EMISSION REDUCTIONS, BUDGET IMPACTS, AND ECONOMIC EFFECTS


The Action Plan targets multiple emission reduction opportunities in all major areas: energy demand in the residential, commercial, industrial and transportation sectors, energy supply, methane and other gases, and forestry. A broad portfolio of policy actions is more likely to succeed than a narrow one. Some programs called for here will work better than expected, while others may fall short of their estimated impact, but a portfolio approach reduces the risk that any specific program that does not live up to expectations will cause a substantial shortfall of emission reductions. Table 1 shows the impact of the Action Plan on emissions, the Federal budget, and the economy.


Emission Reductions

As shown on Figure 2, the Action Plan will return net U.S. greenhouse gas emissions to 1990 levels by the year 2000. The combined impact of all actions reduces emissions from projected levels by 108 MMTCE . Net carbon emissions are likely to be slightly higher -- about 2 percent above their 1990 levels. The rate of increase in HFC emissions is cut in half. Offsetting these gains in emissions are further reductions in methane and nitrous oxide emissions.


Federal Budget Impact

Between 1994 and 2000, the Administration will spend roughly $1.9 billion on the actions outlined in this plan, largely through redirecting federal funds. However, two elements in the plan increase net revenues over the same period and thus contribute to deficit reduction. A reform in the tax treatment of employer-paid parking will bring in $2.2 billion over the period from commuters who choose to take the cash value of this fringe benefit. In addition, giving private developers an opportunity to invest in efficiency upgrades at federal hydroelectric facilities and market the incremental generation will bring in $500 million in lease payments. As a package, this Action Plan helps reduce the Federal budget deficit.


Economic Impact

Many of the programs outlined here will encourage individuals and firms to invest in energy saving equipment or other technologies that yield significant cost savings over the long term. Comparing the magnitude of these investments with the value of energy savings indicates the overall cost-effectiveness of the Action Plan. While investing over $60 billion in greenhouse gas emission reductions between 1994 and 2000, individuals and firms realize over $60 billion in energy savings between 1994 and 2000, and realize continued returns in the form of an additional $207 billion in energy savings between 2001 and 2010. [4] By stimulating investments in cost-effective opportunities for greenhouse gas emission reductions, the Action Plan can increase the long-term profits for American business and help consumers save money.


Footnotes

[4] Figures on the table are give in constant (real) 1991 dollars, but are not discounted. Discounting future savings will tend to lower the apparent cost-effectiveness of many of the options, but the effect of the adjustment will depend on the discount rate used and the time profile of investment and cost savings. It is not possible to determine how much of this expenditure represents new investment and how much represents a shift in the composition of investment from a macroeconomic perspective.