Energy market and economic impacts of h.r. 2454, the american cleanenergy and security act of 2009

2454, the American Clean Energy andSecurity Act of 2009 (ACESA).1 ACESA, as passed by the House ofRepresentatives on June 26, 2009, is a complex bill that regulatesemissions 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. GHGemissions by 2016, is in many respects the centerpiece of the billand the primary driver of the results presented in this report. Theprogram subjects covered emissions to a cap that declines steadilybetween 2012 and 2050. The cap requires a 17- percent reduction incovered emissions by 2020 and an 83-percent reduction by 2050, bothrelative to a 2005 baseline, with targets that decline steadily forintermediate years.

Compliance is enforced through a requirementfor entities subject to the cap to submit allowances, which arebankable, sufficient to cover their emissions. Allowanceobligations may also be offset by reductions in domestic emissionsof exempted sources, by international offsets, or by emissionallowances from other countries with comparable laws limitingemissions. Maximum offsets from domestic and international sourcesare each capped separately at 1 billion metric tons (BMT) in eachyear of the program, with the proviso that up to 500 million metrictons (MMT) of the domestic offset cap may be shifted to theinternational offset cap if the Administrator of the EnvironmentalProtection Agency (EPA) determines that a sufficient supply ofdomestic offsets is not available. In addition to its centerpiececap-and-trade program, Title III also includes additional GHGstandards, dedicated programs to limit hydrofluorocarbon (HFC)emissions and black carbon, and provisions governing markets incarbon-related derivatives.

Title I contains provisions related to a Federal combinedefficiency and renewable electricity standard for electricitysellers, carbon capture and storage technology, performancestandards for new coal-fueled power plants, research anddevelopment support for electric vehicles, support for deploymentof a smart grid, and establishment of a Clean Energy DeploymentAdministration. Title II includes provisions related to building,lighting, appliance, and vehicle energy efficiency programs. Title IV includes provisions to preserve domestic competitivenessand support workers, provide assistance to consumers, and supportdomestic and international adaptation initiatives. Title Vaddresses the role of domestic agricultural and forestry-relatedoffsets in the Title III cap-and-trade program. This report considers the energy-related provisions in ACESA thatcan be analyzed using EIA s National Energy Modeling System(NEMS).

The Reference Case used as the starting point for theanalysis in this report is an updated version of the Annual EnergyOutlook 2009 (AEO2009) Reference Case issued in April 2009 thatreflects the projected impacts of the American Recovery andReinvestment Act as well as other significant energy legislation,including the Energy Improvement and Extension Act of 2008, theEnergy Independence and Security Act of 2007, and 1 The requestletter from Chairman Waxman and Chairman Markey is provided inAppendix A. Energy Information Administration / Energy Market andEconomic Impacts of H.R. 2454, the ACESA of 2009 v the EnergyPolicy Act of 20052. Cumulative GHG emissions covered by the TitleIII cap-and-trade program over the 2012 to 2030 period areestimated to be 113.4 BMT in CO2-equivalent terms. Key provisions of ACESA that are represented in the policy casesdeveloped in this analysis include: The GHG cap-and-trade program for gases other than HFCs, includingprovisions for the allocation of allowances to electricity andnatural gas distribution utilities, low-income consumers, Stateefficiency programs, rebate programs, energy-intensive industries,and other specified purposes; The combined efficiency and renewable electricity standard forelectricity sellers; The carbon capture and storage (CCS) demonstration and earlydeployment program; Federal building code updates for both residential and commercialbuildings; Federal efficiency standards for lighting and other appliances; Technology improvements driven by the Centers for Energy andEnvironmental Knowledge and Outreach; and The smart grid peak savings program.

W hile this analysis is as comprehensive as possible given itstiming, it does not address all the provisions of ACESA. Provisionsthat are not represented include the Clean Energy DeploymentAdministration, the strategic allowance reserve, the separatecap-and-trade program for HFC emissions, the GHG performancestandards for activities not subject to the cap-and-trade program,the distribution of allowances to coal merchant plants, newefficiency standards for transportation equipment, and the effectsof increased investment in energy research and development. Ofthese provisions, the Clean Energy Deployment Administration mayhave the most significant potential to alter the reported results. Like other EIA analyses of energy and environmental policyproposals, this report focuses on the impacts of those proposals onenergy choices made by consumers in all sectors and theimplications of those decisions for the economy. This focus isconsistent with EIA s statutory mission and expertise.

The studydoes not account for any possible health or environmental benefitsthat might be associated with curtailing GHG emissions. Finally, while the emissions caps in the ACESA cap-and-tradeprogram decline through the year 2050, the modeling horizon in thisreport runs only through 2030, the projection limit of NEMS. As inEIA analyses of earlier cap-and-trade proposals, the need to pursuehigher-cost emissions reductions beyond 2030, driven by tightercaps and continued economic and population growth, can be reflectedin the modeling by assuming that a positive bank of allowances isheld at the end of 2030 in all but one case.

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