APPENDIX I

DESCRIPTION OF ACTION PLAN ANALYSIS

Summary of Modeling and Estimation Process

The assessment of emissions reductions resulting from the plan was carried out using a three-stage process:

  1. Establish baseline emissions projections based on projected activity levels in energy and other markets;

  2. Analyze individual emission reductions actions and groups of related actions; and

  3. Execute an integrated analysis of energy-related actions to account for synergies, overlaps, and market interactions.

Baseline Projections

Baseline projections are based upon a set of specific assumptions about markets, technologies, and resources, such as GDP growth rates and oil and gas prices. There are four main types of assumptions underlying the projections:

The starting point for baseline development was the 1993 Annual Energy Outlook (AEO) of the Energy Information Administration, an independent statistical and forecasting unit within the Department of Energy. Both the AEO forecast and its underlying assumptions were reviewed by an interagency analysis team and shared with participants in the public workshops. Based on public comments and internal review, the interagency analysis team modified assumptions (1) regarding economic growth and oil prices to maintain consistency with Administration budget forecasts, and (2) specific sectoral trends, such as the assumed growth rate for commercial floorspace to more closely reflect market conditions.


Analysis of Actions and Action Groups

Actions included in the plan affect virtually all energy-using activities in the economy. Interagency expert teams used a wide variety of modeling tools in developing initial impact estimates. External analyses developed through the public workshop process were reflected in the analytical exercise, and an ongoing dialogue with non-governmental experts was maintained throughout the process.

In some cases, several actions jointly promote the same type of energy efficiency improvement. For example, increased lighting efficiency is promoted through standards under the Energy Policy Act, utility-sponsored demand side management programs authorized by state regulators, government and corporate energy management programs, the "Green Lights" partnership program, and private initiative. While the multiplicity of programs (especially when coupled with bottom-line corporate and utility commitments) raises confidence as to the likelihood of achieving significant investments in lighting efficiency, it is clear that simple summation of individual program effects could overstate actual impacts. To avoid double-counting, such directly overlapping actions were evaluated jointly rather than individually by the interagency analysis team.


Integrated Analysis

Most energy-related options affect more than one sector or fuel; changes in one sector often affect fuel prices, which in turn affect energy demand and supply in other sectors. In addition, policy options usually do not work in isolation from other options; some options are synergistic, with a total effect that exceeds the sum of their individual effects, while others have overlapping or offsetting effects. For this reason, capturing interactions among energy prices, supply, and demand is essential.

The IDEAS (Integrated Dynamic Energy Analysis Simulation) model was used as a modeling tool for the integrated analysis of energy-related options. IDEAS, an improved and updated version of the earlier FOSSIL2 model, is a bottom-up technology-by-technology model that links energy supply and demand through equilibrium market prices. The model was initially calibrated to the 1990 and 2010 AEO93 forecast, then adjusted for the differences in assumptions noted in the discussion of baselines and for policies already reflected in the Clinton Administration program.

The effects of supply-side actions on demand and prices are straightforward. In general, increases in supplies of carbon-free electricity (e.g., renewables and nuclear) are projected to displace the use of coal, oil, and natural gas in electricity generation. Switching toward less carbon-intensive fossil fuels (e.g. substitution of natural gas for coal or oil) and reductions in transmission losses are other ways to lower carbon emissions.

On the demand side, reductions are achieved by imposing efficiency standards (building standards, lighting standards, and motor standards), using market incentives (integrated resource planning), and improving energy efficiency through research and development. All of the demand-side actions interact with supply-side actions in a manner that could either offset or reinforce reductions.

Research and development (R&D) measures have positive effects on energy conservation on both the demand and supply sides. These measures are generally synergistic with other conservation and energy efficiency initiatives. Given the lags inherent in research, development, initial commercialization, and widespread market acceptance, the primary effects of R&D will only be realized after a considerable period. For this reason, the primary role of R&D actions in the plan is to contribute toward reduced emissions beyond 2000.


Uncertainty in Forecasting Future Emissions

Uncertainty regarding future levels of energy-related emissions arises from at least three distinct sources:

The effect of uncertainty regarding future conditions can be illustrated by examining changes in assumptions regarding economic growth rates and future oil prices on projected baseline carbon emissions. Assumed economic growth rates determine the future gross domestic product (GDP), which reflects the level of various economic activities (e.g., commercial activity, industrial production, personal consumption, and travel). All of these economic activities involve energy. In general, higher GDP is associated with higher energy demand. A sensitivity case with GDP growth rates 0.5 percent per year lower than the baseline assumption reduced projected carbon emissions in 2000 by 29 million metric tons.

Assumptions about the world oil price over time are based on implicit assumptions about the availability of world petroleum reserves. Larger-than-expected petroleum reserves could be translated into lower world oil prices in the future. Consumption, related closely to oil prices, could increase significantly. A sensitivity case with constant real oil prices through 2000 in place of the 3.8 percent average annual increase between 1992 and 2000 in the base case increased projected carbon emissions in 2000 by 16 million metric tons.

The plan includes features to guarantee meaningful results notwithstanding the uncertainties inherent in projection and modeling. One key element of the plan is the Climate Challenge program by utilities who agree to limit greenhouse gas emissions. These commitments help reduce the uncertainty surrounding the estimated changes in energy consumption projected as individual initiatives, and provide assurance that the effect of the illustrated modeled actions is achieved, even if the approach ultimately required to do so differs from the modeled actions. The focus on bottom-line commitments recognizes that the ultimate success of federal efforts in leveraging end-use behavior will depend in large measure on the role of the utilities. Electric utilities alone already project expenditures of over $23 billion on demand side management programs by 2000.


Current Actions that Reduce Greenhouse Gas Emissions

The Action Plan addresses actions that are needed to return U.S. greenhouse gas emissions to 1990 levels by the year 2000. However, many current activities and programs contribute to lower emissions; these actions are already included in the baseline emission forecast. Actions already incorporated into the baseline emission projections include: