Thursday, August 6, 2009

Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009

This report by the Energy Information Administration, Office of Integrated Analysis and Forecasting, U.S. Department of Energy dated August 2009 responds to a request from Chairman Henry Waxman and Chairman Edward Markey for an analysis of H.R. 2454, the American Clean Energy and Security Act of 2009 (ACESA). ACESA, as passed by the House of Representatives on June 26, 2009, is a complex bill that regulates emissions of greenhouse gases through market-based mechanisms, efficiency programs, and economic incentives.

Key findings are:
1. Given the potential of offsets as a low-cost compliance option, the amount of reduction in covered emissions is exceeded by the amount of compliance generated through offsets in most of the main analysis cases (Figure ES-1).

2. The vast majority of reductions in energy-related emissions are expected to occur in the electric power sector.

3. If new nuclear, renewable, and fossil plants with CCS are not developed and deployed in a timeframe consistent with emissions reduction requirements under ACESA, covered entities are expected to respond by increasing their use of offsets, if available, and by turning to increased natural gas use to offset reductions in coal generation.

4. Emissions reductions from changes in fossil fuel use in the residential, commercial, industrial and transportation sectors are small relative to those in the electric power sector.

5. GHG allowance prices are sensitive to the cost and availability of emissions offsets and low-and no-carbon generating technologies.

6. ACESA increases energy prices, but effects on electricity and natural gas bills of consumers are substantially mitigated through 2025 by the allocation of free allowances to regulated electricity and natural gas distribution companies.

7. ACESA increases the cost of using energy, which reduces real economic output, reduces purchasing power, and lowers aggregate demand for goods and services. The result is that projected real gross domestic product (GDP) generally falls relative to the Reference Case.

8. The free allocation of output-based allowances reduces the impact of ACESA on energy-intensive, trade- vulnerable industries.

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