On June 15, 2010, the Environmental Protection Agency (“EPA”) released its analysis of the American Power Act of 2010, sponsored but not yet formally introduced by Senators John Kerry (D-MA) and Joe Lieberman (I-CT). The analysis was released just hours before President Obama addressed the nation on the Gulf oil spill and called for legislation reducing the nation’s use of fossil fuel. The President, however, did not refer to the Kerry-Lieberman bill specifically nor did he call for the enactment of cap-and-trade legislation.
EPA’s analysis found that projected allowance prices under Kerry-Lieberman would be $16-$17 per metric ton of carbon dioxide equivalent in 2013 and $23-24 in 2020 (in 2005 dollars). These numbers are the same as EPA’s allowance cost projections under the Waxman-Markey bill (H.R. 2454) passed by the House of Representatives last year and are highly sensitive to the availability of both domestic and particularly international offsets. EPA projects domestic offsets as providing 19 percent of the total greenhouse gas (“GHG”) abatement under the bill and international offsets as providing 18-29 percent of the total greenhouse gas abatement. Without the constraints on international offsets set forth in the bill, allowance prices would dip to $12 in 2013 and $17 in 2020.
EPA’s analysis showed that the bill would have relatively low impacts on U.S. consumers. According to EPA, average household consumption compared to the business-as-usual scenario would be reduced by 0.0-0.2 percent in 2020, 0.2-0.5 percent in 2020, and 0.9-1.1 percent in 2050.
EPA utilized the Integrated Planning Model (“IPM”) to simulate near-term (to 2025) changes in the electricity mix as a result of the bill. According to the IPM model, renewables generation will increase in both the business-as-usual and Kerry-Lieberman cases, and this increase is “largely driven” by the American Recovery and Reinvestment Act of 2009, the so-called stimulus legislation, which provide various tax and other incentives for renewable generation. According to the IPM model, the Kerry-Lieberman bill will result in less than a 10 percent increase in renewable generation as compared with the business-as-usual case, with most of this increase coming from biomass co-firing which grows by around 35 percent by 2025.
The IPM model assumed 15 GW of additional CCS capacity by 2025 on top of the 2 GW assumed in the business-as-usual case. Of this 15 GW, 6 GW of new generation with CCS was “forced” into the model based on early deployment funding in Kerry-Lieberman; the model would not have selected this amount on its own. The other 9 GW of CCS represents retrofits of existing generation facilitated by the bonus and wires charge funding provisions of the legislation. The IPM model also produced 8 GW of new nuclear capacity by 2025 attributable to the investment tax credit and other financial incentives provided in the bill.
The model also shows reductions in the use of coal and oil for generation. Under the business-as-usual scenario 5 GW of coal and 36 GW of oil generation retire by 2025. Under the Kerry-Lieberman scenario, these numbers increase to 30 GW of coal and 65 GW of oil. No new conventional coal plants are built, and even with the addition of new coal-with-CCS plants, total coal production for electricity generation decreases, from 1,065 million tons in the reference case to 903 million tons in the Kerry-Lieberman case in 2025.