[Report#:DOE/EIA-0581(2000)]
April 7, 2000
(Next Release:
April, 2002)
 Preface
Introduction
Overview
of NEMS
Carbon
Emissions
Macroeconomic
Activity Module
International
Energy Module
Residential
Demand Module
Commercial
Demand Module
Industrial
Demand Module
Transportation
Demand Module
Electricity
Market Module
Renewable
Fuels Module
Oil
and Gas Supply Module
Natural
Gas Transmission and Distribution Module
Petroleum
Market Module
Coal
Market Module
Appendix
Download
Entire Report (PDF)
Annual
Energy Outlook 2000
To Forecasting Home Page
EIA Homepage
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A part of the integrating module, the carbon emissions submodule (CEM),
computes the carbon emissions from the combustion of energy. The coefficients
for carbon emissions are derived from Energy Information Administration,
Emissions of Greenhouse Gases in the United States 1998,14 published in
October 1999. The coefficients account for the fact that some fossil fuels
are used for nonfuel purposes, such as feedstocks, and thus the carbon
in the fuel is sequestered in the end product.
CEM also allows for several carbon policy evaluation options to be analyzed
within NEMS. Although these policy options are not assumed in the Annual
Energy Outlook 2000, the options have been used in special analyses to
simulate potential market-based approaches to meet national carbon emission
objectives. The policy options implemented in CEM are as follows:
-
Carbon Tax. A tax on carbon emissions from fossil fuels is added to raise
delivered fossil fuel prices. The resulting higher prices then induce changes
in fossil fuel use and carbon emissions, as well as changes in some long-term
decision making, such as generating capacity decisions in the electricity
market module.
-
Auction of Permits. This option simulates an auction on carbon emissions
permits to meet an overall cap on emissions. A carbon permit price is computed
that clears the auction market. The permit fee is treated as a carbon tax
and used as an adjustment to the fossil fuel prices. A new price is set
each NEMS iteration until the emissions reach the goal. The revenue generated
from the auction is calculated assuming there is no initial allocation
of emission permits.
-
Market for Permits (Cap and Trade). A market for tradable carbon emissions
permits is simulated assuming that an initial distribution of marketable
permits to emission sources takes place. The permits are transferable but
are not banked between years. As with the carbon tax and auction options,
the full market price of the permits is added to the energy prices. The
system of marketable permits is implemented in the same way as the permit
auction, with the exception of the calculation of revenues from permit
sales. Similar treatment is warranted because the marginal cost of a “free”
permit is equivalent to one purchased at auction, given the opportunity
cost of holding the distributed permit.
-
In an open, competitive permit market, the permit will tend to be priced
at the marginal cost of reducing carbon emissions, regardless of the initial
distribution of permits. If permits are purchased by suppliers and passed
through to the fuel price, the marginal cost of the carbon emissions by
a particular sector in a region will be reflected in the individual end-use
fuel cost for that sector.
The use of any of these emission policy options in NEMS requires a macroeconomic
analysis to assess the fiscal and monetary issues, as well as possible
international trade effects. The analysis depends on such factors as how
revenues generated from the policy would be used, how monetary authorities
would react to the fiscal policy changes, and how international agreements
to reduce carbon would be implemented.
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