At the request of Senator Joseph Lieberman (D-Conn.), the U.S. Environmental Protection Agency (EPA) produced an economic analysis of the Lieberman-Warner Climate Security Act of 2008, released on March 1.  The Energy Information Administration is expected to release its assessment later this month.

EPA’s estimate of the bill’s impact both on the environment and the economy depends on meeting an ambitious timeline for deployment of carbon capture and storage (CCS) technology and increasing nuclear generation. Analysts assume that carbon capture and storage is viable by 2015 and that by 2035 has been deployed in 30 percent of all coal plants. In addition, nuclear power generation is assumed to increase 150 percent between 2005 and 2050.

EPA also points out that achieving the bill’s environmental goals assumes international compliance with the Kyoto Protocol. 

Under EPA’s scenario, the bill would lead to a 40 percent reduction in GHG emissions in 2030 (11 percent below 1990 levels) and a 56 percent reduction in 2050.  In summarizing the key economic findings, EPA made the following forecast:

• While gross domestic product (GDP) is projected to increase by approximately 97 percent from 2007 levels by 2030 and 215 percent by 2050, estimated annual reduction in GDP if S. 2191 were enacted ranges from $238 billion to $983 billion in 2030 and between $1,012 billion and $2,856 billion in 2050.

• Electricity prices are projected to increase 44 percent in 2030 and 26 percent in 2050.

• Rising energy costs would drive down per household average annual consumption by approximately $1,375 in 2030 and by $4,377 in 2050. 

The analysis indicates that S. 2191 would be nearly twice as expensive as the two other options under consideration in the Senate, the McCain-Lieberman bill and the Bingaman-Specter bill.

“The greatest emission abatement under S. 2191 occurs in CO2 emissions from the electricity sector,” wrote Robert J. Meyers in his letter to Senator Lieberman.  In fact, under this bill the electricity industry would bear a significantly greater proportion of the burden  relative to the sector’s current share of carbon emissions (37 percent).

Unlimited use of offsets could substantially reduce the bill’s costs; however, in its current version, the bill limits the use of domestic and international offsets.

At the same time, failure to meet the ambitious timetable for CCS deployment would substantially drive up the costs of electricity generation.

Earlier this year, CCS research and development received a body blow when the Administration canceled the FutureGen project.  Even prior to this decision, MIT offered this gloomy assessment:  “[T]he DOE Clean Coal program is not on a path to address our priority recommendations because the level of funding falls far short of what is required….”