U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
September 3, 1999

At the request of the United States House of Representatives Committee on Science, the Energy Information Administration (EIA) has analyzed the impacts of an early start date for compliance with the Kyoto Protocol on U.S. energy markets and the economy. This analysis is a follow-on request to EIA's earlier study, Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, released in October 1998.

At the Kyoto negotiating session in December 1997, the United States and other developed nations agreed to individual targets for greenhouse gases in the period 2008 to 2012 relative to their emissions in 1990. The U.S. target is a 7-percent reduction in emissions below 1990 levels. About 82 percent of the greenhouse gas emissions in 1990 were carbon dioxide released by the use of energy, so any actions to reduce greenhouse gases are likely to have a significant impact on energy markets.

The Kyoto Protocol provides flexibility measures to meet the greenhouse gas targets: offsetting reductions in greenhouse gases other than carbon dioxide that are covered by the Protocol; forestry and land use actions that absorb carbon dioxide; international carbon permit trading; and actions in other countries to reduce greenhouse gas emissions or develop carbon-absorbing sinks.

EIA examined six cases in which the United States meets the emissions reduction targets through different levels of reductions in energy-related carbon emissions. Each case implicitly assumes different levels of international actions, offsets, or sinks to meet the target. In the case with the lowest reductions required from energy-related carbon, carbon emissions are reduced by an average of 122 million metric tons a year relative to the projected baseline emissions between 2008 and 2012, allowing carbon emissions to increase 24 percent above 1990 levels (1990+24% case). For the case with the largest reductions in energy-related carbon, emissions are reduced on average by 542 million metric tons relative to the baseline, or 7 percent below 1990 levels (1990-7% case).

To reduce carbon emissions from energy, EIA added a carbon price to the delivered price of fuels based on their carbon content. The analysis indicated that increases in energy prices would be required for the United States to meet the reductions specified in the Kyoto Protocol. In 2010, the average delivered price of electricity would increase by between 20 and 86 percent, relative to the reference case, and the average price of gasoline by between 11 and 53 percent.

In the latest analysis, EIA assumed that carbon reductions will be phased in beginning in 2000, instead of 2005, as in the previous analysis, in order to analyze the energy and economic impacts of an earlier phased-in start date for carbon emissions reductions. The same emissions target is achieved during the commitment period 2008 through 2012. The primary findings are:

• Imposing carbon prices prior to 2005 reduces the demand for energy services in that period. Earlier efficiency improvements, accelerated retirements of less efficient industrial equipment and oil- and coal-fired generating capacity, and the acceleration of technology improvements also contribute to lower energy consumption and carbon emissions prior to 2005.

• The early start date reduces the carbon price in 2010 for each of the carbon reduction cases analyzed. Average carbon prices over the first commitment period, 2008 through 2012, are also lowered (Figure 1); however, because carbon prices are incurred earlier, average carbon prices over the entire projection period, 2000 through 2020, increase with the early start date.

• With an earlier start date, the economy experiences a loss in gross domestic product (GDP) beginning in 2000 as higher energy prices increase the prices of goods and services; however, the early start date smooths the transition of the economy to the longer run target. The loss in actual GDP in the first five years of the early start cases is from one-half to nearly three-quarters of the loss in the first five years of the cases with the 2005 start date. By 2010, in the case requiring the lowest reduction in energy-related carbon emissions (1990+24% case), GDP loss with an early start date is about half the loss with the 2005 start date. For the cases with reductions of 7% below and 9% above 1990 levels, the GDP losses in 2010 with the early start date are about one-third of the losses with the 2005 start date.

The Analysis of the Impacts of an Early Start for Compliance with the Kyoto Protocol is available on EIA's Web Site at www.eia.doe.gov/oiaf/kyoto3/kyoto3rpt.html. Copies are also available through EIA's National Energy Information Center, Forrestal Building, Washington, DC 20585, 202/586-8800.

EIA Program Contact: Mary J. Hutzler, 202/586-2222
EIA Press Contact: National Energy Information Center, 202/586-8800, infoctr@eia.doe.gov

EIA-99-22

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