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U.S. Climate Policy Prospects
in Wake of COP15
Henry Lee
Princeton University
February 9, 2010
Why is getting a Domestic Climate
Agreement so hard?
• Public support is shallow and thus easily
persuaded to delay action
• US energy policy has historically emphasized low
prices, while actions to reduce carbon emissions
require higher energy prices.
• Strong anti-establishment sentiment arising in US
(see Tea Party) – targets include business,
government and academic elites
• 47% of American public receive their information
from the “new media”
What actions may happen
• Attempt to reduce scope to electric and large
industrial sectors
• Attempt to have EPA regulate
• Attempt to subsidize and promote particular
energy options—nuclear, offshore oil,
renewables, biofuels, efficiency
• All will face major challenges
• To watch post-2010: fiscal crisis meets anti-tax
sentiment
Transportation Sector
• Transportation accounts for 28% of US GHG
emissions and most of these emissions are in the
passenger vehicle sector.
• Most of US oil consumed in this sector, and thus
any effort to reduce US oil imports will have to
focus on reductions in gasoline consumption.
• The cost of reducing GHG emissions in this sector
is higher than the cost of reductions in the
stationary source sectors.
• Projected increases in gasoline consumption
(2010-2030) are driven by increases in GDP and
personal income.
ETIP Study
• Starts with EIA’s Reference Case from 2009
Annual Energy Outlook
– Oil prices increase from $77 in 2010 to $124 in
2030 and gasoline prices in 2030 are $1 higher
than today.
– Higher prices trigger greater demand response
and greater penetration of renewable options
– Also looked at a high price scenario where 2030
prices are $198
– Used NEMS model to assess impacts on different
cases.
Scenarios
1. Places a price of $30/ton of CO2 on emissions in
2010 that escalates to $60 in 2030 (surrogate for
cap and trade)
2. Add to the CO2 tax a gasoline tax , which
increases prices by $0.50 in 2010 and escalates
10% per year –reaching $3.36 in 2030.
3. Extend CAFE 2020-2030 at the same level of
increases (2010-2020) called for in EISA
legislation
4. Tax Credits for alternative motor vehicles based
on extending Plug-In Hybrid credits to a larger
array of vehicles
Results
• None of these scenarios is sufficient to meet the
Obama Administration goal of a 14% reduction
from 2005 levels by 2020.
• The carbon tax alone has very little impact on
gasoline consumption.
• Accompanied by the gasoline tax, the impact is
much greater. Assuming the high priced scenario
($198 oil) plus the $3.36 tax, CO2 emissions in the
transport sector are reduced by 17% and oil
imports by 4.5 million barrels below the AEO
reference case.
Results (continued)
• CAFE alone results in higher efficiency gains, but
fails to obtain significantly greater CO2 reductions
because of increased vehicle miles traveled,
especially in the 2020-2030 period.
• Tax credits are a very expensive option costing
the government between $22-$37 billion per
year.
• Even with the high priced scenario plus the
gasoline tax, losses in GDP relative to the
reference case are less than 1% and GDP is
expected to grow 2-4% through 2030.
Is Shale Gas an Option?
• There is a growing consensus that the
resource base is very large and could
dramatically increase reserve estimates for
natural gas.
• Estimates of costs seem to be location-specific
and range between $4.50 per Mcf and $8.00
per Mcf (price of conventional gas on Feb 3:
$5.52 per Mcf).
Shale gas must be competitive
• Must be competitive with other sources,
including LNG
• Gas must increases sales into 1) electric
markets (versus coal), or 2) transportation
markets (versus gasoline).
Challenges
1. Regulatory
– Water
– Siting
– Institutional
2.
Without a price on carbon, it will be difficult
to penetrate the electric market
3. CO2 reductions from significant penetration of
the transport sector are limited (3-4%
reduction for converting 50% of fleet by 2030)