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Capping Emissions: How Low Should We Go?

Investigating where environmental efficiency and good public policy intersect.
Fortnightly Magazine - December 2002

Fuel switching from coal to other fuels, including nuclear and natural gas, accounts for 5 percent, and the decrease in total generation accounts for about 2 percent of the emission reductions.

Reductions in NO x emissions are achieved primarily through post-combustion controls at coal-fired plants that will incur incremental annual costs of $4.4 billion. The baseline policy already has a substantial amount of post-combustion control in place due to the requirements of the NO X SIP Call, part of the Clean Air Act implementation. Currently run during the summer ozone season only, such controls would be utilized year-round under the efficient policy. Although gas-fired generation has no SO 2 emissions, it has only slightly lower NO x emissions than the controlled rate for coal-fired generation. Consequently, switching from coal to gas accounts for only 5 percent of the NO x emission reductions. Also, we find little change in total generation in response to tightening of the NO x cap.

Despite the lack of regulation of CO 2 in our analysis, capping emissions of SO 2 and NO x leads to ancillary reductions in CO 2 emissions. Compared to the baseline, CO 2 emissions fall by 4.9 percent or 152 million short tons in 2010 under the efficient policy. The stringent cap on SO 2 emissions is the primary reason for these reductions. The reductions in CO 2 are due primarily to the substitution of natural gas and nuclear for coal in electricity generation, and also to the reduction in overall electricity demand. Changing the cap on NO x has very little effect on CO 2 emissions.

The cost estimates we provide are not forecasts of the cost of any of the specific multi-pollutant proposals, which differ in stringency and design from the scenario we model in a number of ways. But our estimate does provide a measure of the cost for emission restrictions that can be supported by cost-benefit analysis.

Summary of the Multi-Pollutant Bills

Having analyzed an efficient policy, we now turn to a discussion of the three multi-pollutant bills introduced in the 107th Congress. All three of the bills adopt a cap-and-trade approach to controlling emissions of SO 2 and NO x, under which a ton of emissions of each pollutant must be accompanied by the surrender of an emission allowance to EPA. In Table 1 the annual cap on the allocation of emission allowances, the timing, and the scope of these bills are summarized and compared to the range of emission levels that we find to include the efficient level and to recent experience.

The bill (S.556) sponsored by Sen. James Jeffords (I-Vt.) is the most aggressive of the three. Voted out of the Senate Environment and Public Works Committee in June, the bill by 2008 caps annual allocations of NO x emission allowances at 25 percent of their 1997 levels (about 1.5 million tons); annual allocations of SO 2 emission allowances at 25 percent of the 8.9 million tons allocated annually under Title IV (2.25 million tons); and annual emissions of mercury at 10 percent of 1999