Notes

1 See Appendix A for a copy of the requesting letter.

2 For pdf versions of the bills see, S. 485 - http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=108_cong_
bills&docid=f:s485is.txt.pdf, S. 843 - http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&
docid=f:s843is.txt.pdf

3 Allowances sold directly under the safety valve provisions are to be withheld from allowances that otherwise would have been auctioned. However, if this exhausts the pool available in the auction for three consecutive years, the Environmental Protection Agency is required to conduct a study “to determine whether revisions to the relevant allowance trading program are necessary and shall report the results to the Congress.”

4 In this analysis it is assumed that all facilities will have to achieve a minimum of 70-percent removal of the mercury in the coal.

5 S. 485 specifies that the proceeds of any auction shall be deposited in the United States Treasury.

6 The size of the new unit reserve is to be determined by the Administrator of the Environmental Protection Agency and the Secretary of Energy. In this analysis it is assumed that new covered units receive allowances at the same output rate as existing covered units.

7 For more discussion of the impacts of various emission allocation approaches see Beamon, Leckey, and Martin, Power Plant Emissions Reductions Using a Generation Performance Standard , web site http://www.eia.gov/oiaf/servicerpt/gps/pdf/gpsstudy.pdf; and Burtraw, Carbon Emission Trading Costs and Allowance Allocations: Evaluating the Options ,web site http://www.rff.org/resources_archive/pdf_files/145_burtraw.pdf.

8 C. Fischer, Rebating Environmental Policy Revenues: Output-based Allocations and Tradable Performance Standards (Washington, DC: Resources for the Future, January 21, 1999).

9 The emissions cap in the Carper bill is given in units of CO2, but additional CO2 allowances can come from projects that reduce any of the main six greenhouse gases specified in the Kyoto Protocol or increase sequestration.

10 For more information about the representation of marginal abatement curves in the National Energy Modeling System see Energy Information Administration, Analysis of S. 139, the Climate Stewardship Act of 2003, Appendix B, SR/OIAF/2003-3, (Washington, DC, June 2003).

11 Energy Information Administration, Annual Energy Outlook 2003, DOE/EIA-0308(2003), (Washington, DC, January 2003).

12 The Annex I countries are the 15 European Union countries plus Australia, Bulgaria, Canada, Czech Republic, Estonia, Hungary, Iceland, Japan, Latvia, Liechtenstein, Monaco, New Zealand, Norway, Poland, Romania, Russian Federation, Slovakia, Switzerland, and the United States.

13 The Marrakech Accords, also known as the Seventh Conference of the Parties of the United Nations Framework Convention on Climate Change (COP 7 of the UNFCCC),were used to limit the quantity of agricultural/forestry offsets available to this international group to about 70 million metric tons per year, which were assumed to be available at $15 per ton carbon equivalent. See http://www.eia.gov/oiaf/servicerpt/ml/pdf/sroiaf(2003)02.pdf page 247 for more details.

14 The Carper bill requires that all coal facilities either remove a minimum percentage (50 percent between 2009 and 2012, and 70-percent in 2013 and later) of the mercury in the coal burned or meet an outputbased rate to be set by the EPA Administrator. The 70-percent minimum removal is assumed for 2009 and beyond in this analysis. In a test case assuming a 50-percent removal requirement, mercury allowance prices between 2009 and 2012 were slightly greater than zero in the first three years. In other words, the 50-percent requirement did not quite reduce mercury emissions to the 24-ton cap between 2009 and 2012.

15 For a map of the electricity regions in the National Energy Modeling System see http://www.eia.gov/oiaf/aeo/ supplement/supmap.pdf.

16 These values represent discounted expenditures using a 7-percent discount rate.

17 Because the National Energy Modeling System is an integrated model of supply and demand interactions, higher energy prices lead to lower consumption.

18 The values cited here for EIA are from the Clear Skies 3-P case without demand feedback. This is done because the EPA modeling system does not endogenously address consumers’ responses to higher electricity prices.

19  Power Engineering, May 2003, Uniqueness of SCR Retrofits Translates into Broad Cost Variations.

20  The High Gas Price scenarios are: Clear Skies 3-P Mercury Safety Valve High Gas Price, Carper 4-P High Offset High Gas Price, and Carper 4-P No Offset High Gas Price.

21  The Reference Case Gas Price scenarios are: Clear Skies 3-P Mercury Safety Valve, Carper 4-P High Offset, and Carper 4-P No Offset.

22  The High Gas Price scenarios were constructed by assuming a 25-percent reduction in U.S. and Canadian resources, a 25-percent reduction in the rate of technological progress, a lengthening of the time needed to complete the Alaska natural gas pipeline from 7 to 10 years, and restricting new domestic LNG facilities to Florida and the Gulf of Mexico.

23  Power Engineering, May 2003, Uniqueness of SCR Retrofits Translates into Broad Cost Variations.

24 Ibid.

25  For discussion of this topic see Jaffe, A.B., R.G. Newell and R.N. Stavins (1999), Energy-Efficient Technologies and Climate Change Policies: Issues and Evidence, Climate Issue Brief 19, Resources for the Future,   Washington, DC, http://www.rff.org/issue_briefs/PDF_files/ccbrf19.pdf.