Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Congressional research reportJun 4, 2008
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Climate Change: Comparison and Analysis of
S. 1766 and S. 2191 (S. 3036)
(name redacted)
Specialist in Energy and Environmental Policy
(name redacted)
Specialist in Energy and Environmental Policy
June 4, 2008
Congressional Research Service
7-....
www.crs.gov
RL34520
CRS Report for Congress
Prepared for Members and Committees of Congress
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Summary
Several proposals designed to address greenhouse gases have been introduced in the 110th
Congress. Two proposals, S. 1766, introduced by Senators Bingaman and Specter, and S. 2191,
introduced by Senators Lieberman and Warner and reported by the Senate Committee on
Environment and Public Works on May 20, 2008, are receiving increased scrutiny in preparation
for Senate debate on S. 2191. On May 20, 2008, Senator Boxer introduced S. 3036, which is
identical to the reported version of S. 2191 except that it contains a proposed budget amendment
to make the bill deficit neutral. On June 2, 2008, the Senate invoked cloture on a motion to
proceed on S. 3036, allowing discussion of the bill, but not allowing amendments to be
introduced. As of June 4, 2008, it is unclear whether the Senate will agree on the motion to
proceed, leading to further discussion and allowing amendments to be introduced.
The two proposals—S. 1766 and S. 2191—would establish market-based systems to limit
emissions of greenhouse gases. However, the proposals differ in how those systems would work.
S. 2191 would establish an absolute cap on emissions from covered entities and would allow
entities to trade emissions under that cap. S. 1766 would establish emissions targets on covered
entities and allow those entities to either meet emission reduction targets through a trading
program or make a safety valve payment in lieu of reducing emissions. Under both proposals,
short-term U.S. emissions would likely be below a business-as-usual scenario, although
reductions under S. 2191 are guaranteed by the cap and are projected to be larger, particularly
over the long-term. In contrast, costs under S. 1766 are likely to be lower and more predictable
than under S. 2191.
A major policy question is whether one is more concerned about the possible economic cost of
the program and therefore willing to accept some uncertainty about the amount of reduction
received (i.e., favoring a “safety valve” like S. 1766); or one is more concerned about achieving a
specific emission reduction level with costs handled efficiently, but not capped (i.e., pure
tradeable permits as in S. 2191). S. 2191 leans toward the quantity (total emissions) side of the
equation; S. 1766 leans toward the price side of the equation.
Congressional Research Service
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Contents
Introduction ................................................................................................................................1
Proposed Senate Legislation: Comparison of S. 1766 and S. 2191 ..............................................2
Results of Analyses .....................................................................................................................6
Emissions Reductions ........................................................................................................... 7
Impact on GDP Per Capita .................................................................................................. 10
Allowance Prices ................................................................................................................ 14
Auction Revenues ............................................................................................................... 15
Analysis: Addressing the Price versus Quantity Issue ................................................................ 16
Uncertainty in Emissions Reductions .................................................................................. 16
Uncertainty in Cost Estimates ............................................................................................. 17
Price versus Quantity: The Safety Valve .............................................................................. 20
Conclusion................................................................................................................................ 20
Figures
Figure 1. Total Estimated U.S. Greenhouse Gas Emissions Under S. 1766and S. 2191.................8
Figure 2. Total Estimated U.S. Greenhouse Gas Emissions From Each Model Under S.
1766 and S. 2191 .....................................................................................................................9
Figure 3. Estimated GDP per Capita (2005$) Under S. 1766 and S. 2191.................................. 10
Figure 4. Estimated GDP per Capita (2005$) From Each Scenario Under S. 1766 and S.
2191 ...................................................................................................................................... 11
Figure 5. Percentage Change in GDP Per Capita Under S. 1766 and S. 2191 ............................ 12
Figure 6. Percentage Change in GDP per Capita From Each Scenario Under S. 1766and
S. 2191 .................................................................................................................................. 13
Figure 7. Projected Allowance Prices Under S. 1766 and S. 2191 .............................................. 14
Figure 8. Estimated Annual Revenues From Allowance Auctions Under S. 1766 and S.
2191 ...................................................................................................................................... 15
Figure 9. EPA/ADAGE Analysis of S. 1766 .............................................................................. 17
Tables
Table 1. Comparison of Selected Provisions of S. 1766 and S. 2191 ............................................3
Table 2. Assumptions about the Availability of Current Electric Generating Technologies
and CCS in 2030.................................................................................................................... 18
Contacts
Author Contact Information ...................................................................................................... 21
Congressional Research Service
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Congressional Research Service
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Introduction
Climate change is a global issue, but proposed responses generally would require action at the
national level. In 1992, the United States ratified the United Nations Framework Convention on
Climate Change (UNFCCC), which called on industrialized countries to take the lead in reducing
the six primary greenhouse gases to 1990 levels by the year 2000.1 For more than a decade, a
variety of voluntary and regulatory actions have been proposed or undertaken in the United
States, including monitoring of power plant carbon dioxide emissions, improved appliance
efficiency, and incentives for developing renewable energy sources. However, greenhouse gas
emissions have continued to increase.
In 2001, President George W. Bush rejected the Kyoto Protocol, which called for legally binding
commitments by developed countries to reduce their greenhouse gas emissions. 2 He has also
rejected the concept of mandatory emissions reductions.3 Since then, the Administration has
focused U.S. climate change policy on voluntary initiatives to reduce the growth in greenhouse
gas emissions. In contrast, in 2005, the Senate passed a Sense of the Senate resolution on climate
change declaring that Congress should enact legislation establishing a mandatory, market-based
program to slow, stop, and reverse the growth of greenhouse gases at a rate and in a manner that
“will not significantly harm the United States economy” and “will encourage comparable action”
by other nations. 4
A number of congressional proposals to advance programs designed to reduce greenhouse gases
have been introduced in the 110th Congress. These have generally followed one of three tracks.
The first is to improve the monitoring of greenhouse gas emissions to provide a basis for research
and development and for any potential future reduction scheme. The second is to enact a marketoriented greenhouse gas reduction program along the lines of the trading provisions of the current
acid rain reduction program established by the 1990 Clean Air Act Amendments. The third is to
enact energy and related programs that would have the added effect of reducing greenhouse
gases:5 an example would be a requirement that electricity producers generate a portion of their
electricity from renewable resources (a renewable portfolio standard). This report focuses on the
second category of bills, and on two bills in particular: S. 1766 and S. 2191 (as reported).6
1
Under the United Nations Framework Convention on Climate Change (UNFCCC), those gases are carbon dioxide
(CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur
hexafluoride (SF6). Some greenhouse gases are controlled under the Montreal Protocol on Substances that Deplete the
Ozone Layer, and are not covered under UNFCCC.
2
For further information, see CRS Report RL33826, Climate Change: The Kyoto Protocol, Bali “Action Plan,” and
International Actions, by (name redacted) and (name redacted).
3
President George W. Bush, President Bush’s Speech on Global Climate Change (June 11, 2001).
4
S.Amdt. 866, passed by voice vote after a motion to table failed 43-54, June 22, 2005.
5
For discussions of relevant energy legislation, see CRS Report RL34294, Energy Independence and Security Act of
2007: A Summary of Major Provisions, by (name redacted), and CRS Report RL33831,
Energy Efficiency and Renewable
Energy Legislation in the 110th Congress, by (name redacted) et al.
6
For a review of additional climate change related bills, see CRS Report RL34067, Climate Change Legislation in the
Climate Change Legislation in the 110th Congress,
110th Congress, by (name redacted) and (name redacted),
by (name redacted) and (name redacted).
Congressional Research Service
1
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Note that CRS has a more comprehensive discussion of the costs and benefits of S. 2191
available.7 Many of the caveats and limitations about modeling and forecasting in that report are
applicable to this one. Readers are urged to consult that report in addition to reading this one.
Proposed Senate Legislation:
Comparison of S. 1766 and S. 2191
S. 1766. Introduced July 11, 2007, by Senators Bingaman and Specter, S. 1766 would set
emissions targets on most of the country’s greenhouse gas emissions. 8 Beginning in 2012,
covered entities would face emissions limits, with emissions targets set at their 2006 levels in
2020. The emissions targets would decline steadily until 2030, when the emission target would be
set at the entities’ 1990 levels. For each ton of carbon dioxide equivalent, covered entities can
comply with the bill by submitting an allowance through a trading program or by paying a safety
valve price (called a Technology Accelerator Payment or TAP). Under the trading program,
allowances are allocated to various entities, including covered entities; eligible facilities (noncovered facilities that may be in covered sectors), such as coal mines and carbon-intensive
industries; states; and parties conducting sequestration activities. Initially, 24% of all allowances
are auctioned, a percentage that increases over time. The TAP is set at $12 per metric ton of
carbon dioxide equivalent in 2012, increasing 5% annually above the rate of inflation. The bill
also requires countries that do not take comparable action to control emissions to submit special
allowances (or their foreign equivalent) to accompany imports into the United States of covered
greenhouse gas intensive goods and/or primary products.
S. 2191. Senators Lieberman and Warner introduced S. 2191 on October 18, 2007. As reported by
the Senate Committee on Environment and Public Works the bill would cover emissions from
petroleum producers and importers, facilities that produce or import more than 10,000 tons (of
carbon dioxide equivalent) of fluorinated chemicals annually, any facility that uses more than
5,000 tons of coal annually, any natural gas processing plant or importer (including LNG), and
any facility that emits more than 10,000 tons (of carbon dioxide equivalent) of HFCs annually as
a byproduct of hydrochloro-fluorocarbon production. S. 2191 is estimated by its sponsors to
reduce total U.S. greenhouse gas emissions 19% below 2005 levels by 2020 (up from 15% as
introduced) and 63% below 2005 levels by 2050. The bill would establish a Carbon Market
Efficiency Board to observe the allowance market and implement cost-relief measures if
necessary. Like S. 1766, S. 2191 also requires countries that do not take comparable action to
control emissions to submit special allowances (or their foreign equivalent) to accompany exports
to the United States of any covered greenhouse gas intensive goods and primary products.
On April 10, 2008, a proposed amendment to S. 2191 was submitted to the Congressional Budget
Office (CBO) to be included in the scoring of the bill. The amendment would provide for some of
the auctioned revenues to be put aside for deficit reduction purposes. On May 20, Senator Boxer
7
CRS Report RL34489, Climate Change: Costs and Benefits of S. 2191/S. 3036, by (name redacted) and (name red
acted).
8
Greenhouse gas emitting activities such as methane emissions from landfills, coal mines, animal waste, and municipal
wastewater projects, along with nitrous oxide emissions from agricultural soil management, wastewater treatment, and
manure management, are not included under the targets, although credits for use by covered entities are available or
may be generated by verified greenhouse gas reductions in these areas.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
introduced S. 3036, which is identical to the reported version of S. 2191 except that it contains the
above deficit reduction amendment. On June 2, 2008, the Senate invoked cloture on a motion to
proceed on S. 3036.
Table 1 summarizes the major provisions of each bill.
Table 1. Comparison of Selected Provisions of S. 1766 and S. 2191
Topic
S. 1766 (Bingaman/Specter)
S. 2191 as reported, with deficit reduction
amendment (S. 3036)
(Lieberman/Warner)
Emission
reduction/
limitation
scheme
Emissions targets for all covered entities.
Absolute cap on total emissions from all covered
entities.
Responsible
agency
To be determined by the President.
EPA.
Greenhouse
gases defined
Carbon dioxide, methane, nitrous oxide,
hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs), and sulfur
hexafluoride (SF6)
Same.
Specific
emissions
limits
In 2012, the emissions target for covered
entities is set at 6.652 billion metric tons.
Target is reduced annually thereafter until
2030.
In 2012, emissions from covered entities are
capped at 5.775 billion metric tons. Cap is
reduced annually thereafter until 2050.
Emission target for covered sources in 2020
is 6.188 billion metric tons.
Emission cap for covered sources in 2020 is
4.924 billion metric tons.
Emission target for covered sources in 2030
is 4.819 billion metric tons.
Emission cap for covered sources in 2030 is
3.860 billion metric tons.
Reductions beyond 2030 would require
additional congressional action.
Emission cap for covered sources in 2040 is
2.796 billion metric tons.
If the President determines that scientific,
technological, and international considerations
suggest further reductions are warranted,
his/her recommendations are to be
considered by Congress under expedited
procedures.
Emission cap for covered sources in 2050 is
1.732 billion metric tons.
Covered
entities
Regulated fuel distributors include petroleum
refineries, natural gas processing plants, and
importers of petroleum products, coke, or
natural gas. Regulated coal facilities are
entities that consume more than 5,000 tons
of coal a year. Regulated nonfuel entities are
producers and importers of HFCs, PFC, SF6,
N2O, or products containing such
compounds, and adipic acid and nitric acid
plants, aluminium smelters, and facilities that
emits HFCs as a byproduct of HCFC
production.
Assuming no capture of greenhouse gases
(GHGs), any producer or importer of
petroleum- or coal-based liquid or gaseous fuel
that emits GHGs, or any facility that produces or
imports more than 10,000 tons carbon dioxide
equivalent (CO2e) of GHG chemicals annually;
any facility that uses more than 5,000 tons of
coal annually; any natural gas processing plant or
importer (including LNG); and any facility that
emits more than 10,000 CO2e of HFCs annually
as a byproduct of hydrochloro-fluorocarbon
production.
General
allocating and
implementing
strategy
Two compliance systems are provided.
Covered entities may choose which one to
use or employ a combination of both:
A tradeable allowance system is established. Off
the top, a share of allowances is auctioned for
deficit reduction increasing from 6.1% in 2012 to
15.99% in 2031 and thereafter. Then the
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Topic
S. 1766 (Bingaman/Specter)
First, a tradeable allowance system is
established. In 2012, 53% of allowances are
allocated to covered and eligible industrial
entities; 23% allocated to states and for
sequestration and early reduction activities;
24% are auctioned to fund low income
assistance, carbon capture and storage, and
adaptation activities. The percentage
auctioned increases steadily, reaching 53% by
2030.
Second, a Technology Accelerator Payment
(i.e., safety valve) may be paid in lieu of
submitting one or more allowances.
Public
sale/auction of
allowances
Beginning in 2012, 24% of available allowances
are auctioned to fund low income assistance,
technology, and adaptation activities. The
percentage auctioned increases steadily,
reaching 53% by 2030; after that it increases 1
percentage point annually through 2043.
Revenues from the auction are to be
deposited in one of three funds created by
the Department of the Treasury: the Energy
Technology Deployment Fund, the Climate
Adaptation Fund, and the Energy Assistance
Fund.
Cost-limiting
safety valve
A Technology Accelerator Payment (TAP)
(i.e., safety valve) may be paid in lieu of
submitting one or more allowances. For 2012,
the TAP price is set at $12 per metric ton,
rising 5% above inflation annually thereafter.
If the President determines the TAP should
be increased or eliminated to achieve the
act’s purposes, his recommendations are to
be considered by Congress under expedited
procedures.
S. 2191 as reported, with deficit reduction
amendment (S. 3036)
(Lieberman/Warner)
“remainder allowances” are distributed in 2012
(adjusted in future years) as follows: 38% of
allowances to covered electric utilities, industrial
facilities, and cooperatives, declining steadily to
zero in 2031; 10.5% to states for conservation,
extra reductions, and other activities; 7.5% for
various sequestration activities; 11% allocated for
electricity and natural gas consumer assistance;
5% for early reductions; 0.5% for tribal
governments; 1% for methane reduction
projects; and 21.5% (plus an early auction of 5%)
auctioned to fund technology deployment,
carbon capture and storage, low income and
rural assistance, and adaptation activities, as well
as program management. The percentage
auctioned by the Climate Change Credit
Corporation (CCCC) increases steadily, reaching
69.5% by 2031 and thereafter.
Beginning in 2012, 6.1% of total allowances are
auctioned for deficit reduction. Further, 21.5% of
“remainder allowances” (plus 5% from an early
auction of 2012 remainder allowances) are
auctioned to fund the activities of the CCCC.
This percentage increases steadily to 69.5% by
2031 and thereafter.
Revenues from the auction are to be deposited
in one of ten funds created in the Department of
the Treasury: Deficit Reduction Fund,
Technology Deployment, Energy Independence
Acceleration Fund, Energy Assistance Fund,
Climate Change Worker Training Fund,
Adaptation Fund, and the Climate Change and
National Security Fund, as well as a fund for
program management and two Emergency
Firefighting Funds.
A Carbon Market Efficiency Board is established
to observe the allowance market and implement
cost-relief measures if necessary. Measures
include increased allowance borrowing from
future allocations; increased use of offsets and
foreign allowances; expanded payback period for
such allowances; lower interest charged for
borrowed allowances; and expanded total
borrowed allowances. Increased borrowing is
limited to 5% of the emission cap and the
repayment schedule cannot be longer than 15
years.
If the President determines a national security
emergency exists, the President may temporarily
adjust, suspend, or waive any regulation
promulgated under this program (subject to
judicial review).
Penalty for
non-
Excess emissions penalties are equal to three
times the TAP price for that calendar year. In
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Excess emission penalties per ton are equal to
the higher of $200 or three times the mean
4
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Topic
S. 1766 (Bingaman/Specter)
S. 2191 as reported, with deficit reduction
amendment (S. 3036)
(Lieberman/Warner)
compliance
addition, civil penalties are $25,000 a day for
violating provisions of the act.
market price for allowances during the year the
allowance was due, plus a 1-to-1 offset from a
future year allocation.
Domestic
Offsets /
Credits
Establishes program to provide credits
obtained through verified domestic
reductions from non-covered activities
(offsets). No limit the use of domestic offsets
to meet allowance requirement.
Up to 15% of allowance requirement may be met
through domestic offsets: emissions reductions
from agricultural sequestration, land use change,
forestry, manure management, and other
specified activities. Percentage may be increased
by the Carbon Market Efficiency Board
International
Offsets /
Credits
If the President determines that emission
credits issued under foreign programs or
foreign offset projects are comparable, he
may promulgate rules allowing such credits or
offsets to be used to meet the act’s emission
targets. No more than 10% of an entity’s
emissions target can be met through foreign
emission credits and foreign offset projects.
Up to 15% of allowance requirement may be met
through certified foreign allowance markets.
Percentage may be increased by the Carbon
Market Efficiency Board.
Banking
Banking of allowances is permitted;
allowances may be saved for use in future
years.
Banking of allowances is permitted; allowances
may be saved for use in future years.
Early
reduction
credits and
bonus credits
One percent of allowances available from
2012 through 2020 are allocated to early
reductions reported under the 1992 Energy
Policy Act’s 1605(b) program, EPA’s Climate
Leaders Program, or a state-administered or
privately administered registry.
Five percent of “remainder allowances”
established for 2012 (declining steadily to zero in
2017) are allocated to early reductions reported
under the 1992 Energy Policy Act’s 1605(b)
program, EPA’s Climate Leaders Program, or a
state-administered or voluntary program.
Geologic sequestration projects built from
2008 through 2030 receive bonus allowances
for the first 10 years of operation.
Four percent of remainder allowances
established for 2012 through 2035 are available
on a steadily declining basis from 2012 through
2039 for geologic sequestration projects for
electric generating plants built from 2008
through 2035. The bonus allowances are limited
to the first 10 years of operation.
A new Energy Technology Deployment Fund
is funded by TAP revenues and some auction
proceeds. Activities to be funded include
zero- or low-carbon energy, advanced coal
and sequestration, cellulosic biomass, and
advanced technology vehicles.
Off the top, a growing share of allowances are
auctioned for deficit reduction.
Revenue
recycling
A new Climate Adaptation Fund is funded by
some auction proceeds. Activities to be
funded include coastal, arctic, and fish and
wildlife impact mitigation.
A new Energy Assistance Fund is funded by
some auction proceeds. Activities to be
funded include low-income and rural energy
assistance, and weatherization.
Congressional Research Service
Revenues received by “remainder allowance”
auctions are to be received by the CCCC.
Activities to be funded include technology
deployment activities (including zero- or lowcarbon energy, advanced coal and sequestration,
cellulosic biomass, and advanced technology
vehicles); assistance activities (including low
income, weatherization, and rural assistance);
worker transition assistance; and adaptation
activities (including wildlife conservation and
restoration, aquatic ecosystems, and coastal
habitats).
Revenues would also fund a Climate Change and
National Security Program within the U.S.
Agency for International Development to report
annually on the ramifications of climate change
for national security.
5
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Topic
S. 1766 (Bingaman/Specter)
S. 2191 as reported, with deficit reduction
amendment (S. 3036)
(Lieberman/Warner)
Such sums as are necessary to maintain a fund of
$1.1 billion is directed toward wildland fire
suppression activities by the Bureau of Land
Management and the Forest Service.
Other key
provisions
Provisions include periodic review of the
activities of the nation’s five largest trading
partners, an National Academy of Sciences
assessment of the status of climate change
science, emission control technologies, and
energy security implications.
Provisions require new appliance standards in
2012 and provide for new model building
efficiency standards by 2010.
Beginning in 2019, requires foreign countries
that do not take comparable emission
reduction actions to submit international
reserve allowances (or foreign equivalents) to
accompany exports of any covered
greenhouse gas intensive goods and primary
products to the United States. Leastdeveloped nations or those that contribute
no more than 0.5% of global emissions are
excluded. Proceeds from the sale of such
reserve allowances are to be deposited in an
International Energy Deployment Fund to
encourage and finance international
technology development.
Beginning in 2019, requires foreign countries that
do not take comparable emission reduction
actions to submit international reserve
allowances (or foreign equivalents) to accompany
exports of any covered greenhouse gas intensive
goods and primary products to the United
States. Least developed nations or those that
contribute no more than 0.5% of global
emissions are excluded.
Beginning in 2018, requires annual review of
foreign countries’ GHG control actions.
Requires periodic review of the bill’s
implementation and purposes by the NAS.
Establishes a separate cap-and-trade program to
limit U.S. production and consumption of HFCs.
Establishes a low carbon fuel standard (LCFS)
requiring transportation fuels to have, on
average, 10% lower lifecycle emissions per unit
of energy by 2020.
Results of Analyses
Two studies have been completed that compare S. 1766 and S. 2191 under the same baseline
conditions.
The most comprehensive analysis has been conducted by the U.S. Environmental Protection
Agency (EPA). The reports are entitled EPA Analysis of the Low Carbon Economy Act of 2007: S.
1766 in the 110th Congress (January 15, 2008), and EPA Analysis of the Lieberman-Warner
Climate Security Act of 2008: S. 2191 in 110th Congress (March 14, 2008).9 The analyses employ
a suite of models and basecases, along with some useful sensitivity analysis. This report will
focus on three of the models and two basecases.10
9
The report and supporting model runs are available at http://www.epa.gov/climatechange/economics/
economicanalyses.html.
10
Other EPA models focus on forests and agriculture, non-CO2 gases, and climate assessment.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
•
The first model is ADAGE: a computable general equilibrium (CGE) model
developed by RTI International.11 The S. 1766 and S. 2191 cases employing the
reference basecase are designated EPA/ADAGE-REF in this report, while the
cases employing the high technology basecase are designated EPA/ADAGETECH.
•
The second model is IGEM: a CGE model developed by Dale Jorgenson
Associates.12 The cases employing the reference basecase are designated
EPA/IGEM-REF in this report, while the cases employing the high technology
basecase are designated EPA/IGEM-TECH.
•
The third model is IPM: a dynamic, deterministic linear programming model of
the U.S. electric power sector developed by ICF Resources. The cases employing
the IPM model are designated EPA/IPM in this report.13
A second analysis has been conducted by the Energy Information Administration (EIA). The
report is entitled Energy Market and Economic Impacts of S. 2191, the Lieberman-Warner
Climate Security Act of 2007 (April 2008) and included an updated analysis of S. 1766.14 The
analysis employs EIA’s NEMS model: a macroeconomic forecasting model with extensive energy
technology detail.15 In addition to conducting a “core” analysis of S. 2191 using its preliminary
2008 Annual Energy Outlook (AEO) Baseline, EIA also conducts some useful sensitivity analysis
that focuses on the upside risk of increased energy prices under S. 2191. However, EIA did not
update the sensitivity analysis it had previously conducted on S. 1766. The core16 S. 2191
analysis and the updated S. 1766 analysis are designated EIA/NEMS in this report.
Emissions Reductions
Figure 1 and Figure 2 present greenhouse gas emissions under S. 1766 and S. 2191 as estimated
by the models. For S. 2191, the spread in projected emissions reductions is largely the result of
two factors: (1) estimated emissions growth in the 10%-15% of the economy not covered under
the bill, and (2) estimated use of international allowances or offsets to meet emission reduction
requirements. If a covered entity submits an international allowance or offset for compliance
purposes, the entity can emit a comparable amount domestically. This latter point is most evident
in the ADAGE estimates. For S. 1766, the spread would also be in response to these uncertainties,
although the EPA cases and EIA’s updated analysis did not include international credits. What the
figures do not show is that the TAP (safety valve) is increasingly used by covered entities after
2030, preventing the projected emissions from achieving the targets specified under the bill. This
result is discussed more fully later.
11
For more information on the ADAGE model, see http://www.rti.org/adage.
12
For more information on the IGEM model, see http://post.economics.harvard.edu/faculty/jorgenson/papers/
papers.html.
13
For more information on the IPM model, see http://www.epa.gov/airmarkets/progsreg/epa-ipm/index.html.
14
EIA’s previous report was entitled Energy Market and Economic Impacts of S. 1766, the Low Carbon Economy Act
of 2007 (January 2008).
15
For more on the NEMS model, see http://www.eia.doe.gov/oiaf/aeo/overview/index.html.
16
The use of the word “core” should not imply that EIA believes it to be the most likely scenario.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Figure 1.Total Estimated U.S. Greenhouse Gas Emissions Under S. 1766and S. 2191
12000
GHG Emissions (MMT CO2 Eq.)
11000
10000
9000
8000
7000
6000
5000
4000
2010
2020
2030
2040
Reference Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
S. 2191 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
S. 1766 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
2050
Sources for Figure 1and Figure 2: U.S. Environmental Protection Agency (EPA), EPA Analysis of the Low
Carbon Economy Act of 2007: S. 1766in the 110th Congress (January 15, 2008); EPA, EPA Analysis of the LiebermanWarner Climate Security Act of 2008: S. 2191in 110th Congress (March 14, 2008); U.S. Energy Information
Administration (EIA), Energy Market and Economic Impacts of S. 2191, the Lieberman-Warner Climate Security Act of
2007 (April 2008).
Notes: Estimates beyond 2030 are speculative for three reasons: 1) beyond 2030, S. 1766 requires additional
congressional action to further tighten the emissions cap; 2) EIA’s NEMS model does not extend beyond 2030;
and 3) projecting economic and environmental effects long-term is a very uncertain enterprise. For a discussion
of those uncertainties, CRS Report RL34489, Climate Change: Costs and Benefits of S. 2191/S. 3036, by (name
redacted) and (name redacted).
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
GHG Emissions (MMT CO2 Eq.)
GHG Emissions (MMT CO2 Eq.)
GHG Emissions (MMT CO2 Eq.)
Figure 2.Total Estimated U.S. Greenhouse Gas Emissions From Each Model Under
S. 1766 and S. 2191
12000
11000
10000
9000
8000
7000
6000
5000
4000
2010
2020
2030
2040
2050
Reference Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
S. 2191 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
S. 1766 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
12000
11000
10000
9000
8000
7000
6000
5000
4000
2010
2020
2030
2040
Reference Cases
EPA/IGEM-REF
EPA/IGEM-TECH
S. 2191 Cases
EPA/IGEM-REF
EPA/IGEM-TECH
S. 1766 Cases
EPA/IGEM-REF
EPA/IGEM-TECH
2050
12000
11000
10000
9000
8000
7000
6000
5000
4000
2010
Congressional Research Service
2020
2030
2040
Reference Cases
EIA/NEMS
S. 2191 Cases
EIA/NEMS
S. 1766 Cases
EIA/NEMS
2050
9
Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Impact on GDP Per Capita
Figure 3 and Figure 4 present the estimated GDP per capita as estimated by each of the
scenarios for the reference case and under S. 1766 and S. 2191. Not surprisingly, the GDP effects
of both bills are absorbed by the uncertainty reflected in the reference case assumptions. In the
five scenarios, the increase in GDP between 2010 and 2030 ranges between 62% and 81% in the
base cases. Under S. 2191, the more stringent bill, the range is 62% to 80%. These figures
indicate the models’ conclusions that the economy continues to grow under S. 1766 and S. 2191,
albeit at a somewhat slower rate than under their respective reference cases. The virtual
superimposition of the curves in Figure 3 and Figure 4 shows how little variability there is
between the base cases and the model results.
Figure 3. Estimated GDP per Capita (2005$)
Under S. 1766 and S. 2191
$110,000
GDP per Capita (2005$)
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
2010
2020
2030
2040
2050
Reference Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
S. 2191 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
S. 1766 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
Sources for Figure 3 and Figure 4: U.S. Environmental Protection Agency (EPA), EPA Analysis of the Low
Carbon Economy Act of 2007: S. 1766 in the 110th Congress (January 15, 2008); EPA, EPA Analysis of the LiebermanWarner Climate Security Act of 2008: S. 2191 in 110th Congress (March 14, 2008); U.S. Energy Information
Administration (EIA), Energy Market and Economic Impacts of S. 2191, the Lieberman-Warner Climate Security Act of
2007 (April 2008).
Notes: Estimates beyond 2030 are speculative for three reasons: 1) Beyond 2030, S. 1766 requires additional
congressional action to further tighten the emissions cap; 2) EIA’s NEMS model does not extend beyond 2030;
and 3) projecting economic and environmental effects long-term is a very uncertain enterprise. For a discussion
of those uncertainties, see CRS Report RL34489, Climate Change: Costs and Benefits of S. 2191/S. 3036, by (name
redacted) and (name redacted).
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Figure 4. Estimated GDP per Capita (2005$) From Each
Scenario Under S. 1766 and S. 2191
GDP per Capita (2005$)
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
2010
2020
2030
2040
Reference Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
S. 2191 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
S. 1766 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
2050
GDP per Capita (2005$)
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
2010
2020
2030
2040
Reference Cases
EPA/IGEM-REF
EPA/IGEM-TECH
S. 2191 Cases
EPA/IGEM-REF
EPA/IGEM-TECH
S. 1766 Cases
EPA/IGEM-REF
EPA/IGEM-TECH
2050
GDP per Capita (2005$)
$110,000
$100,000
$90,000
$80,000
$70,000
$60,000
$50,000
$40,000
2010
2020
2030
2040
Reference Cases
EIA/NEMS
S. 2191 Cases
EIA/NEMS
S. 1766 Cases
EIA/NEMS
2050
To help sort this out further, Figure 5 and Figure 6 present the relative percentage reduction in
GDP per capita for the two bills. With the exception of the IGEM model, all projections for S.
1766 and S. 2191 showed a zero to 1% decrease in GDP per capita through 2030. As discussed in
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
the previous CRS report, IGEM’s higher estimates are the result of its structure and
assumptions.17
Figure 5. Percentage Change in GDP Per Capita
Under S. 1766 and S. 2191
0%
Change in GDP per Capita
-1%
-2%
-3%
-4%
-5%
-6%
-7%
2010
2020
2030
2040
S. 2191 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
S. 1766 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
2050
Sources for Figure 5 and Figure 6: U.S. Environmental Protection Agency (EPA), EPA Analysis of the Low
Carbon Economy Act of 2007: S. 1766 in the 110th Congress (January 15, 2008); EPA, EPA Analysis of the
Lieberman-Warner Climate Security Act of 2008: S. 2191 in 110th Congress (March 14, 2008); U.S. Energy
Information Administration (EIA), Energy Market and Economic Impacts of S. 2191, the Lieberman-Warner
Climate Security Act of 2007 (April 2008).
Notes: Estimates beyond 2030 are speculative for three reasons: 1) Beyond 2030, S. 1766 requires additional
congressional action to further tighten the emissions cap; 2) EIA’s NEMS model does not extend beyond 2030;
and 3) projecting economic and environmental effects long-term is a very uncertain enterprise. For a discussion
of those uncertainties, see CRS Report RL34489, Climate Change: Costs and Benefits of S. 2191/S. 3036, by (name
redacted) and (name redacted).
17
For example, the IGEM model assumes that as prices increase, people tend to work less and buy less, effectively
multiplying the effect of any reduction in economic output. For a more detailed discussion, see CRS Report RL34489,
Climate Change: Costs and Benefits of S. 2191/S. 3036, p. 35.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Figure 6. Percentage Change in GDP per Capita From Each
Scenario Under S. 1766and S. 2191
Change in GDP per Capita
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
2010
2020
2030
2040
2050
S. 2191 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
S. 1766 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
Change in GDP per Capita
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
2010
2020
2030
2040
S. 2191 Cases
EPA/IGEM-REF
EPA/IGEM-TECH
S. 1766 Cases
EPA/IGEM-REF
EPA/IGEM-TECH
2050
Change in GDP per Capita
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
2010
Congressional Research Service
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2030
2040
S. 2191 Cases
EIA/NEMS
S. 1766 Cases
EIA/NEMS
2050
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Allowance Prices
Figure 7 and Figure 8 present the estimated allowance prices for S. 1766 and S. 2191. Generally,
the figures indicate that S. 1766‘s TAP price is the controlling price, achieving the cost certainty
for which the safety valve is designed. As expected, the allowance prices for S. 2191 slowly
spread in the out-years, as evident in the figures. It should be noted that the EIA/NEMS case for
S. 2191 mimics the extension of S. 2191 to 2050 by requiring the model to have a 5 billion
allowance bank at the end of 2030. In the case of S. 1766, by 2030, the bank has been exhausted
and covered entities are making TAP payments in lieu of additional reductions.
Figure 7. Projected Allowance Prices Under S. 1766 and S. 2191
250
Allowance Price (2005$)
200
150
100
50
0
2010
2020
2030
2040
S. 2191 Cases
EPA/ADAGE-REF
EPA/ADAGE-TECH
EPA/IGEM-REF
EPA/IGEM-TECH
EIA/NEMS
S. 1766 Cases
EPA/All Cases
EIA/NEMS
2050
Sources for Figure 7and Figure 8: U.S. Environmental Protection Agency (EPA), EPA Analysis of the Low
Carbon Economy Act of 2007: S. 1766 in the 110th Congress (January 15, 2008); EPA, EPA Analysis of the
Lieberman-Warner Climate Security Act of 2008: S. 2191 in 110th Congress (March 14, 2008); U.S. Energy
Information Administration (EIA), Energy Market and Economic Impacts of S. 2191, the Lieberman-Warner
Climate Security Act of 2007 (April 2008).
Notes: Estimates beyond 2030 are speculative for three reasons: 1) Beyond 2030, S. 1766 requires additional
congressional action to further tighten the emissions cap; 2) EIA’s NEMS model does not extend beyond 2030;
and 3) projecting economic and environmental effects long-term is a very uncertain enterprise. For a discussion
of those uncertainties, see CRS Report RL34489, Climate Change: Costs and Benefits of S. 2191/S. 3036, by (name
redacted) and (name redacted). For S. 1766, in both EPA models and in all cases presented, the allowance price
is equal to the TAP (“safety valve”) price for that year.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Auction Revenues
Both S. 2191 and S. 1766 would auction a significant portion of allowances, although auction
revenues would be significantly higher in S. 2191 for two reasons: 1) S. 2191 allocates more
allowances for auction; and 2) S. 2191‘s allowance prices are higher. Starting in 2012, both bills
would auction roughly a quarter of all allowances. In later years, S. 2191 auctions a larger share
of allowances than S. 1766: in 2030, S. 2191 would auction roughly 68% of allowances, while S.
1766 would auction 53%. Also, as shown in Figure 7 and Figure 8, in all models, S. 2191 has
higher prices than S. 1766 (in some cases two to three times as high). Figure 9 shows estimated
auction revenues based on allowance prices in the EPA/ADAGE-TECH case. Using allowance
prices from the other scenarios would show an even wider discrepancy between auction revenues,
as the EPA/ADAGE-TECH case presents the lowest allowance price for S. 2191, while all of the
models peg S. 1766 allowance prices at or near the TAP price.
Figure 8. Estimated Annual Revenues From Allowance
Auctions Under S. 1766 and S. 2191
$140,000
Annual Auction Revenue (million 2005$)
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
2012
2017
2022
S. 2191
2027
S. 1766
Source: CRS Analysis of S. 2191 and S. 1766 using allowance price estimates from EPA/ADAGE-TECH case.
CRS has chosen to present auction revenues only to 2030 for two reasons. First, S. 1766 requires
a new congressional vote (under special procedures) in order to continue beyond 2030. Second,
based on the analyses available, the TAP becomes the dominant compliance strategy after about
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
2030, suggesting Congress may want to reassess its level at that time, if additional reductions are
considered warranted.
Analysis: Addressing the Price versus
Quantity Issue
S. 1766 and S. 2191 represent different answers to the choice between controlling the price and
the quantity of emissions under a market-based control strategy. In general, market-based
mechanisms to reduce greenhouse gas emissions focus on specifying either the acceptable
emissions level (quantity) or compliance costs (price), allowing the marketplace to determine the
economically efficient solution for the other variable. If one is more concerned about the possible
economic cost (price) of the program, then use of a safety valve to limit costs could appear to
some more appropriate, even through it introduces some uncertainty about the amount of
reduction achieved (quantity). In contrast, if one is more concerned about achieving a specific
emission reduction level (quantity), with costs handled efficiently, but not capped, a tradeable
permit program without a safety valve may be viewed as more appropriate. In the case of these
alternatives, S. 2191 leans toward the quantity (total emissions) side of the equation; S. 1766
leans toward the price side of the equation.
Uncertainty in Emissions Reductions
The projected emission reductions under S. 2191 are more certain than under S. 1766. There are
two key sources of uncertainty for S. 2191: (1) the precise number of covered entities that must
meet the reduction requirements and the future emissions growth from non-covered entities, and
(2) the availability and use of international allowances that meet the bill’s compliance
requirement but do not reduce domestic emissions. S. 2191 is estimated to cover about 85% of the
country’s greenhouse gas emissions. In addition, the analyses presented here assume that
international credits that meet S. 2191‘s eligibility requirements would be available at reasonable
prices. In other analyses of S. 2191, this assumption is disputed.
S. 1766 has these uncertainties, plus an additional one in the form of the safety valve. As
indicated in the Results section, the cases reviewed here generally assume that the allowance
price equals the safety valve price or is very close. This results in banking in the early years of the
program and use of that bank later. As the program approaches 2030, the bank is exhausted and
covered entities begin making TAP payments. As illustrated in Figure 9, the result is an actual
emissions level that is higher than the level targeted by the bill.18
Because the TAP price becomes the allowance price over time in all cases under S. 1766,
projected emissions exceed the bill’s target once the TAP is triggered. This situation reveals the
emissions uncertainty that a safety value introduces. The TAP price is a compliance strategy
independent of the cap-and-trade compliance strategy. Thus, the actual emissions reduction under
S. 1766 depends on the interplay between allowance prices and TAP prices. For example,
18
In early years, as the bank is built up, both annual emissions and cumulative emissions are below the targets in the
bill. As the bank is used up, annual emissions exceed the targets, and cumulative emissions approach and eventually
equal the bill target. When the TAP is included, once the bank is exhausted (and cumulative emissions are equal to the
target) annual and cumulative emissions exceed the targets in all future years.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
EPA/IGEM-REF sensitivity analysis indicates unlimited availability of international credits
would keep allowance prices below the TAP price. 19 EIA/NEMS does not project beyond 2030;
however, none of the sensitivity analyses from EIA’s previous analysis resulted in an allowance
price below the TAP price in 2030. The result could change if the sensitivity analyses were
updated to the 2008 Annual Energy Outlook (AEO) baseline (with lower projected baseline
emissions and thus, presumably, lower compliance costs).
Figure 9. EPA/ADAGE Analysis of S. 1766
GHG Emissions (MMT CO2 Eq.)
10,000
9,000
8,000
Using Bank
7,000
Paying TAP
6,000
5,000
Banking
4,000
3,000
2,000
2012
2017
Reference Case
2022
2027
2032
Emissions Target
2037
2042
2047
Actual Covered Emissions
Source: CRS Analysis of data from EPA/ADAGE-REF S. 1766 case.
Uncertainty in Cost Estimates
The projected cost effects under S. 2191 are more uncertain than under S. 1766. A major source
of uncertainty for S. 2191 is future business-as-usual growth in greenhouse gas emissions by
covered entities. Because S. 2191 establishes a strict cap on greenhouse gas emissions from
covered entities based on limits specified in the bill, any increased emissions resulting from
continuing economic growth would have to be reduced or offset. The more robust the economic
growth, the greater potential for higher emissions that would have to be offset to maintain the cap.
In general, greater emissions reduction leads to higher costs. If economic growth is less robust,
fewer reductions would be necessary and costs would be less.20
S. 2191 cost estimates are affected by several other uncertainties. As noted earlier, the span of
estimated allowance prices under S. 2191 is significant. The differing estimates are based on
varied assumptions about the availability of the following: (1) cost-effective energy efficiency
19
However, S. 1766 allows covered entities to meet only 10% of allowance requirements through international offsets.
For more information, see CRS Report RL33970, Greenhouse Gas Emission Drivers: Population, Economic
Development and Growth, and Energy Use, by (name redacted) and (name redacted).
20
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
improvements, (2) cost-effective non-CO2 greenhouse gas reductions and other offsets, (3) costeffective carbon capture and storage technology (CCS) and other low-carbon emitting technology,
and (4) cost-effective international allowances and/or credits. With a program designed to achieve
a least-cost solution through a market-based allowance trading system, restricting the availability
of options—be they emissions reduction opportunities (i.e., offsets) or new technology—
increases projected costs. Hence, the incentives and funding for new technology and the
availability of offsets and credits under S. 2191 are critical to its long-term success.
S. 1766 cost estimates are not as sensitive to the factors identified above. Partly this is by design,
and partly this is because S. 1766 targets less emission reductions than S. 2191. The reduction
targets under S. 1766 are not as stringent as the emissions cap under S. 2191, as discussed earlier.
Fewer emissions reductions required translates into lower costs. This is reinforced by the TAP
price, which is projected to become the dominant compliance strategy in the long-term.
The effect of lower emission reduction targets is illustrated by the impact of the two bills on
projected 2030 electric generation, as illustrated in Table 2. As discussed in CRS Report
RL34489, in some ways, the interplay between nuclear power, renewables, and coal-fired
capacity with CCS is a proxy for the need for a low-carbon source of electric generation in the
mid- to long-term.21 As indicated, a considerable amount of low-carbon generation will have to be
built under S. 2191 in order to meet the reduction requirement. The amount of capacity
constructed depends on the models’ base case assumptions about future supply and demand and
need for capacity replacement/retirement under S. 2191, along with the degree of consumer
response to rising prices and incentives contained in S. 2191. The amount necessary under S.
1766 is substantially less as fewer existing facilities are retired or replaced. For example,
EPA/IPM estimates that for 2025, about 193 gigawatts (GW) of oil-fired, natural gas-fired, and
coal-fired capacity would be retired under S. 2191; it estimates only 95 GW of such capacity
would be retired under S. 1766.
Table 2. Assumptions about the Availability of Current Electric Generating
Technologies and CCS in 2030
Nuclear Power
Renewable Power
Natural Gas-fired
Coal with CCS
EPA/ADAGE-REF
about 65 GW
(built)
about 58 GW (built)
little
about 39 GW (built)
EPA/ADAGETECH
about 65 GW
(built)
about 59 GW (built)
little
about 33 GW (built)
EPA/IPM (2025)
44 GW (limit and
built)
11 GW (built)
6 GW (built)
99 GW (built)
EIA/NEMS
57 GW (built)
45 GW (built)
76 GW (built)
232 GW (built) (plus
19 GW no CCS)
about 71 GW
(built)
about 58 GW (built)
little
165 GW (built)
S. 1766
S. 2191
EPA/ADAGE-REF
21
CRS Report RL34489, Climate Change: Costs and Benefits of S. 2191/S. 3036, by (name redacted) and (name red
acted), p. 47.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
Nuclear Power
Renewable Power
Natural Gas-fired
Coal with CCS
EPA/ADAGETECH
about 70 GW
(built)
about 61 GW (built)
little
89 GW (built)
EPA/IPM (2025)
44 GW (limit and
built)
61 GW (built)
6 GW (built)
80 GW (built)
EIA/NEMS
264 GW (built)
112 GW (built)
77 GW (built)
64 GW (built)
AEO 2007
baseline
12.5 GW
12.4 GW
88.2 GW
145 GW (no CCS)
Source: EPA cases: “Data Annex” available on the EPA website at http://www.epa.gov/climatechange/
economics/economicanalyses.html EIA/NEMS: EIA, Energy Market and Economic Impacts of S. 2191, the LiebermanWarner Climate Security Act of 2007 (April 2008).
Note: “Limit” is the maximum amount the model assumes can be built—it is not necessarily the amount the
model determined would be built. “Built” is the amount the model determined needed to be built. “About” is an
estimate by CRS of the additional capacity necessary for the increased electricity production projected by the
model between 2010 and 2030 under S. 1766 and S. 2191 in the absence of capacity data being provided. The
estimates are calculated assuming an 80% capacity factor for biomass, 90% for nuclear power and coal, 48% for
renewables, and 85% for natural gas.
To put these numbers into historical context, from 1963 to 1985, 78 GW of nuclear power were
ordered, constructed, and began operation.22 For the 19-year period of 1966 through 1984, the
country added 464 GW of generating capacity, including 210 GW of coal-fired capacity, 38 GW
of hydropower, 27 GW of natural gas capacity (steam technology), 46 GW of oil-fired capacity,
and 54 GW of peaking capacity to improve system reliability after the 1965 blackout. In addition
to new additions, between 1965 and 1972, about 400 coal-fired generating units were converted
to oil to meet environmental requirements. After the 1973 oil embargo, this trend was reversed,
with 11 GW of capacity converted back to coal by 1983.23 For a more recent example, from 2001
through 2005, the United States added about 180 GW of new capacity—almost all natural gasfired.24
Like S. 2191, S. 1766‘s projected cost is affected by the assumed availability of cost-effective
control measures, such as those noted above—energy efficiency improvements, non-CO2
greenhouse gas reductions and other offsets, carbon capture and storage technology and other
low-carbon emitting technology, and cost-effective international credits. However, S. 1766 does
not represent as much of a shift in generation supply as does S. 2191. This is evident from the
projected impact of S. 1766 on coal production for electricity generation, where the model results
indicate stable production under S. 1766; under S. 2191, future coal production is heavily
dependent on the models’ assumptions about the availability and cost-effectiveness of CCS
technology compared with alternatives, such as nuclear power.
Combined with a more modest reduction requirement, S. 1766‘s safety valve caps the upside risk
of costs and ensures its costs would be lower than S. 2191. Although there are uncertainties in S.
1766‘s potential costs, its safety valve puts a strict upper limit on compliance cost—$12 a ton
(nominal 2012$), increasing 5% annually in real terms. Besides putting an upper bound on cost,
22
Compiled from EIA’s Reactor Status List available from EIA’s website.
23
Energy Information Administration, Fuel Choice in Steam Electric Generation: Historical Overview, DOE/EIA0472 (August 1985), pp. 5 and 7.
24
Environmental Protection Agency, EPA Analysis of the Low Carbon Economy Act of 2007: S. 1766 in the 110th
Congress (January 15, 2008), p. 49.
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
S. 1766‘s safety valve narrows the band of potential costs substantially; the remaining cost
uncertainty is only with respect to the lower bound of costs.
Price versus Quantity: The Safety Valve
The purpose of a safety valve price is to bound the costs of any climate change control program
(price) at the expense of reductions achieved (quantity).25 In general, market-based mechanisms
to reduce greenhouse gas emissions focus on specifying either the acceptable emissions level
(quantity), or compliance costs (price), and allowing the marketplace to determine the
economically efficient solution for the other variable. For example, a tradeable permit program
sets the amount of emissions allowable under the program (i.e., the number of permits allocated
caps allowable emissions), while letting the marketplace determine what each permit will be
worth. Likewise, a carbon tax (or the safety valve contained in S. 1766) sets the maximum unit
cost (per ton of CO2) that one should pay for reducing emissions, while the marketplace
determines how much actually gets reduced. In one sense, preference for a pure tradeable permit
system or inclusion of a safety valve depends on how one views the uncertainty of costs involved
and benefits to be received. 26
For those confident that achieving a specific level of greenhouse gas reduction will yield
significant benefits—enough so that even the potentially very high end of the marginal cost curve
is not a concern—a pure tradeable permit program may be most appropriate. Greenhouse gas
emissions would be reduced to a specific level, and in the case of a tradeable permit program, the
cost involved would be handled efficiently, though not controlled at a specific cost level. This
efficiency occurs because through the trading of permits, emission reduction efforts concentrate at
sources at which controls can be achieved at least cost.
However, if one is more concerned about the potential downside risk of substantial control costs
to the economy than of the benefits of a specific level of reduction, then including a safety valve
may be most appropriate. In this approach, the level of the safety valve effectively caps the
marginal cost of control that affected entities would pay under the reduction scheme, but the
precise level of greenhouse gas reductions achieved is less certain. Emitters of greenhouse gases
would spend money controlling greenhouse gas emissions up to the level of the safety valve.
However, since the marginal cost of control among millions of emitters is not well known, the
overall emissions reductions for a given safety valve level on greenhouse gas emissions cannot be
accurately forecast. In essence, the safety valve contained in S. 1766 could be seen as a
contingent carbon tax.
Conclusion
The two proposals—S. 1766 and S. 2191—would establish market-based systems to limit
emissions of greenhouse gases. However, the proposals differ in how those systems would work.
S. 2191 would establish an absolute cap on emissions from covered entities, and would allow
25
See CRS Report RL33799, Climate Change: Design Approaches for a Greenhouse Gas Reduction Program, by
(name redacted).
26
For another discussion of this trade-off, see EPA, Tools of the Trade: A Guide to Designing and Operating a Cap
and Trade Program for Pollution Control (June 2003), p. 2-5.
Congressional Research Service
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Climate Change: Comparison and Analysis of S. 1766 and S. 2191 (S. 3036)
entities to trade emissions under that cap. S. 1766 would establish emissions targets on covered
entities and allow those entities to meet those targets, either through trading program or by
making a safety valve payment in lieu of reducing emissions. Under both proposals, short-term
U.S. emissions would likely be below a business-as-usual scenario, although reductions under S.
2191 are guaranteed and projected to be larger, particularly over the long-term. In contrast, the
cost of S. 1766 is likely to be less and more predictable than S. 2191.
Hence, a major policy question is whether one is more concerned about the possible economic
cost of the program and therefore willing to accept some uncertainty about the amount of
reduction received (i.e., a safety valve); or one is more concerned about achieving a specific
emission reduction level with costs handled efficiently, but not capped (i.e., pure tradeable
permits). S. 2191 leans toward the quantity (total emissions) side of the equation; S. 1766 leans
toward the price side of the equation.
Author Contact Information
(name redacted)
Specialist in Energy and Environmental Policy
/redacted/@crs.loc.gov, 7-....
Congressional Research Service
(name redacted)
Specialist in Energy and Environmental Policy
/redacted/@crs.loc.gov, 7-....
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