Some of the Numbers behind the Waxman-Markey Bill
If we take a look at some of the numbers behind the Waxman-Markey Bill, we get a clearer sense of its ambition, its limitations and the winners and losers.
Content of the Bill
From reading much of the coverage of the bill, one might be forgiven for believing that the bill is nothing more than a cap-and-trade scheme. In point of fact it is a lot more than just a trading scheme. The bill includes provisions that mandate emission performance standards for new coal-fired power stations, making it virtually mandatory for such sites to install CCS. It includes a mandatory nationwide renewable energy standard and funding provisions for a range of renewable energy, energy efficiency and clean transport technologies. The bill also sets objectives to reduce tropical deforestation and it would make use of the revenue generated from allowance allocations to fund domestic and international adaptation, as well as international technology transfer. You’ll find an overview of the bill here.
Coverage of Cap-and-Trade
The bill proposes a cap-and-trade scheme which would cover 84.5% of US emissions by 2016. This compares more than favourably with the EU’s coverage of just 52 percent (assuming the proposals to extend the scope of the EU ETS are accepted), or the coverage under the proposed Australian CPRS of about 75 percent. When we take into account that the bill also allows for the participation of domestic emission offsets, it is evident that there will be very few US emissions sources that will not participate in the scheme in one way or another.
The bill would cap emissions from large sources at 17% below 2005 levels in 2020 and at 83% below 2005 levels in 2050. Relative to the EPA’s projected business-as-usual emissions, this is equivalent to an emissions reduction of 1.4Gt-CO2 and 7.1Gt-CO2 respectively. If these targets are met, US per capita emission will fall from their current level of about 24.5t-CO2, to 17.8t-CO2 in 2020 and 3.07t-CO2 in 2050. The latter figure is in line with the attainment of a global emissions target of 27Gt-CO2, assuming all other countries are able to achieve the same per capita emissions. By 2050 the US emissions per unit of GDP would have declined to one-tenth of their current levels.
Role of International Emissions Offsets
The bill allows for liable parties under the cap-and-trade scheme to use up to 2 billion emission offsets per year in order to meet their emissions caps. Half of these emissions offsets may be obtained from international projects. Given the emission reductions that are required to achieve the caps, this would mean that the US could meet its entire emission reduction task using international offsets from the beginning of the scheme through until 2018. Thereafter, the US could meet 70 percent of its emission reduction task in 2020 with the use of international offsets, falling to 14 percent by 2050.
Effects on the Global Carbon Market
In 2016, 5.4 billion allowances will be allocated or auctioned under the proposed scheme. Compare this with the 1.9 billion EU ETS allowances that would be allocated or auctioned in 2016 under the proposals for Phase III of the EU ETS. In terms of the underlying carbon asset, the proposed US scheme would be almost three times the size of the expanded EU ETS.
The bill mandates the generation of 20 percent of total electricity from renewable sources by 2020, with the possibility to use energy efficiency measures to cover 5 percent of the target. This would equate to a renewable energy target of 650 TWh (given the EIA forecast of electricity consumption in the US in 2020 is 4,311 TWh and assuming energy efficiency measures are used to cover 5 percent of the target). Current renewable capacity in the US (excluding conventional hydro) is about 30 GW and generates about 100 TWh of electricity per year. So to achieve the target, will require the development of about 120GW of new renewable capacity, which is about four times greater than the current installed renewable capacity (excluding conventional hydro). However, the bill is less ambitious than it at first appears. This is because the earlier American Recovery and Reinvestment Act (ARRA) has already provided a significant boost to renewables, which the EIA estimates will be in the order of 50 GW of additional new renewable capacity by 2020. So the bill itself would only add another 70 GW to that figure up to 2020. It is certainly less ambitious than the target proposed under the EU Renewable Energy Directive, which would require about 3,000TWh of installed new renewable generation by 2020 – almost five times greater than that proposed under the bill.
Energy Efficiency Potential
As noted above, the bill would allow States to meet 5 percent of the renewable energy standard using energy efficiency measures (rising to 8 percent under certain circumstances). This means an annual market for energy efficiency improvements of 220 TWh by 2020, which is the equivalent of half of the UK’s annual electricity generation. The bill also sets forth a number of other energy efficiency provisions relating to lighting products, appliances, and commercial furnaces, as well as funding for energy efficiency technologies. Nevertheless, energy efficiency is one area where the bill is relatively unambitious. Even with all measures introduced as proposed in the bill, the EPA estimate that US energy intensity (primary energy consumption per dollar of real GDP) would fall by less than 12 percent by 2050. This is extremely small, when compared with the 46 percent drop in US energy intensity that was achieved between 1975 and 2005. Energy efficiency is the bill’s biggest missed opportunity.
Reductions from CCS
The bill includes provisions that would effectively make it mandatory for new coal-fired power stations to install CCS technology. In their analysis of the bill, the EPA estimates that an additional 56 GW of CCS would need to be installed by 2025, increasing to 162 GW in 2050. That means 56 GW of CCS plant would need to be built in just 17 years – when there is not a single commercially operating example anywhere in the world. Incidentally, this would also mean that approximately 300Mt-CO2e per annum would need to be sequestered by 2025 – that is greater than the total annual emissions from a country like The Netherlands. There is a lot riding on CCS.
The Biggest Winner is Nuclear
While the bill greatly encourages the development of renewable energy, the biggest winner is nuclear. This is not evident from the text of the bill, but it is evident from a study of the EPA and EIA data. In the absence of the bill, the EIA estimated that there would be 7GW of new nuclear capacity by 2025 and 12 GW of new nuclear capacity by 2050. However, if we look at the EPA analysis, they estimate that with the passage of the bill, new nuclear capacity would increase to 34 GW in 2025 and 161 GW in 2050. There is a certain rationale behind these results: fossil fuel generation is forecast to fall dramatically; the renewable energy targets are not massively higher than the EIA was already forecasting; and the energy efficiency measures are very modest. These facts combine to create a significant gap in supply, which (rightly or wrongly) the EPA expect nuclear to fill.
Filed under: Emissions Trading, Policy | 1 Comment
Tags: Carbon Market, EU ETS, Nuclear, Policy, Renewable, US, Waxman-Markey