John A. “Skip” Laitner EPA Office of Atmospheric Programs March 23, 1999

1. Evaluating the Economic Benefits of a State Energy Efficiency and Renewable Energy Technology (EERET) Set-Aside for the NOx Budget Trading Program John A. “Skip” Laitner EPA Office of Atmospheric Programs March 23, 1999

2. The Good News About Pollution Control and Climate Change Policies • It is not about ratcheting down our economy; • Rather, it is about: • investing in new technologies; • using America’s technological leadership; and • developing new ways to make things, and new ways to get where we want to go, where we want to work, and where we want to play. Carol Browner, September 1997

3. A recent EPA/LBNL analysis appears to confirm Administrator Browner’s conclusion:Technology and Greenhouse Gas Emissions: An Integrated Scenario Analysis Usingthe LBNL-NEMS Model in PDF file format at http://enduse.lbl.gov/Projects/GHGcosts.html

4. Summary of the EPA/LBNL Integrated Technology Scenario Analysis • A High Efficiency/Low Carbon (HELC) scenario, drawing from “bottom-up” studies such as the DOE Five-Lab Analysis, formed the basis of an economic assessment using a modified version of EIA’s National Energy Modeling System (NEMS). The work was done by the EPA Office of Atmospheric Programs (OAP) and the Lawrence Berkeley National Laboratory (LBNL). • With a carbon permit price of $23/tonne, energy-related carbon emissions are estimated at 274 MtC in 2010, or about 55 percent of the Kyoto target (with emissions down by 3 percent from 1990 levels). • Under these assumptions, GDP is largely unchanged (+$29 billion out of a $10.4 trillion economy); and despite initially higher energy prices, total energy expenditures are down (-$89 billion).

5. With personal computers we haveWYSIWYG, orWhat you see is what you get;But with economic models, it may beWYMIWYG, orWhat you measure is what you get!

6. Representative Examples of New Technology Opportunities • A small example: Consumer Electronics • An emerging example: New heat exchanger units from Modine Technology, Inc. • Another emerging opportunity: New technology with polyethylene concentrates from Eastman Chemical Company • A very large opportunity: Combined Heat and Power (CHP) systems

7. Consumer Electronics • More than 1.3 billion units in the United States, including televisions, video cassette recorders, audio devices, telephones, microwaves, etc. • Each of these units typically have a stand-by power consumption of 2-12 watts, or 18-105 kWh per year, producing about 12 MtC of carbon per year • Under the new ENERGY STAR label, stand-by power consumption will be reduced to 3-4 watts, saving consumers $4 billion per year and reducing carbon emissions by about 5-6 MtC

8. Modine Technology, Inc. • An established manufacturing of heat exchanger technology • A new product design that, for example, will increase the energy efficiency of room air-conditioners from an EER of 10 to 13 --- at no extra cost to the consumer • Yet, current investments and production lines make it difficult to open up the market for this new technology --- a condition that will likely change in a post-Kyoto world

9. Eastman Chemical Company • In September announced a new technology with polyethylene concentrates that can reduce processing time • Applied to both extrusion coating and film applications to minimize both downtime and waste • Among other benefits is reduced electricity consumption • Unlike other methods, equipment modifications are not required since Eastman's technology is contained within the concentrates

10. Combined Heat and Power Systems • Combined Heat and Power (CHP) systems offer an important opportunity to demonstrate a “smart path” toward mitigating global climate change • The accelerated adoption of the existing generation of CHP systems has the potential to reduce carbon emissions by perhaps 25 MtC in the year 2010 (in addition to what other models now indicate) • Just as important, CHP can also reduce NOx emissions by up to 260,000 tons by 2010

11. Potential Benefits of a 5% EERET Set-Aside in the NOx Budget Trading Program • An estimated reduction in electric demand of over 90 Billion kWh for 2003 in the SIP Call region • Approximately $5.0 billion in energy bill savings to consumers in 2003 • About $150 million in compliance cost savings for that year • About 20,000 to 40,000 new jobs throughout the region

12. And to help states evaluate the economic impacts of its set-aside programs. . . .The Energy, Economic, and Environmental Analysis System (E3AS)! Pronounced “EASE”, the software is a product of the Goodman Group with Version 2.0 under development for the states through an EPA-funded grant to NASEO.

13. Key Design Elements of theEconomic Impact Analysis Software • The algorithms and assumptions of the model are fully documented. • Users are able to override any default data or results if they have reason to do so. • Analysts can choose to use a minimum level of data, or they can adapt the model to use a richer level of detail. • The model contains “bill of goods” data for more than 100 technologies that can be evaluated either individually or “bundled” into a program-level analysis.

14. For a typical state, you probably didn’t know that . . . .

15. But with the new E3AS model. . . . That just may not matter!

16. Analytical Logic of the Economic Impact Model The User Enters: The Model Selects: State of Analysis Key Multiplier and Economic Profile Data Characteristics of Energy Supply Displaced Energy Appropriate Bill of Goods Data Efficiency Measures Deflator and Productivity Factors Key Financial Data Pattern of Savings Appropriate Changes in Spending Patterns Across All Economic Sectors

17. Analytical Logic of the Economic Impact Model Category of Impact: Net Annual Benefit: Energy Savings ~5,000 GWh Energy Bill Savings ~$80 Million ~1,500 Tons NOx Reductions ~600 Tons SO2 Reductions Carbon Reductions ~0.7 MMT Employment Gains ~1,700 Net Jobs

18. The difficulty lies not with the new ideas, but in escaping the old ones John Maynard Keynes

19. For more information on the material referenced in this presentation, contact: Skip Laitner EPA Office of Atmospheric Programs 501 3rd Street NW, MS 6201-J Washington, DC 20001 o: (202) 564-9833 f: (202) 565-2147 email: Laitner.Skip@epa.gov