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EEI analysis predicts economic shock from Senate climate
A draft utility industry analysis of comprehensive climate change legislation awaiting Senate floor action concludes that the bill would sharply raise electricity prices, force many utilities to switch from coal-fired generation to natural gas, and impose an average cost of $1,500 on every U.S. household beginning in 2015. ...Fuel-switching by 2020 would increase natural gas wellhead prices by 22% above projected levels, while prices for coal, which now produces roughly half of all electricity, would fall to 30% by that year as more than 37% of existing coal-fired generation would be retired, CRA said.
February 27, 2008
in Power News
A draft utility industry analysis of comprehensive climate change legislation awaiting Senate floor action concludes that the bill would sharply raise electricity prices, force many utilities to switch from coal-fired generation to natural gas, and impose an average cost of $1,500 on every U.S. household beginning in 2015.
The analysis, prepared by CRA International for the Edison Electric Institute (EEI) examines legislation (S.2181) by Sens. Joseph Lieberman (I-Conn.) and John Warner (R-Va.) to impose a cap on greenhouse gas emissions from most of the U.S. economy beginning in 2012.
The bill would bring under regulation about 85% of total U.S. greenhouse gas emissions beginning in 2012 and would cut emissions from the regulated sectors by about 7% below 1990 levels by 2020 and by 70% below 1990 levels by 2050 according to Senate analyses. The bill would establish a national emissions trading market to allow affected industries to find the lowest-cost emission reductions.
While the CRA analysis remains a work in progress, EEI officials said it validates utility concerns that the legislation’s early emission-reduction targets and timetables will have huge impacts on the U.S. economy and particularly on coal-dependent utilities and their customers.
“The biggest problems for us in Lieberman-Warner are the early—and by early I mean from 2015 to 2030—caps [that] will force massive fuel switching from coal to natural gas,” said Bill Fang, EEI deputy general counsel and climate issue director for the investor-owned utility trade association. “That’s the quandary the bill puts us in.”
Fuel-switching by 2020 would increase natural gas wellhead prices by 22% above projected levels, while prices for coal, which now produces roughly half of all electricity, would fall to 30% by that year as more than 37% of existing coal-fired generation would be retired, CRA said. By 2030, coal generation would fall to only 22% of total generation, but it could recover in subsequent years if carbon-capture and storage (CCS) technology becomes broadly available in the U.S.
Nationwide, residential electricity prices would rise 28% by 2015, 40% by 2020 and 59% by 2050, with much sharper increases in certain regions of the country, CRA said.
In what may be CRA’s most debatable assumption, the analysis assumes that CCS is not likely to be available on a large scale until 2025 or later. Many experts think a targeted industry-government program to demonstrate CCS technology would lead to broad deployment much sooner.
CRA also projected that CO2 allowance prices in 2015 would reach $64, a far higher price than was projected by the Energy Information Administration (EIA) or the EPA in separate analyses of a different cap-and-trade bill (S. 280) sponsored by Lieberman and Sen. John McCain (R-Ariz.). The EIA and EPA analyses concluded that allowance prices in 2015 likely would be in the range of $10 to $20—less than the current allowance prices in the EU today.
Fang noted that CRA also made what he called “optimistic” assumptions about the penetration of non-fossil generation in the U.S. by 2030. The analysis assumed some 176 GW of new non-hydro renewable generation. That’s far more than what the EIA has assumed in its latest annual domestic energy supply and demand forecasts. CRA also assumed some 40 GW of new nuclear generation, higher than EIA projections but lower than what EPRI, a utility research institute, projected would be possible in a carbon-constrained environment.
“The message we want to bring is that we don’t think the technology is available to allow the utility industry to meet the Lieberman-Warner caps under the bill’s timetable,” Fang said.
The analysis, prepared by CRA International for the Edison Electric Institute (EEI) examines legislation (S.2181) by Sens. Joseph Lieberman (I-Conn.) and John Warner (R-Va.) to impose a cap on greenhouse gas emissions from most of the U.S. economy beginning in 2012.
The bill would bring under regulation about 85% of total U.S. greenhouse gas emissions beginning in 2012 and would cut emissions from the regulated sectors by about 7% below 1990 levels by 2020 and by 70% below 1990 levels by 2050 according to Senate analyses. The bill would establish a national emissions trading market to allow affected industries to find the lowest-cost emission reductions.
While the CRA analysis remains a work in progress, EEI officials said it validates utility concerns that the legislation’s early emission-reduction targets and timetables will have huge impacts on the U.S. economy and particularly on coal-dependent utilities and their customers.
“The biggest problems for us in Lieberman-Warner are the early—and by early I mean from 2015 to 2030—caps [that] will force massive fuel switching from coal to natural gas,” said Bill Fang, EEI deputy general counsel and climate issue director for the investor-owned utility trade association. “That’s the quandary the bill puts us in.”
Fuel-switching by 2020 would increase natural gas wellhead prices by 22% above projected levels, while prices for coal, which now produces roughly half of all electricity, would fall to 30% by that year as more than 37% of existing coal-fired generation would be retired, CRA said. By 2030, coal generation would fall to only 22% of total generation, but it could recover in subsequent years if carbon-capture and storage (CCS) technology becomes broadly available in the U.S.
Nationwide, residential electricity prices would rise 28% by 2015, 40% by 2020 and 59% by 2050, with much sharper increases in certain regions of the country, CRA said.
In what may be CRA’s most debatable assumption, the analysis assumes that CCS is not likely to be available on a large scale until 2025 or later. Many experts think a targeted industry-government program to demonstrate CCS technology would lead to broad deployment much sooner.
CRA also projected that CO2 allowance prices in 2015 would reach $64, a far higher price than was projected by the Energy Information Administration (EIA) or the EPA in separate analyses of a different cap-and-trade bill (S. 280) sponsored by Lieberman and Sen. John McCain (R-Ariz.). The EIA and EPA analyses concluded that allowance prices in 2015 likely would be in the range of $10 to $20—less than the current allowance prices in the EU today.
Fang noted that CRA also made what he called “optimistic” assumptions about the penetration of non-fossil generation in the U.S. by 2030. The analysis assumed some 176 GW of new non-hydro renewable generation. That’s far more than what the EIA has assumed in its latest annual domestic energy supply and demand forecasts. CRA also assumed some 40 GW of new nuclear generation, higher than EIA projections but lower than what EPRI, a utility research institute, projected would be possible in a carbon-constrained environment.
“The message we want to bring is that we don’t think the technology is available to allow the utility industry to meet the Lieberman-Warner caps under the bill’s timetable,” Fang said.
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