30

35

40

Liquid Fuels Natural Gas Coal Nuclear Renewable

Reference

Basic

Zero Bank

High Offsets

High Cost

No International

No Int / Limited

2020

2030

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 20

Figure 10. Electricity Sector CO2 Emissions in ACESA Main Cases, 2005-2030

 (million metric tons)

0

500

1,000

1,500

2,000

2,500

3,000

2005 2010 2015 2020 2025 2030

Reference

Basic

Zero Bank

High Offsets

High Cost

No International

No Int / Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 21

Figure 11. Cumulative Capacity Additions in ACESA Main Cases, 2007-2030

 (thousand megawatts)

69 35 41 39 60

125 42

55 53 82 46

112

96

44 45

81 135

119

93 95

116

219

250

0

100

200

300

400

500

600

Reference Basic Zero Bank High Offsets High Cost No 

International

No Int / 

Limited

Renewable

Nuclear

Natural Gas with CCS

Natural Gas

Coal with CCS

Coal

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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 nonfossil 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. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 22

Figure 12. Generation by Fuel in ACESA Main Cases, 2020

 (billion kilowatthours)

2021 2183 1778 1952 1941 1807

1151 928

0 15

97 52 47 26

158

15

892 714

694 696 704 770

662 1320

806 876

940 904 904 869

1018 876

352

708 878 803 808 901

1336 1087

0

1,000

2,000

3,000

4,000

5,000

2007 Reference Basic Zero Bank High 

Offsets

High Cost No 

Interational

No Int / 

Limited

Renewable Nuclear

Natural Gas w/CCS Natural Gas

Oil Coal w/CCS

Coal

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 13. Generation by Fuel in ACESA Main Cases, 2030

 (billion kilowatthours)

2021 2296

841

1650 1593 1281

100 285

0

15

513

262 304

293

440 15

892

976

636

708 713

880

592

1638

806

890

1548

1147 1151 923

1863 890

352

798

1021 979 987

974 1399

1315

0

1,000

2,000

3,000

4,000

5,000

2007 Reference Basic Zero Bank High 

Offsets

High Cost No 

Interational

No Int / 

Limited

Renewable Nuclear

Natural Gas w/CCS Natural Gas

Oil Coal w/CCS

Coal

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 23

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.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 24

Figure 14. Renewable Electricity Standard Compliance in the ACESA Basic Case, 2012-

2030

 (percent)

0

5

10

15

20

25

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Nominal Target Minus Exempt Hydro and Small Utility

Minus New Nuclear and CCS With Full Efficiency Credits

Reference Case Achieved ACESA Basic Case Achieved

Source: National Energy Modeling System runs, STIMULUS.D041409A and HR2454CAP.D072909A.

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.

 12 The average electricity price in the No International/Limited case in 2020 is 10.7 cents per kilowatthour. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 25

Figure 15. Electricity Prices in Main ACESA Cases, 2005-2030

 (2007 cents per kilowatthour)

0

2

4

6

8

10

12

14

16

18

20

2005 2010 2015 2020 2025 2030

Reference Basic Zero Bank

High Offsets High Cost No International

No Int / Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 16. Electricity Demand Growth in Main ACESA Cases, 2007-2030

 (percent per year)

2.39%

1.15%

0.90%

0.64% 0.72% 0.72%

0.57% 0.56%

0.00% 0.21%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

1990 to 

2000

2000 to 

2007

Reference Basic Zero Bank High Offsets High Cost No 

International

No Int / 

Limited

2007 to 2030 Growth

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 26

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. 

Figure 17. Regional Electricity Prices in ACESA Main Cases, 2030
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 27

 (2007 cents per kilowatthour)

0

5

10

15

20

25

30

ECAR ERCOT MAAC MAIN MAPP NY NE FL SERC SPP NWP RA CA

Reference Basic

Zero Bank High Offsets

High Cost No International

No Int / Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 28

Figure 18. Coal Costs to Electricity Producers in ACESA Main Cases, 2020

 (2007 dollars per million Btu)

1.96 1.83 1.88 1.87 1.83 1.67 1.66

3.01

1.89 1.95

3.36

4.93

8.82

$0

$2

$4

$6

$8

$10

$12

Reference Basic Zero Bank High Offsets High Cost No 

International

No Int / 

Limited

Allowance Cost

Coal

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 19. Coal Costs to Electricity Producers in ACESA Main Cases, 2030

 (2007 dollars per million Btu)

2.04 1.69 1.87 1.86 1.81 1.45 1.54

6.13

3.85 3.97

6.83

10.04

17.83

$0

$5

$10

$15

$20

$25

Reference Basic Zero Bank High Offsets High Cost No 

International

No Int / 

Limited

Allowance Cost

Coal

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 20. Coal Production in ACESA Main Cases, 2005-2030
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 29

 (million tons)

0

200

400

600

800

1,000

1,200

1,400

2005 2010 2015 2020 2025 2030

Reference

Basic

Zero Bank

High Offsets

High Cost

No International

No Int / Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 30

Figure 21. Buildings Sector Delivered Energy Consumption by Fuel in Main ACESA

Cases, 2020

 (quadrillion Btu)

9.3 10.6 10.4 10.4 10.4 10.4 10.4 10.1

8.0

8.3 8.1 8.1 8.1 8.1 8.0 7.7

2.0

1.7 1.7 1.7 1.7 1.7 1.6 1.6

0

5

10

15

20

25

2007 Reference Basic Zero Bank High 

Offsets

High Cost No 

International

No Int / 

Limited

Liquids Natural Gas Electricity

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 22. Buildings Sector Delivered Energy Consumption by Fuel in Main ACESA 

Cases, 2030

 (quadrillion Btu)

9.3

12.0 11.4 11.6 11.6 11.2 11.3 10.3

8.0

8.5

7.9 8.0 8.0 7.8 7.6

7.2

2.0

1.7

1.6 1.6 1.6 1.6 1.5

1.5

0

5

10

15

20

25

2007 Reference Basic Zero Bank High 

Offsets

High Cost No 

International

No Int / 

Limited

Liquids Natural Gas Electricity

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 31

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.

Figure 23. Buildings Sector Energy Expenditures in Main ACESA Cases, 2007 and 2012-

2030 Average 

 (2007 dollars per square foot)

1.26

1.08 1.11 1.09 1.09 1.12 1.13 1.25

2.24 2.20 2.30 2.25 2.26 2.35 2.36

2.69

$0

$1

$2

$3

$4

$5

2007 Reference Basic Zero Bank High 

Offsets

High Cost No 

International

No Int / 

Limited

Residential Commercial

Average 2012-2030

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 32

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. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 33

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). 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 34

Figure 24. Average Change in Household Energy Expenditures in Main ACESA Cases, 

2020 

 (2007 dollars)

0

500

1,000

1,500

2,000

Basic Zero Bank High Offsets High Cost No 

International

No Int / Limited

Annualized Incremental Capital Expenditures

Light Duty Vehicle Expenditures

Home Energy Expenditures

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 25. Average Change in Household Energy Expenditures in Main ACESA Cases, 

2030

(2007 dollars)

0

500

1,000

1,500

2,000

Basic Zero Bank High Offsets High Cost No 

International

No Int / Limited

Annualized Incremental Capital Expenditures

Light Duty Vehicle Expenditures

Home Energy Expenditures

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 26. Motor Gasoline Prices in Main ACESA Cases, 2020
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 35

 (2007 dollars per gallon)

3.62 3.55 3.57 3.56 3.54 3.53 3.49

0.27 0.17 0.18 0.30 0.45 0.80

$0

$1

$2

$3

$4

$5

$6

Reference Basic Zero Bank High Offsets High Cost No 

International

No Int / 

Limited

Allowance Cost

Motor Gasoline

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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 carbonequivalent) 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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 36

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 nondefense 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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 37

Technology Deployment funds), imports of services (purchases of international offsets), 

increased transfer payments to individuals (low income allocations), or increased Federal nondefense 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.

Figure 27. ACESA Allocation Shares, 2012-2030 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2015 2020 2025 2030

Share towards Deficit Reduction Climate Share Consumer Refund

Trade-Vulnerable Industry Share (producer) International Clean Technology Share

Share to Electricity Consumers (distributors) Investment in workers share

Natural Gas Consumers (distributors) share CCS Share

Home Heating Oil and Propane Customers share International Adaptation Share

Domestic Fuel Production Share (producer) Domestic Adaptation share

Investment in Energy Efficiency and Renewable Energy share Clean Energy Innovation Center Share

Wildlife and Natural Resource to federal Wildlife and Natural Resource to state

Clean Vehicle Technology Share Early Auction of 2026-29 Energy Efficiency Allocation Share

Supplemental Reductions Strategic Reserve Share

Efficient Building Code Share Low income Allocation Share

Source: ACESA H.R. 2454 Sections 726, 781 and 782.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 38

Figure 28. ACESA H.R. 2454 Allocation of Revenue by Major Category, 2012-2030

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2015 2020 2025 2030

Deficit Reduction

Consumers and Efficiency

International Adaptation & Technology Deployment

Trade and Energy Vulnerable Industries

Source: H.R. 2454, American Clean Energy and Security Act of 2009.

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.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 39

Figure 29. Wholesale and Consumer Energy Prices in ACESA Main Cases, 2012-2030

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2015 2018 2021 2024 2027 2030

Consumer Energy Prices

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2015 2018 2021 2024 2027 2030

Fuel & Power Wholesale Prices

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 30. Change in Consumer Prices in ACESA Main Cases, 2012-2030

 (percent change from Reference Case)

0%

2%

4%

6%

8%

10%

12%

14%

2012 2017 2022 2027

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 40

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. 

Figure 31. Change in Real GDP in ACESA Main Cases, 2012-2030

 (percent change from Reference Case)

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

2012 2015 2018 2021 2024 2027 2030

Percent Change in Real GDP

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

-0.3%

-0.3%

-0.2%

-0.2%

-0.3%

-0.2%

-0.4%

-

-0.4%

0.4%

-0.3%

-1.0%

-0.9%

-1.1%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

Undiscounted Present Value @ 4%

Percent Change Cumulative Real GDP

Basic Zero Bank

High Offset High Cost

No International No Int/Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

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. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 41

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 lowincome 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. 

Figure 32. Change in Real Consumption in ACESA Main Cases, 2012-2030

 (percent change from Reference Case)

-1.4%

-1.2%

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

2012 2015 2018 2021 2024 2027 2030

Percent Change in Real Consumption

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

-0.2%

-0.2%

-0.2%

-0.1%

-0.2%

-0.2%

-0.3%

-0.3%

-0.2%

-0.2%

-0.7%

-0.7%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

Undiscounted Present Value @ 4%

Percent Change Cumulative Real 

Consumption

Basic Zero Bank High Offset

High Cost No International No Int/Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 42

Table 3. Macroeconomic Impacts of ACESA Main Cases Relative to the Reference Case

 (billion 2000 dollars, except where noted)

Basic Zero 

Bank

High 

Offsets

High 

Cost

No 

Internati

onal

No Int / 

Limited

Cumulative Real Impacts 2012-2030 (present value using 4-percent discount rate)

GDP

 Change -566 -432 -523 -781 -717 -1897

 Percent Change -0.3% -0.2% -0.2% -0.4% -0.3% -0.9%

Consumption

 Change -273 -196 -252 -384 -323 -988

 Percent Change -0.2% -0.1% -0.2% -0.3% -0.2% -0.7%

Industrial Shipments (excludes services)

 Change -910 -753 -480 -958 -1720 -2877

 Percent Change -1.0% -0.8% -0.5% -1.1% -1.9% -3.2%

Nominal Revenue 

Collected 2012-2030a 2971 1292 1332 2299 3462 6350

2020 Impacts (not discounted)

GDP

 Change -50 -19 -26 -70 -34 -112

 Percent Change -0.3% -0.1% -0.2% -0.5% -0.2% -0.7%

Consumption

 Change -21 -7 -11 -30 -15 -64

 Percent Change -0.2% -0.1% -0.1% -0.3% -0.1% -0.6%

Industrial Shipments (excludes services)

 Change -68 -54 -32 -69 -108 -186

 Percent Change -1.0% -0.8% -0.5% -1.0% -1.6% -2.8%

Nominal Revenue 

Collecteda 71 44 46 79 118 215

2030 Impacts (not discounted)

GDP

 Change -161 -104 -120 -214 -226 -453

 Percent Change -0.8% -0.5% -0.6% -1.1% -1.1% -2.3%

Consumption

 Change -63 -36 -50 -97 -69 -180

 Percent Change -0.4% -0.3% -0.4% -0.7% -0.5% -1.3%

Industrial Shipments (excludes services)

 Change -183 -125 -87 -198 -338 -506

 Percent Change -2.5% -1.7% -1.2% -2.7% -4.6% -6.8%

Nominal Revenue 

Collecteda 330 205 211 367 556 1030

a Includes revenues from allowance auctions and revenues generated by the resale of allowances distributed to non-emitters. These values are not 

discounted.

Note: All changes shown are relative to the Updated AEO2009 Reference Case.

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 43

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.

Figure 33. Household Consumption Cost in ACESA Main Cases

 (2007 dollars)

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

 13 In this section, industry is defined as non-service output. Industry includes manufacturing, agriculture, 

construction, and mining, which are the industries used by the NEMS industrial demand module. 

Change in Real Consumption per household

-1000

-800

-600

-400

-200

0

200

2012 2015 2018 2021 2024 2027 2030

 2007 Dollars

Basic Zero Bank High Offset

High Cost No International No Int/Limited

Average Yearly Change in Consumption per 

Household

-122

-95

-83

-59

-137

-89

-190

-124

-109

-76

-435

-292

-500

-400

-300

-200

-100

0

Average from 2012-2030 in 2007 

Dollars

Basic Zero Bank High Offset

High Cost No International No Int/Limited

Undiscounted Present Value @ 4%
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 44

Figure 34. Change in Household Consumption in ACESA Main Cases, 2020 and 2030

 (2007 dollars)

-134

-339

-30

-157

-66

-301

-200

-574

-50

-257

-362

-850

-900

-800

-700

-600

-500

-400

-300

-200

-100

0

2020 2030

Consumption Cost per Household

(2007 dollars)

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

-122

-

-

83

95

-59

-137

-89

-190

-124

-109

-76

-435

-292

-500

-450

-400

-350

-300

-250

-200

-150

-100

-50

0

Undiscounted Present Value @ 4%

Average Yearly Change in 

Consumption per Household,

2012-2030 (2007 dollars)

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.

Figure 35. Industrial Impacts in ACESA Main Cases, 2012-2030

 (percent change from Reference Case)

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

2012 2015 2018 2021 2024 2027 2030

Real Industrial Shipments

(2000 dollars)

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

-10.0%

-9.0%

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

2012 2015 2018 2021 2024 2027 2030

Real Manufacturing Industrial 

Shipments (2000 dollars)

Basic

Zero Bank

High Offset

High Cost

No International

No Int/Limited

Source: National Energy Modeling System runs, STIMULUS.D041409A, HR2454CAP.D072909A, HR2454NOBNK.D072909A, 

HR2454HIOFF.D072909A, HR2454HC.D072909A, HR2454NOINT.D072909A, and HR2454NIBIV.D072909A.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 45

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 tradeand 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.

Figure 36. Industrial and Employment Impacts in the ACESA Basic Case, 2012-2030

 (percent change from Reference Case)

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

2012 2015 2018 2021 2024 2027 2030

Basic Case, Shipments in 2000 Dollars

Total Industrial Shipments

Energy Intensive Shipments

Manufacturing Shipments

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

2012 2015 2018 2021 2024 2027 2030

Basic Case, Employment

Total Nonfarm Employment

Manufacturing Employment

Source: National Energy Modeling System runs, STIMULUS.D041409A and HR2454CAP.D072909A.

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 

 14 See Appendix B for detailed methodology of incorporating these industrial output-based rebates.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 46

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 energyintensive 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 

 15 Energy Information Administration, Energy Market and Economic Impacts of S. 2191, the Lieberman-Warner 

Climate Security Act of 2007, SR/OIAF(2008-01) (Washington, DC, April 2008), web site 

www.eia.doe.gov/oiaf/servicerpt/s2191/index.html. 16 For the published AEO2009, EIA included as a side case an updated S. 2191 Case, called the “LW110” Case, with 

assumptions similar to the S. 2191 High Cost Case from the 2008 Service Report. The estimated 2030 allowance 

price in the AEO2009 LW110 was $74 per metric ton, compared to $80 allowance price in the original S. 2191 High 

Cost Case based on AEO2008. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 47

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.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 48

Appendix A: Analysis Request Letter
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 49
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 50

Appendix B: Representing H.R. 2454 in the National Energy Modeling 

System
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 51

Emissions Modeling

The analysis of energy sector and economic impacts of the various greenhouse gas (GHG) 

emission reduction measures in the American Clean Energy and Security Act of 2009 (ACESA) 

is based on the Energy Information Administration’s (EIA) National Energy Modeling System 

(NEMS) which is used for projections in the Annual Energy Outlook 2009 (AEO2009), including 

an updated Reference Case that reflects provisions of the American Recovery and Reinvestment 

Act (ARRA) and recent changes in the economic outlook.17 The updated AEO2009 Reference 

Case is used as the baseline for the analysis in this report. 

The projection horizon for NEMS extends to 2030, while the emissions policies in the bill extend 

to 2050 and beyond. As a result, this analysis is limited to addressing the bill’s impacts through 

2030; however, some expectations of post-2030 changes affect the modeling, such as assumed 

allowance banking behavior through 2030 and an assumed continuance of allowance price trends 

beyond 2030 when simulating electric power capacity decisions through 2030.

NEMS endogenously calculates changes in energy-related carbon dioxide (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 from projected baseline emissions of other covered GHGs based on 

assumed abatement cost relationships, as well as the potential supplies of domestic and 

international offsets. With emission allowance banking, NEMS solves for a starting allowance 

price and trend such that cumulative emissions match the cumulative emissions target, including 

cumulative bank allowances, with a constant-growth trend in allowance prices 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 and economy-wide 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. 

Title III Cap–and-Trade Provisions

Title III of ACESA modifies the Clean Air Act by adding Titles VII and VIII to limit emissions 

of most GHGs through an allowance cap-and-trade system (Title VII) and to impose and modify 

emissions standards affecting other GHGs (Title VIII). Title III of ACESA also establishes 

various financial regulations on allowance markets. EIA’s modeling of Title III provisions was 

limited to the allowance cap-and-trade system. EIA’s analysis does not reflect a separate capand-trade system on certain hydrofluorocarbons (HFCs) used primarily as substitutes for ozone-

 17 Energy Information Administration, Annual Energy Outlook 2009, DOE/EIA-0383(2009)(Washington, DC, 

February 2009), web site www.eia.doe.gov/oiaf/aeo/index.html, and An Updated AEO2009 Reference Case 

Reflecting Provisions of the American Recovery and Reinvestment Act and Recent Changes in the Economic 

Outlook, DOE/EIA-SR-OIAF/2009-03 (Washington, DC, April 2009).
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 52

depleting substances. Nor does it address the emission standards on other GHG sources not 

covered by the cap-and-trade system, such as methane emissions for landfills and coal mines.

Establishing the Cap and Coverage Assumptions

Sec. 721 establishes the overall cap on GHGs by specifying the number of allowances to be 

created each year under certain assumptions about overall 2005 emissions and the coverage 

fractions in 2012, 2014, and 2016 as additional coverage is phased in. The yearly allowance 

quantities are based on specific percentage reductions in 2012, 2020, 2030, and 2050 relative to 

the applicable emissions from covered sources in 2005. The bill sets the reductions targets at 3

percent in 2012, 17 percent in 2020, 42 percent in 2030, and 83 percent in 2050. See Table B1.

Table B1. Revisions to the GHG Cap for Emissions Accounting and Limitations in 

Modeling Detail

 (million metric tons CO2-equivalent)

Emission 

Level

Percentage 

of Total

Emission 

Level

Percentage of 

Total

2005 Total Emissions 7206 100.0 7303 100.0

2005 Covered emissions, 2012 coverage 4770 66.2 4975 68.1

2005 Covered emissions, 2014 coverage 5455 75.7 5589 76.5

2005 Covered emissions, 2016 coverage 6089 84.5 6128 83.9

Year 

Specified 

Cap

Percentage 

of 2005 

Covered 

Emissions

Revised Cap 

as Modeled

Percentage of 

2005 Covered 

Emissions

2012 4627 97.0 4826 97.0

2013 4544 95.3 4739 95.3

2014 5099 93.5 5225 93.5

2015 5003 91.7 5128 91.8

2016 5482 90.0 5515 90.0

2017 5375 88.3 5408 88.3

2018 5269 86.5 5301 86.5

2019 5162 84.8 5194 84.8

2020 5056 83.0 5086 83.0

2021 4903 80.5 4933 80.5

2022 4751 78.0 4780 78.0

2023 4599 75.5 4627 75.5

2024 4446 73.0 4474 73.0

2025 4294 70.5 4320 70.5

2026 4142 68.0 4167 68.0

2027 3990 65.5 4014 65.5

2028 3837 63.0 3861 63.0

2029 3685 60.5 3708 60.5

2030 3533 58.0 3554 58.0

2050 1035 17.0 1042 17.0

Assumed in Bill As Modeled

The bill establishes a procedure for revising the cap based on any changes in the emissions 

accounting affecting the relative emissions by covered entities or the total 2005 emissions. 

Accordingly, EIA has revised the assumed cap slightly to conform to EIA GHG accounting 

practices and the level of emissions accounting incorporated into NEMS, while adhering to the 

percentage targets for 2012, 2020, and 2030 set forth in the bill. Targets for intervening years 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 53

are established by using a uniform annual decline in the amount of emissions between the years 

specified. Table B1 presents the original and revised caps as assumed in this analysis through 

2030. 

The bill phases in the allowance requirements for some emission sources. Emissions from 

petroleum combustion and electric power companies are covered at the onset of the program 

starting in 2012. In 2014 and 2015, it is estimated that approximately 72 percent of the natural 

gas used in the industrial sector is subject to the allowance holding requirement. The allowance 

obligation for local distribution companies (LDCs) supplying natural gas to non-covered entities 

begins in 2016. It was assumed that CO2 emissions from natural gas that is not consumed by 

covered industrial and electric power companies will be supplied by LDCs. Therefore all CO2

emissions from natural gas are assumed to be covered beginning in 2016. By 2016, all energyrelated CO2 emissions, other than those attributed to a small amount of residential and 

commercial sector coal usage, are assumed to be covered. 

A small amount of emissions from other industrial emissions are also subject to the allowance 

holding requirement. These gases include nitrous oxide from adipic acid and nitric acid 

production, non-energy process emissions of carbon dioxide, and emissions of fluorinated gases 

other than those HFCs used as substitutes for ozone-depleting substances (a separate cap on the 

latter group of gases is established in the bill but is not treated in the modeling conducted for this 

report). Due to model limitations, the coverage of emissions of these gases is programmed to 

begin in 2012, rather than in 2014 as required in the bill.

Limits on Offset Credits

H.R. 2454 establishes an overall limit on international and domestic offset credits of 2 billion 

metric tons (BMT) of the allowance requirements, with each source limited to half the total. The 

domestic and international offset limits are applied on a pro-rata basis on individual covered 

entities. The pro-rata limit is a maximum percentage of the allowance obligation that can be met 

using offsets. The pro-rata limit can therefore restrict offset usage independently of the overall 

2-BMT limit. The pro-rata limit is calculated as follows:

MaxOffSetPcty = 100 * (2000 / (2000 + CAPy)), where

MaxOffSetPcty is the maximum percentage of the allowance obligation that can be met 

through offsets in year y, and

CAPy is the emissions cap, or number of allowances issued, for year y, in million metric 

tons CO2-equivalent.

The pro-rata limit would restrict the aggregate use of offsets below the overall 2-BMT limit 

unless covered emissions exceeded the cap by 2 BMT, assuming all covered entities used the 

maximum allowable percentage. As with the overall limit, domestic and international offsets 

under the pro-rata limit can each be no more than half the total, with one exception which can be 

triggered by the Environmental Protection Agency (EPA) Administrator. If the EPA 

Administrator expects the availability of domestic offset credits to be less than 900 million 

metric tons (MMT) in any year given expected allowance prices, the maximum percentage of 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 54

international offsets is increased, and the domestic offset percentage decreased. The maximum 

offset percentage is changed to reflect an increase in the international offsets by an amount equal 

to 1,000 MMT less the expected domestic offset availability, up to an increase of 500 MMT of 

additional international offsets.

Domestic offset credits substitute for allowances on a 1-for-1 basis. International offset credits 

are exchanged for allowance requirements on a 1-for-1 basis through 2017. Beginning in 2018, 

1.25 international offset credits are required to substitute for one allowance. 

Assumptions for Non-CO2 Emissions Abatement and Offset Supplies

Assessing ACESA requires an analysis of energy-related CO2 emissions and non-CO2 GHG 

emissions. NEMS represents U.S. energy markets and the associated CO2 emissions and 

abatement opportunities endogenously. Non-CO2 GHG emissions and international offsets are 

represented using exogenous baseline emissions projections and schedules of abatement 

opportunities over time and by price. To reflect the reduction in non-energy-related GHG 

emissions, EIA relies on these assumed economic relationships to quantify the potential 

emissions abatement and offset supplies that would occur over a range of allowance or offset 

prices. 

To a great extent, EIA bases abatement and offset supply assumptions on research and analysis 

by EPA. EPA has provided EIA with estimates of baselines and domestic and international 

“marginal abatement cost curves,” or MACs, for various sources of GHG emissions and biogenic 

carbon sequestration. The MACs reflect the estimated economic GHG abatements that could be 

achieved from emission reduction projects, given a price or value on GHG emissions reductions. 

Such estimates tend to reflect the technical potential for emissions reductions with positive rates 

of return and do not reflect institutional and market factors affecting adoption of abatement and 

offset options. As a result, EIA has incorporated discounting and market penetration 

assumptions to reflect these factors. Such estimates are naturally subject to a great deal of 

uncertainty, particularly with regard to international offsets.

The availability and price of international offsets from energy- and non-energy-related projects 

will depend on the global supply of and demand for emission reductions. The U.S. demand for 

offsets will compete with the demand for emissions abatement outside the United States, which, 

in turn, will depend on the emissions reduction commitments undertaken by other countries. 

Under ACESA, covered entities can submit project-level or sector-level offsets from developing 

countries that have established agreements with the United States to ensure that requirements for 

monitoring and verification are fulfilled. Under Sec. 728, covered entities may also submit 

allowances from approved countries that have established cap-and-trade systems of comparable 

stringency and scope. Allowances supplied under Sec. 728 do not count against offset limits and 

are not subject to any quantitative limits initially.

The potential supply of offset credits and allowances to the United States is derived based on the 

excess supply of potential abatement for the world, relative to the assumed demands for 

abatement based on stated or assumed emissions reduction commitments. Given that the capped 

sources of emissions under ACESA are primarily energy-related CO2, the supply of CO2

abatement from the Group 1 developed countries would potentially qualify as a source of 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 55

comparable allowances. However, countries having equally stringent caps could face similar 

compliance costs at the margin, possibly limiting the potential for international allowance 

trading. Therefore, no net trade in international allowances was assumed. 

International abatement supply is based on EPA-provided MACs for CO2, other GHGs, and 

forestry/agriculture. In processing the MACs to obtain offset supply, EIA applies discounts and 

market penetration assumptions to reflect the market response to the technical abatement 

potential. EPA has disaggregated GHG abatements into two regional categories: Group 1 

nations (Europe, Canada, Japan, Australia, and New Zealand) and Group 2 nations (the rest of 

world, excluding United States). 

To reflect world competition for offset supplies, the international abatement market is assumed 

to establish a floor price, above which excess abatement supplies can penetrate the U.S. market 

in the form of offset credits from developing countries and, potentially, allowances from 

countries assumed to have comparable caps in place. A floor price, or international GHG 

abatement price excluding the United States, is estimated by combining annualized abatement 

supplies and abatement demand and solving for the market price each year. This approach 

allows the U.S. market for allowances to be treated somewhat independently from the world 

market and allows offset supplies to the United States to be restricted to developing countries, as 

specified in the bill.

The assumed international abatement demand is defined as international baseline emissions 

minus stated or hypothetical commitments to various emissions levels (Table B2). The reference 

emissions baseline shown is based on estimates originally provided by EPA and used in several 

previous EIA studies, but the non-U.S. energy-related CO2 growth rates through 2030 have been 

updated to reflect the CO2 projections in the EIA International Energy Outlook 2009 (IEO2009) 

Reference Case, which does not reflect any international commitments to cap GHGs. 

Table B2. Assumed International Abatement Demand, Excluding the United States

 (million metric tons carbon dioxide equivalent)

Group 1 Group 2 Group 1 Group 2 Group 1 Group 2 Group 1 Group 2 Total

1990 8188 16268 Reference Reference 8188 16268 0 0 0

1995 8403 18002 Reference Reference 8403 18002 0 0 0

2000 8619 19736 Reference Reference 8619 19736 0 0 0

2005 8848 21535 Reference Reference 8848 21535 0 0 0

2010 8697 24778 5.0% below 1990 No Policy 7778 24778 919 0 919

2015 8851 27069 8.3% below 1990 No Policy 7508 27069 1343 0 1343

2020 9051 29503 16.6% below 1990 No Policy 6828 29503 2223 0 2223

2025 9089 31942 16.6% below 1990 2020 levels 6828 29503 2260 2439 4699

2030 9118 34303 26.6% below 1990 2020 levels 6010 29503 3108 4799 7908

2035 9214 36720 26.6% below 1990 2020 levels 6010 29503 3204 7217 10421

2040 9340 39196 36.6% below 1990 2020 levels 5191 29503 4149 9693 13842

2045 9471 41470 36.6% below 1990 2020 levels 5191 29503 4280 11967 16246

2050 9601 43743 46.6% below 1990 2020 levels 4372 29503 5229 14240 19470

Reference Emissions Policy Assumption Cap Abatement
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 56

Under ACESA, allowable sources of international offset credits are from developing countries 

that have established bilateral or multilateral agreements with the United States to ensure the 

offset requirements of the bill are fulfilled. For this analysis, it is assumed that the Group 2 

countries will be deemed developing countries and that their participation will increase gradually 

over time as reflected by imposing a gradual market penetration function to their offset supplies. 

In the case of offsets from reduced deforestation, the bill specifies substantial additional 

regulatory requirements, such as agreements on national baselines, technical capacity to monitor,

measure, report, and verify forest carbon fluxes, and institutional capacity to reduce 

deforestation, such as strong forest governance. These requirements will likely reduce the 

potential sources of forestry offsets to a subset of Group 2 countries. As a result, the technical 

potential of forestry-related abatement from Group 2 countries as provided by EPA has been 

discounted by 50 percent and a slower rate of market penetration has been applied than with 

other offset abatement supply sources.

Table B3 displays the assumed supply schedule of international offset credits, given these 

considerations. Both the gross Group 2 offset supply and the supply net of international 

abatement demand are shown, given the estimated international floor price for GHG abatement. 

The latter schedule (net supply) represents the supplies assumed to be available to the United 

States. 

Depending on how international offsets are regulated and how fast the requisite international 

agreements or arrangements are formed, the potential availability of low-cost international 

offsets could be substantially different (greater or smaller) than assumed. In the ACESA High 

Offsets Case, the maximum allowable quantity of international offsets was assumed to be 

available in every projection year at the allowance price of that year.

Allowance Banking and Borrowing

To reflect banking incentives and trading arbitrage, allowance prices escalate at a rate no higher 

than 7.4 percent per year in real terms during intervals when allowance balances are held. This 

rate reflects the average cost of capital in the electric power sector, where a significant share of 

emissions reduction investments is expected to occur. 

ACESA calls for increasingly stringent emissions caps beyond 2030, the forecast horizon for 

NEMS. Meeting these post-2030 caps will require significant emission reductions outside the 

electricity sector, the predominant source of early emissions reductions, and increase future price 

pressure, absent significant technological breakthrough in transportation and other uses that are

dependent on fossil fuels. As a result, EIA assumes that covered entities and traders will amass a 

substantial allowance bank balance by the end of 2030. Based on recent modeling work by the 

EPA to evaluate ACESA impacts, an approximate average allowance balance of 13 BMT in 

2030 was estimated across various scenarios they considered, an increase of cumulative 

abatement of roughly 50 percent above the minimum required under ACESA through 2030. 

This level of allowance banking is consistent with the greater difficulty of complying with the 

increasingly stringent post-2030 caps under continued growth in population and the economy. 

While the level of banking would also depend on other economic assumptions, such as the 

availability and cost of international offsets, the 13-BMT-balance assumption was applied in all 

but one of the cases analyzed. In the ACESA High Banking Case, where banked allowances 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 57

were assumed to rise to 20 BMT, approximating the highest level observed in EPA’s ACESA 

cases. 

Table B3. Assumed Gross and Net Supply Schedule of International Offsets from 

Developing Countries 

 (million metric tons CO2-equivalent)

Price (2000 dollars per tonne CO2) 2010 2015 2020 2025 2030

$0.0 0 0 0 0 0

$0.3 71 41 151 264 327

$3 131 97 294 684 992

$5 185 156 454 1106 1611

$8 229 234 622 1762 2630

$11 273 335 855 2578 3932

$14 322 459 1160 3578 5320

$20 388 727 1955 6120 8232

$27 455 1083 3062 9384 11361

$34 527 1507 4270 12248 14244

$41 603 2036 5602 14782 16206

$48 685 2680 6951 16922 17760

$55 772 3444 8248 18881 19263

$61 861 4208 9322 20521 20584

International Floor Price (2000 dollars per 

tonne CO2) $13.15 $12.68 $11.81 $10.80 $15.81

International Abatement Demand at floor price 

(million metric tons CO2 equivalent) 308.3 404.2 937.1 2523.3 6200.3

Price (2000 dollars per tonne CO2) 2010 2015 2020 2025 2030

$0.0 0 0 0 0 0

$0.3 0 0 0 0 0

$3 0 0 0 0 0

$5 0 0 0 0 0

$8 0 0 0 0 0

$11 0 0 0 55 0

$14 14 54 223 1054 0

$20 80 323 1017 3596 2032

$27 147 679 2125 6861 5161

$34 218 1103 3333 9725 8044

$41 295 1632 4665 12259 10005

$48 376 2276 6014 14399 11560

$55 464 3040 7311 16358 13062

$61 553 3803 8385 17998 14384

(millon metric tons CO2 equivalent)

Offset Supply, Net of International Abatement Demand

Gross Group 2 Offset Supply

Potental Gross Quantity of Offsets Supplied 

Potental Net Quantity of Offsets Supplied 

(millon metric tons CO2 equivalent)

Treatment of Allowance Prices in Energy Prices

Under ACESA, the allowance obligations are imposed on an upstream basis, on producers and 

importers rather than end users, for all emissions from petroleum and a portion of natural gas 

sold by LDCs to uncovered entities. Allowance obligations for coal and natural gas covered 

entities in the industrial and electric power sectors are imposed on a downstream basis. This 

mixed regulatory approach has implications for how allowance costs are reflected in the 

modeling of delivered energy prices. 

• The allowance holding requirement on covered entities for their coal-related and natural-gasrelated CO2 emissions is an incremental opportunity cost of using coal. For modeling 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 58

purposes, the allowance cost was added to the delivered price of coal and natural gas to 

reflect the opportunity cost faced by these covered entities. 

• For petroleum and uncovered natural gas regulated upstream, it is assumed that the allowance 

costs associated with the related CO2 emissions are passed through in the delivered prices, 

with some exceptions.

• CO2 emissions from refineries’ direct fuel combustion of petroleum-based fuels would be 

subject to the allowance requirement. However, the incremental cost of these allowances is 

not explicitly reflected in delivered petroleum prices, as the Petroleum Market Module of 

NEMS is not structured to represent such costs explicitly.

• To reflect the bill’s allowance allocations to electricity and natural gas LDCs for rebates to 

end users, average delivered prices are adjusted to reflect the rebates. Consumers receiving 

such rebates are assumed to treat their net average energy cost as the price basis for fuelrelated decisions.

Additional details on modeling treatment of specific elements of the cap-and-trade provisions 

and other bill provisions are presented below for each modeling area.

Buildings Sector

The ACESA legislation contains several provisions designed to reduce energy use in buildings 

and to provide credit for buildings-related renewable electricity generation. The programs 

include codes and standards as well as direct funding from the sale of allowance aimed at 

increasing the energy efficiency in buildings. The buildings sector energy efficiency provisions 

directly modeled in NEMS include the following:

Building Codes (Section 201)

Section 201 establishes Federal building codes for both residential and commercial buildings, 

with provisions to improve the code every several years. This provision is funded with 0.5 

percent of the total emissions allowances and is implemented in both the NEMS residential and 

commercial demand modules. 

All of the improvements in commercial building codes are relative to the American Society of 

Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) code 90.1-2004 and are 

assumed to be feasible. The building code efficiency improves by 30 percent upon enactment of 

the bill and by 50 percent in 2015, with 5-percent incremental improvements to the 2015 code 

every 3 years thereafter. It is assumed that the codes are phased in over 5 years following State 

adoption, reflecting the time it takes States to fully comply with each revision of the building 

code.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 59

The improvements in residential building codes are relative to the International Energy 

Conservation Code (IECC) 2006. Similar to the commercial sector implementation, a 30-percent 

improvement in the code occurs with the enactment of the bill, with subsequent increments 

identical to those for commercial buildings over the projection period. Each code improvement, 

following State adoption, is assumed to require 5 years for all the States to fully comply;

however, each of the nine Census divisions complies consistent with the historical level of 

building code compliance in each State.18

Existing Building Retrofit Program (Section 202)

Section 202 establishes the Retrofit for Energy and Environmental Performance (REEP) program 

which is funded by allowance allocation revenues as specified in section 782(g). Because 

individual States determine the amount of money to spend on various sectors of the economy 

(buildings, transportation, industry, etc) and the fact that allowance revenue streams and 

allocations for this provision change over the projection period, the energy savings impacts of 

this provision are subject to great uncertainty. For this analysis, it is assumed that $2 billion per 

year is available to retrofit residential buildings and that the investment and energy savings per 

house are comparable to EIA’s previous analysis of the impact of weatherization funding 

included in ARRA.19 For commercial buildings, it is assumed that funding is available to 

improve the shell efficiency of existing buildings by an additional 1 percent relative to the 

Reference Case by 2030.

Standards (Sections 211 and 212)

• Outdoor lighting standards effective 2011 to 2015

• Hot and cold water dispensers effective 2012

• Hot food holding cabinets effective 2012

The impact of the above standards is relatively modest. In the residential sector, the 

preponderance of lighting fixtures are located inside the house and many outdoor fixtures use 

traditional incandescent bulbs, which are already covered by aggressive efficiency standards 

under the Energy Independence and Security Act of 2007. The commercial sector accounts for 

outdoor stationary lighting such as roadway lighting, parking lots, billboards, airport runways, 

etc., which account for only about 8 percent of all lighting use in the United States.20 

Rebates for Natural Gas and Oil Customers (Sections 782b and 782c) 

Sections 782b and 782c allocate a relatively small portion of the overall emission allowances to 

oil and natural gas customers specifically for energy efficiency programs. In the buildings 

sector, these provisions are assumed to take the form of rebate programs for the purchase of 

energy-efficient furnaces and boilers. 

 18 Each State was given a “score” from 1 to 5 and weighted by housing permits to calculate a Census division 

average. The relative score for each State was derived from American Council for an Energy-Efficient Economy 

(ACEEE), The State Energy Efficiency Scorecard for 2006, June 2007.

19 For more detail on the assumptions, see http://www.eia.doe.gov/oiaf/servicerpt/stimulus/index.html. 20 Navigant Consulting Incorporated, U.S. Lighting Market Characterization, Volume I: National Lighting 

Inventory and Energy Consumption Estimate, September 2002.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 60

Buildings sector participation in the Renewable Electricity Credit program that is part of the 

ACESA Clean Energy Title is directly modeled as discussed below.

Industrial Sector

Title I, Subtitle B, Section 115 promotes the commercial deployment of carbon capture and 

storage (CCS) technologies. After review of the state of the current technology, it was 

determined that the industrial CCS provision in the proposal would not be readily adopted by 

industry. This technology as it applies under the stipulations of the provision would require very 

large investments to retrofit existing facilities (or add new ones) and substantial land areas at an 

industrial site to capture the CO2. Space is always limited at industrial facilities and the addition 

of new land would ultimately add a high “real-estate premium” to adoption of these systems. 

Many industries already producing pure CO2 streams that could be supplied for CCS but these 

streams are already sold as a valued-added secondary product in the food industries and for 

enhanced oil recovery, among others. Consequently, it is assumed that industrial non-refining 

CCS would not penetrate that market through the projection period.

Title I, Subtitle C, Sections 123 and 125 provide financial assistance to automobile 

manufacturers to facilitate the manufacture of plug-in and other advanced technology vehicles. 

In the manufacture of vehicles, the platforms used and designed to manufacture standard vehicles 

are the same as those to manufacture plug-in and other advance technology vehicles. As such, 

the energy efficiency trends for the transportation equipment industry (NAICS 336) are assumed 

to be unchanged relative to the AEO2009 Reference Case.

Title I, Subtitle H, Section 173, establishes several Centers for Energy and Environmental 

Knowledge and Outreach. Each center is to provide technical assistance, including energy 

savings assessments for industrial establishments. The proposed increased funding for energy 

savings assessments programs is expected to accelerate the penetration of energy efficiency 

measures and options in industries. To model this, the industrial demand module (IDM) of 

NEMS used the industrial sector high technology assumptions of AEO2009.

Title II, Subtitle D establishes various energy efficiency standards and programs for industries. 

The design and implementation of these standards and programs are yet to be decided. Due to 

this lack of information, no model changes were made to accommodate this part of the bill. Title 

II, Subtitle D, Sections 244 and 245 establishes a rebate and incentive programs designed to 

increase industrial motor efficiency. These were not adequately defined in the proposal and 

therefore no changes pertaining to the rebate and programs were made in the IDM. 

Nevertheless, the motor model remains an economic and technology choice system, and as such, 

any changes in industrial production and energy prices will impact the projected energy use in 

motors in industry.

The allocation of carbon allowances in the IDM has been applied as prescribed by the bill. 

These allowances are allocated to energy-intensive industries only, as indirect emissions 

allowances in 2012 and 2013 and full emissions allowances (direct and indirect) for the 

remaining timeframe. This allocation is, however, phased out beginning in 2025 as mandated in 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 61

the proposal. To accurately reflect the lack of CO2 emissions coverage for small industrial 

emitters in the early years of the cap-and-trade regime, a bifurcation of natural gas consumption 

was applied to the IDM for calendar years 2014 and 2015.

Transportation Sector

ACESA includes several provisions that are related to transportation, specifically, Sections 121-

130 and Sections 221-224. However, none of these provisions have been incorporated into 

NEMS because they call for (a) analysis and not action, (b) the creation of programs without any 

specific measures that can be modeled in NEMS, or (c) are of such limited nature that they are 

not deemed large enough to impact transportation trends significantly. 

• Section 121 mandates utilities to complete studies assessing the future electrification of 

the U.S. transportation fleet. 

• Section 122 calls for the establishment of a program by which the Secretary of Energy 

can provide financial assistance to State or local governments for the demonstration of 

plug-in hybrid electric vehicles. 

• Section 123 establishes a program by which the Secretary of Energy can provide 

financial assistance to automobile manufacturers to facilitate the manufacture of plug-in 

electric drive vehicles. 

• Section 124 grants various emissions credits to the manufacture of alternatively-fueled 

vehicles. 

• Section 125 provides loans to manufacturers of advanced vehicle technology.

• Section 126 amends the term ”renewable biomass.”

• Section 127 calls for the promotion of an open fuel standard and allows regulations to 

require each light-duty automobile manufacturer to produce a minimum percentage of 

fuel-choice-enabling automobiles. 

• Section 128 amends diesel emissions regulations. 

• Section 129 provides loan guarantees for the construction of renewable fuel pipelines. 

• Section 221 calls for studies to propose changes to the emissions standards for heavyduty vehicles, non-road vehicles, and aircraft engines. 

• Section 222 calls for States to produce plans and create goals for the reduction of GHG 

emissions from transportation. 

• Section 223 establishes within EPA a SmartWay Transport program to quantify, 

demonstrate, and promote transportation efficiency programs. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 62

 Section 224 allows the Secretary of Energy to change State vehicle fleet requirements.

New Fuel Economy and Tailpipe Emissions Standards for Light-Duty Vehicles

President Obama unveiled a plan for tougher vehicle fuel economy standards that would require

passenger cars to reach a fleet average of 39 miles per gallon and light trucks to reach a fleet

average of 30 miles per gallon in model year 2016. The President has called for EPA and the

National Highway Traffic Safety Administration to jointly produce these new standards as both a

footprint based Corporate Average Fuel Economy and a tailpipe emissions standard. Since the

policy change was only recently announced by the President and has not been formally

implemented, the new fuel economy standards are only included in a sensitivity case for

ACESA.

In the sensitivity case, the new fuel efficiency standards have been incorporated into NEMS that

meet and slightly exceed the President’s targets for model year 2016. The revised standards do

not start in NEMS until 2012, as fuel economy standards for model year 2011 have already been

promulgated by the National Highway Traffic Safety Administration. Standards are assumed to

remain the same after model year 2016.

Macroeconomic

In all cases, MAM assumes exchange rates remain at the Reference Case levels. EIA assumes,

as has been customary in several historical responses by the Federal Reserve, that the Federal

Reserve will use a modified Taylor rule which will decrease interest rates in the face of rising

unemployment. MAM takes all appropriate energy price and quantity variables from NEMS and

converts them into IHS Global Insight aggregate energy measures.

Specific to the ACESA analysis, MAM implemented two major modeling changes: one

pertaining to energy-intensive industries and the other to redistributing carbon allowance

revenues back to the economy. As part of the H.R. 2454 bill, section 782 (e) allocates shares of

allowances to trade- and energy-vulnerable industries. In MAM, these industries are impacted

by various industrial fuel prices as well as overall changes in final demands. In the ACESA

analysis, the energy-intensive industries react to pre-tax industry fuel prices, rather than post-tax

prices under the assumption that when the industries receive the allocated allowances, the

revenue will enable them to restructure their production processes to ameliorate the impact of

rapidly rising energy prices.

MAM redistributes a certain portion of total allowance revenue. The following list includes the

revenues being collected and redistributed by the model: Section 726 Strategic Reserve, Section

781, Supplemental Reserves, Section 782 (d) Low Income Allocation; Section 782 (g)

Investment in Energy Efficiency and Renewable Energy; Section 782 (g) 1 f Investment in

Energy Efficiency and Renewable Energy; Section 782 (g) Investment in Energy Efficiency and

Renewable Energy (2) building codes; Section 782(h) Clean Energy Innovation Centers; Section
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 63

782(i) Clean Vehicle Technology; Section 782(k) Investment in workers; Section 782 (l)

Domestic Adaptation; Section 782 (m) Wildlife and Natural Resource; Section 782 (m) Wildlife

and Natural Resource; Section 782 (n) International Adaptation; Section 782 (o) International

Clean Technology; and Section 782 (r) Consumer Climate Change Refund. MAM treated

Section 782 (d) low income allocations as transfer payments, Section 782 (n) and (o)

(international transfer of allocations) as other Federal government transfers to the rest of the

world. Sections 782 (g) (h) (i) (k) (l) (m), Section 726 and Section 781 were treated as Federal

government non-defense spending. Section 782 (r) which distributed funds post-2025 were

treated as lump-sum personal tax rebates. All of the other allowances specified in H.R. 2454

went to energy-producing or -distributing entities or were given to energy-intensive industries

and were not collected or redistributed by MAM. Changing the level of non-defense government

expenditures insured that the Federal deficit at full employment was unchanged from the

Reference Case across all ACESA cases. 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 nondefense government expenditures would have to be reduced to insure unchanged Federal deficits

over time.

Electric Power and Coal

Renewable Electricity Credits

Section 101 establishes a program requiring retail electric suppliers to submit renewable energy

credits and electricity savings equal to a percentage of their annual electricity sales beginning in

2012. Distributed renewable generation facilities are issued 3 Federal renewable electricity

credits for each megawatthour of renewable electricity generated with the granting of triple

credits to be reviewed for adjustment in 2014 and every 4 years thereafter. It is assumed that the

adjustment reviews result in an adjustment to 1 Federal renewable electricity credit per megawatt

hour issued to distributed generation facilities starting in 2014. However, distributed renewable

generators placed in service during a year when triple credit is granted continue to receive triple

credit for 10 years. This provision is directly modeled in the buildings sector but is expected to

have minimal impact on buildings sector renewable generation because the requirements of the

cap-and-trade program in ACESA lead to sufficient renewable generation capacity in the power

sector to meet the renewable electricity standard targets.
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 64

Carbon Capture and Sequestration

Section 114 outlines a CCS demonstration program that is to be run by the private sector, under 

the lead of the Electric Power Research Institute and funded by small fees on the distribution of 

fossil-fired electricity. The fees range from 0.22 mills per kilowatthour for natural-gas-fired 

electricity to 0.43 mills per kilowatthour for coal-fired electricity. The goal of this 10-year, $10-

billion program is to support 5 commercial-scale CCS or conversion technology projects. The 

small fees on fossil-fired electricity distribution specified in this section are accounted for in the 

cases analyzed for this report and are assessed for the years 2010 through 2019. 

Section 115 adds Section 786 “Commercial Deployment of Carbon Capture and Sequestration 

Technologies” to Section H of Title VII of the Clean Air Act. This section establishes a program 

to distribute bonus GHG emission allowances to new projects in the electricity and industrial 

sectors to help defray the costs associated with equipment and infrastructure needed to capture 

and sequester CO2 emissions produced from the combustion of fossil fuels at these facilities. To 

be eligible for the bonus allowances allocated for this program, the project must derive at least 

50 percent of its energy input from coal and/or petroleum coke. The first 6 gigawatts of approved 

capacity under this program are eligible to receive a $90 bonus allowance for each metric ton of

CO2 captured and sequestered. Beyond the initial 6 gigawatts of capacity with CCS, an 

additional 66 gigawatts are eligible for bonus allowances on the basis of a reverse auction 

administered by EPA or, at EPA’s discretion, an alternative program for distributing the 

program’s remaining bonus allowances. Only 1 gigawatt of retrofitted CCS capacity at existing 

plants is eligible for bonus allowances allocated under this section. Qualified CCS projects are 

eligible for 1.75 percent of allowances established according to section 721(a) for the years 2014 

though 2017, 4.75 percent of allowances for the years 2018 and 2019, and 5.0 percent of 

allowances for the years 2020 through 2050.

This program is represented within the analysis for this report by reducing the estimated costs of 

new coal-fired generating capacity by the value of the bonus allowances that the plant would be 

eligible to receive. The amount of new coal-fired generating capacity projected within a given 

forecast scenario is determined by a number of factors such as the costs and availability of 

electricity from other generating technologies, the availability of international and domestic 

offsets, and the projected levels of electricity demand. 

Section 116 adds a new Section 812 “Performance Standards For New Coal-Fired Power Plants” 

to Title VIII of the Clean Air Act, which specifies that new power plants authorized under State 

or Federal law to derive at least 30 percent of their energy input from coal and/or petroleum coke 

will initially be required to capture and sequester a minimum of 50 percent of their potential CO2

emissions. The CCS requirement rises to 65 percent for plants built in 2020 or later. 

Additionally, based on reviews of the standards to be completed by the EPA Administrator at 5-

year intervals, and beginning no later than 2025, CCS requirements would be increased to levels 

higher than 65 percent if higher capture and storage rates are determined to be reasonably 

achievable. In the analysis completed for this report, new coal-fired power plants with CCS are 

assumed to capture and sequester 90 percent of their potential CO2 emissions. 
Energy Information Administration / Energy Market and Economic Impacts of H.R. 2454, the ACESA of 2009 65

Peak Demand Reductions (Section 143)

This section requires States to determine and publish peak demand reduction goals for loadserving entities with a baseline above 250 megawatts. The Secretary, with the Federal Energy 

Regulatory Commission (FERC) and the North American Electricity Reliability Council, will 

develop a methodology for measurement and verification of demand response. The FERC report 

2009 National Demand Response Potential Assessment should be used to help determine peak 

reduction goals. The load-serving entities must reduce peak load by 2012 and further by 2015, by 

amounts determined by each State. 

This program is represented in the analysis by assuming that peak demand will be reduced by 3 

percent by 2020, instead of the 1 percent assumed in the Reference Case due to ARRA.

Allocation of Emission Allowances (Sec. 782)

Section 782 (a)(1) allocates allowances for the benefit of electricity consumers, starting at 44 

percent of total allowances in 2012 and falling over time through 2029, after which no further 

allowances are given out. Section 782 (a)(2) allocates a separate 0.5 percent specifically to small 

load distribution centers. For modeling purposes, these allowances are added together and 

treated as one allocation. Section 783 describes the method of distributing the allowances, with 

the majority going to LDCs to be used exclusively for the benefit of retail ratepayers. Up to 10 

percent of the allowances under this section can be given to merchant coal generators, based on 

their qualifying emissions through a base historical period. 

These allocations are accounted for in the electricity pricing calculations. The allowances given 

to merchant coal generators are calculated based on historic emissions, and the value of the 

allowances in each year would offset the rising fuel costs in the affected regions. The remaining 

allowances are shared to the regions based on a combination of historic emissions and overall 

electricity sales, as described in Section 783(b)(2) and Section 783(b)(3). The revenue from this 

allowance allocation is assumed to go to reduced distribution costs, lowering the distribution 

component of electricity price to all consumers.