EIA analysis of the American Power Act: modest household costs and dramatic reduction in oil imports

The Energy Information Administration (EIA) released an analysis today of the economic impact of the American Power Act, comprehensive climate and energy legislation released last May by Senators John Kerry and Joe Lieberman. The news is good: for a modest price, we can reduce global warming pollution and significantly lower oil imports.

The three most important findings are: 

• American households would need to invest** a modest $185 per year on average (51 cents per day) between 2012 and 2030 for protection from the worst impacts of climate change. (For comparability with other studies, cost and income figures reported here are for 2030 rather than 2035, as presented by EIA). Without action to reduce emissions, EPA estimated a 99% probability that global warming will exceed 2 degrees Celsius (3.6 degrees Fahrenheit), a threshold above which scientists project that the risk of catastrophe increases rapidly. With the APA anchoring a global effort to curb emissions consistent with commitments made by G8 countries last year, the risk of global warming exceeding 2 deg. C is reduced to 25% and the risk of temperatures rising more than 4 degrees becomes negligible. 

• Annual increases in income over 2013 levels would be almost 60 times greater than the estimated $185 annual investment** cost, exceeding $11,000 per year on average (see 4th pair of bars in graph below; graph provides additional time periods).[i] These results are similar to those found by other non-partisan institutions (in this context, researchers that do not receive funding from industries opposed to climate legislation), including those by the Environmental Protection Agency (EPA), the Joint Program on the Science and Policy of Global Change at the Massachusetts Institute of Technology (MIT), the Peterson Institute for International Economics, and Climate Works. Some of these studies also estimated employment impacts and other benefits, finding significant job growth under APA. 

• Under the American Power Act, the US would reduce oil imports 1.9 to 2.4 million barrels per day by 2035. For reference, the US imported 1.7 million barrels of oil a day from the Middle East in 2009. These savings come from a combination of lower liquid fuel use, increased domestic oil production through enhanced oil recovery,[ii] and increased use of biofuels.

Data Sources: http://www.eia.gov/oiaf/servicerpt/kgl/index.html (main and consumption impact tables); http://www.census.gov/prod/2009pubs/acsbr08-2.pdf for 2008 median income.

** The study includes estimates of what it calls “household costs.” I prefer to call these “investment costs,” since we expect benefits from climate protection.

*** Estimated by growing 2008 median income levels by the growth rate in disposable income, then averaging the annual increases over 2013 levels.

[i] These estimates are from EIA’s basic case, what it considers the most likely scenario. Estimates from four other scenarios ranged from $149 to $328 in 2030. A sixth estimate, under the most extreme assumptions of no low cost mitigation options or cost-reducing innovations, projected $739 in 2030. In all cases, average increases in median income will be roughly equal to the average increase in median income of $11,000 over 2013 levels.

[ii] Enhanced oil recovery (EOR) increases domestic oil production by 2035 by .8 to 1 million barrels per day. EOR is a technology that has been used for decades to produce additional oil from fields by injecting CO2 (or steam) to free oil that is ordinarily left trapped in the underground formation. Currently, most of the CO2 used for EOR is extracted from natural sources which are limited in supply. With climate legislation, the supply of CO2 would increase dramatically from CO2 waste captured at power plants and industrial facilities. In addition to providing a place to sequester CO2, an abundance of existing and abandoned oil fields are available for CO2-EOR. (click here, here, here, and here to learn more about EOR). CO2-EOR would also reduce pressure to open up new areas for oil exploration.d from utility and industrial emissions to increase production on stranded oil fields. 

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