There is concern that human activities are affecting the heat/energy-exchange balance between Earth, the atmosphere, and space, and inducing global climate change. Human activities, particularly burning of fossil fuels, have increased atmospheric carbon dioxide (CO2) and other trace greenhouse gases. If these gases continue to accumulate in the atmosphere at current rates, many believe global warming would occur through intensification of Earth's natural heat-trapping "greenhouse effect." Possible impacts might be seen as both positive and negative. The Congressional Research Service (CRS) Issue Brief for Congress, Global Climate Change (March 29, 1999) details many of the issues and legislation related to global climate change.
The possibility that human activities are releasing gases, including carbon dioxide (CO2), at rates that could affect global climate has resulted in proposals for national programs to curtail emissions. The concern about costs has encouraged consideration of CO2 reduction proposals that employ market-based mechanisms. The two mechanisms receiving the most attention are a tradeable permit program (similar to the acid rain program) and carbon taxes. These are reviewed in the CRS Issue Brief, Market-Based Strategies to Reduce Greenhouse Gases (May 3, 1999). A summary of emission trading can be found in the CRS Report, Air Quality and Emissions Trading: An Overview of Current Issues (March 9, 1999).
Since the largest contributor to greenhouse gas emissions is the combustion of fossil fuels for energy production to power a wide variety of end-uses, a great deal of emphasis is put on the impact of meeting emission reduction targets on those end-uses, such as automobiles, space heating, and industrial
process heat. This is discussed in the CRS Report, Carbon Emissions and End-use Energy Demand (January 20, 1999). However, environmental concern is stressed in the CRS Report, Electricity Restructuring: The Implications for Air Quality (July 10, 1998). As electricity generation is a major source of air pollution as well as of greenhouse gases, this report examines the potential risks to the environment arising from electricity restructuring.
There is concern that human activities are affecting the heat/energy-exchange balance between Earth, the atmosphere, and space, and inducing global climate change. Human activities, particularly burning of fossil fuels, have increased atmospheric carbon dioxide (CO2) and other trace greenhouse gases. If these gases continue to accumulate in the atmosphere at current rates, many believe global warming would occur through intensification of Earth's natural heat-trapping "greenhouse effect." Possible impacts might be seen as both positive and negative.
A warmer climate would probably have far reaching effects on agriculture and forestry, managed and un-managed ecosystems, including natural habitats, human health, water resources, and sea level depending on climate responses. Regional agricultural practices could change, yield stabilities might decrease in some regions, and survival over winter of some insect pests might increase. Forest productivity might decline in some regions; and changes in climate, when added to other environmental stressors, could produce major regional disturbances. Some climate modification, e.g., in northernmost growing regions, is thought to be beneficial for agriculture however.
Although causal relationships between projected long-range global climate trends and record-setting warmth and severe weather events of the past two decades have not been firmly established, attention has been focused on possible extremes of climate change and the need for better understanding of climate processes to improve climate model forecasts.
The basic policy question is: Given scientific uncertainties about the magnitude, timing, rate, and regional consequences of potential climatic change, what are the appropriate responses for world decision makers?
Fossil-fuel combustion is the primary source of CO2 emissions, and also emits other "greenhouse" gases. Removing these gases after combustion is a technical challenge and imposes economic penalties. Policy options to curb emissions, so far, have stressed energy efficiency and conservation, sequestering of atmospheric CO2, market-oriented strategies such as carbon taxes, emissions trading, switching to less CO2-intensive fuels, and substituting renewable and nuclear energy. A warmer climate might also result in less energy consumption during winter months.
Congress has reviewed scientific information about climate change to evaluate potential economic and strategic impacts of a warmer, and perhaps more variable, climate to formulate policy responses. Because of the global implications of this problem, concerns are addressed internationally through direct communication between U.S. decision makers and world leaders, participation in international conferences, passage of legislation, and exchange of views and information with international organizations within and outside the United Nations system.
The 1992 U.N. Framework Convention on Climate Change called for a "non-binding" voluntary aim for industrialized countries to control atmospheric concentrations of green-house gases by stabilizing their emissions at 1990 levels by the year 2000. The 1997 U.N. Kyoto Protocol on Climate Change goes further and, if it were to enter into force, would commit world governments to legally binding emissions reductions.
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The possibility that human activities are releasing gases, including carbon dioxide (CO2), at rates that could affect global climate has resulted in proposals for national programs to curtail emissions. An international framework for specific reductions in greenhouse gases was negotiated at a meeting in Kyoto in December 1997. Concern about costs has encouraged consideration of CO2 reduction proposals that employ market-based mechanisms. The passage in 1990 of a tradeable allowance system for sulfur dioxide (SO2) control in the United States provides a precedent for such mechanisms.
The two mechanisms receiving the most attention are a tradeable permit program (similar to the acid rain program) and carbon taxes. Proposed CO2 reduction schemes present large uncertainties in terms of the perceived reduction needs and the potential costs of achieving those reductions. Tradeable permit programs would reduce CO2 emissions to a specific level with the control cost handled efficiently, but not at a specific cost level. Carbon taxes would effectively cap marginal control costs at the specific tax level, but the precise level of CO2 achieved would be less certain. Hence, a major policy question is whether one is more concerned about the possible cost of the program and therefore willing to accept some uncertainty about emission reduction in order to have some limits on costs (i.e., carbon taxes) or whether one is more concerned about achieving a specific emission reduction level with costs handled efficiently, but not capped (i.e., tradeable permits).
The specific effects of both a carbon tax and tradeable permit program would depend on the specific levy (carbon tax) or allocation scheme (tradeable permit) chosen, the scope of the program, the timing of the reductions, and the recycling of any revenues.
In addition, many tradeable permit proposals include provisions allowing countries to accumulate permits by reducing emissions in other countries. This scheme, called joint implementation, was approved in principle at the Kyoto conference in December.
The climate change issue and CO2 control raise numerous equity issues. In one sense, climate change is a concern about intergenerational equity -- i.e., the well-being of the current generation versus generations to come. On a global level, the issue also involves the North-South debate. At the domestic level, equity questions include the regional distribution of costs under a tradeable permit or carbon tax scheme. For example, an important impact of either a carbon tax based on the carbon content of fossil fuels or a tradeable permit program would be the pressure for fuel shifts away from coal and toward gas. Regions such as fast-growing areas in need of more energy and owners of "all electric" homes, among others, would likely be disproportionately hit by a CO2 control scheme. In addition, people may be affected differently according to income class. These issues, however, have not been sufficiently analyzed at the current time to be sure of how various sectors would be affected.
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Emission trading is a market-based alternative to conventional
regulation in which sources facing high costs to control pollution
have the flexibility to meet their emission limits by purchasing
excess reductions from other sources that can afford to lower
their emissions further than federal or state regulations require.
Currently, a trading program is being implemented at the federal
level to reduce acid rain. At the state level, California is operating
a trading program to assist the Los Angles area in complying with
the federal air quality standard for ozone. Although specific
savings are difficult to estimate, initial monitoring data indicate
that these program likely have reduced overall emissions at lower
costs than conventional regulations have done. Their early success
has encouraged the consideration of trading to address similar
air quality issues, including regional problems with ozone transportation,
possible increases in pollution if electric utility is restructured,
and proposals to reduce greenhouse gases as would be required
by the Kyoto Protocol. Whether trading would be effective in addressing
these issues depends largely on program design, implementation,
enforcement, and accurate monitoring data to verify that transactions
between pollution sources represent actual reductions in emissions.
This report will be updated as developments occur.
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The United Nations (Kyoto) Protocol on greenhouse gas emission reductions sets a target for the United States to achieve annual emissions of six greenhouse gases, as measured in terms of their equivalency to carbon dioxide, over the 2008-2012 period that are 7% below specified baseline years. The largest contributor to greenhouse gas emissions is the combustion of fossil fuels for energy production to power a wide variety of end-uses such as automobiles, space heating, and industrial process heat. This report presents an analysis of the potential impacts of meeting the Kyoto Protocol targets on those end-uses.
Demand for each energy source is calculated using Energy Information Administration (EIA) data and forecasts for 1996, 2008, and 2012 for 27 common end-uses making up the four major sectors: residential, commercial, industrial, and transportation. Carbon emissions are then determined using carbon-emission coefficients for each fossil fuel. Finally, energy demand reduction requirements are calculated by applying the Kyoto Protocol target of a 7% reduction in carbon emissions from 1990 levels to the 2008 carbon emission levels for each end-use.
Based on EIA forecasts, by 2008, total carbon emissions from energy use by the 27 end-uses is calculated to be 1,721 million metric tons carbon-equivalent (MMTCE) compared to 1,464 MMTCE in 1996. Five end-uses -- light duty vehicles (primarily automobiles, sport utility vehicles, small trucks, and vans), freight trucks, residential miscellaneous (small appliances and outdoor machinery), industrial machine drive, and miscellaneous commercial (communications and information equipment) -- would comprise over 70% of the 1996-2008 increase in carbon emissions.
The Kyoto Protocol target would require average carbon emissions of 1,252 MMTCE from the 27 end-uses over the 2008-2012 period if it were applied uniformly to all sources of greenhouse gases. In this case, energy demand for each of the end-uses would have to decline by about 28.7% below the levels now forecast for 2008. Further, resultant energy demand for each of the end-uses would be about 20%, on average, below the actual 1996 values. Finally, on average, the required reductions from the current 2012 forecast would be about 31%.
Reductions of that magnitude would require substantial increases in energy efficiency, above those already forecast, and/or significant reductions in the services provided by a given end-use. For example, if the target were to be met solely by increases in efficiency, the average fuel economy of the light duty vehicle fleet would have to grow from the current forecast value of about 20.3 miles per gallon (mpg) to over 29 mpg by 2008. If the reduction were to be met solely by driving less, annual passenger car (passenger cars consume about 70% of the fuel used by light duty vehicles) travel would have to drop from the current forecast of 14,500 miles per car to about 10,300 miles per car. Such actions would be a substantial undertaking and consumers are likely to feel significant effects from any strategy that is used to try to meet the Kyoto Protocol targets.
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Electricity generation is a major source of air pollution as well as of greenhouse gases. As a result, changes in the electric utility industry raise concern about environmental consequences. Such changes are currently in the offing, both from new generating and transmission technologies and from shifting policy perspectives with respect to competition and regulation. Whether legislation to restructure the industry should include environmental protections has become an issue. Several bills have been introduced in the 105th Congress to incorporate such protections into any federal restructuring legislation.
This paper reviews the changes now underway in the utility industry from the perspective of their environmental implications specifically, the potential for electric utility restructuring to increase emissions of air pollutants regulated by the Clean Air Act (CAA) and of greenhouse gases that could be affected by the Kyoto agreement to address climate change. The paper is divided into six parts.
-- The Overview provides background on the electric utility industry and current restructuring efforts, the industry's emissions, and the fundamental argument with respect to current restructuring activities and potential air pollutant effects. It identifies electricity demand and air quality regulation as critical to determining air emission impacts from electricity restructuring.
-- The Utility Industry examines the electricity demand component in more detail. Estimating electricity demand increases in the short- to mid-term and discussing the implications of transmission capacity for interregional electricity transfers, the analysis suggests that restructuring may encourage current trends among utilities to renovate a sizeable amount of existing coal- fired electricity, which generally produces more air pollution and greenhouse gases than alternative kinds of electricity generation.
-- Environmental Regulation provides background on current air pollution regulations affecting electric utilities and on the resulting complex system of federal and state, pollutant-by- pollutant controls. It discusses regulatory implications for existing capacity and new construction, noting that while the CAA has historically focused on new construction in applying its most stringent standards, several current and prospective regulations would significantly increase controls on existing, coal-fired facilities. It also notes that an increasingly competitive generating market may present significant challenges to the state- directed environmental regimen of the CAA. The Effects of Restructuring and Environmental Actions on Emissions analyzes the cost-effectiveness of existing coal-fired facilities versus new construction and the environmental effects of increased utilization of existing coal-fired facilities. The analysis indicates that renovating existing coal-fired facilities is generally very cost-effective compared with new, less polluting construction, pointing to a potential for increasing emissions of some air pollutants, especially nitrogen oxides, depending on regulatory actions, and of the greenhouse gas carbon dioxide, which is not regulated.
-- Assessing the Impacts of Restructuring examines the Federal Energy Regulatory Commission's attempt to estimate the environmental impacts of introducing competition into the wholesale electricity market, and reactions to that analysis. It notes the considerable difficulties in attempting to isolate the potential impact on emissions of restructuring the electricity generation from other technological and policy trends occurring in the industry.
The Conclusion reviews possible responses to potential risks to the environment arising from electricity restructuring. Critical issues are: (1) For conventional air pollutants, whether the existing regulatory regimen will work effectively as the industry structure changes; for some pollutants, such as sulfur oxides, a nationwide emissions "cap" seems secure, but for others, particularly nitrogen oxides, the state-led implementation process may find it difficult to cope with increasingly regional utility industry and environmental challenges. And (2) for greenhouse gases, any controls are contingent on future ratification of the Kyoto Agreement to curtail emissions and on domestic implementation legislation.
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