EIA Finds Senate Climate Bill Could Cut GDP by $452B

by | Jul 19, 2010

The Senate climate bill, which aims to cut greenhouse gas (GHG) emissions 17 percent from the 2005 level by 2020, could cut U.S. gross domestic product (GDP) by $452 billion or 0.2 percent, and cost the average household $206 annually from 2013 to 2035, according to new analysis from the Energy Information Administration, reports Bloomberg Businessweek.

EIA’s estimates are close to numbers released last year by the Congressional Budget Office (CBO), which projected that the U.S. cap-and-trade program under the House bill would cost $22 billion annually, or about $175 per household, by 2020.

However, the EIA says the impact on consumers could be mitigated by using 12 percent of the allowance revenues to help low-income households and offering a refundable tax credit that would be paid out with unused revenues from the bill, reports the New York Times.

The report, “Energy Market and Economic Impacts the American Power Act of 2010,” provides an analysis of the American Power Act of 2010 (APA) that was released by Senator John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) on May 12, 2010. The report covers six analysis cases — APA Basic case, APA Zero Bank case, APA High Natural Gas Resource case, APA High Cost case, APA No International case, and APA Limited/No International case.

As an example, in the APA Basic case, EIA analysts assume that passage of the bill will generate new innovations adopted on a large scale such as carbon capture and storage, and that the use of domestic and international offsets is not significantly constrained by cost, regulation or problems negotiating agreements with other countries, reports the New York Times.

Here are some key findings in EIA’s report, according to Businessweek.

Under the APA’s cap-and-trade program, allowances, which will allow companies to release one metric ton of carbon dioxide, would cost $32 each by 2020, but would rise to $59 to $89 each if companies couldn’t use carbon offset credits. The legislation will allow companies to use carbon offsets to meet 57 percent of their greenhouse gas reduction goals.

Across the APA cases, the electricity sector will account for between 78 percent and 86 percent of the total reduction in U.S. energy-related CO2 emissions. Businessweek says coal’s share of U.S. power generation would fall from 48 percent to 25 percent, according to the report’s core scenario, resulting in increases from sources with less CO2 emissions such as wind farms, geothermal plants and nuclear reactors.

The report also finds that if new nuclear reactors, renewable power sources and carbon capture technologies aren’t developed fast enough to meet the APA’s required pollution cuts, electricity generated from natural gas, which produces about half as much CO2 per magawatt-hour as coal, will probably increase.

Electricity prices could be 9 percent higher in 2020 under APA and by 2035, when regulated power distribution companies no longer get free allowances, electricity prices would be 18 to 42 percent higher than without the APA.

Changes in fossil fuel uses in transportation, the industrial sector and residential and commercial buildings will account for 14 to 22 percent of the total reduction in energy-related CO2 emissions relative to the reference case for 2035, according to Trucking.com.

To gain the support needed to pass the bill, Kerry and Leiberman have since decided on a scaled-down carbon cap that would limit emissions only from the utility sector, reports the New York Times.

Senate Majority Leader Harry Reid, a Nevada Democrat, said he wants to include a carbon-cutting program for power plants in the legislation to be debated the week of July 26, reports Bloomberg Businessweek.

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