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August 7, 2009

U.S. Carbon Price May Reach $191 by 2030

Under one scenario, the price of carbon credits in the U.S. could climb to $191 by 2030. That is, if the U.S. does not begin adopting large-scale clean energy projects and does not purchase foreign offsets.

The costly scenario is one of six presented in a new report from the Energy Information Administration, entitled “Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009.” Read the executive summary here.

Other scenarios do not paint such a grim picture. The models show that carbon pricing may range between $32 and $93 per metric ton by 2020, and climb to $41 to $191 by 2030.

From the report, here are the different scenarios that were considered, and are represented in the above chart.

• The ACESA Basic Case – represents an environment where key low-emissions technologies, including nuclear, fossil with CCS, and various renewables, are developed and deployed on a large scale in a timeframe consistent with the emissions reduction requirements of ACESA without encountering any major obstacles. It also assumes that the use of offsets, both domestic and international, is not severely constrained by cost, regulation, or the pace of negotiations with key countries covering key sectors. In anticipation of increasingly stringent caps and rising allowance prices after 2030, covered entities and investors are assumed to amass an aggregate allowance bank of approximately 13 BMT by 2030 through a combination of offset usage and emission reductions that exceed the level required under the emission caps.
• The ACESA Zero Bank Case – similar to the Basic Case except that no banked allowances are held in 2030, reflecting the assumed availability of a broad array of reasonably priced low- and no-carbon technologies that can provide an alternative path to compliance with tighter emissions caps after 2030 through reductions across all energy uses, including transportation.
• The ACESA High Offsets Case – similar to the Basic Case except that it assumes the near-immediate use of international offsets at levels at or close to the specified aggregate ceiling, without regard to possible institutional or market impediments.
• The ACESA High Cost Case is similar to the Basic Case except that the costs of nuclear, coal with CCS, and dedicated biomass generating technologies are assumed to be 50 percent higher.
• The ACESA No International Case – similar to the Basic Case, but represents an environment where the use of international offsets is severely limited by cost, regulation, and/or slow progress in reaching international agreements or arrangements covering offsets in key countries and sectors.
• The ACESA No International/Limited Case – combines the treatment of offsets in the ACESA No International Case with an assumption that deployment of key technologies, including nuclear, fossil with CCS, and dedicated biomass, cannot expand beyond their Reference Case levels through 2030.

The climate bill also would increase electricity prices to 12 cents per kilowatt-hour, or by 20 percent, in 2030, under a scenario where low-emission technology is developed on schedule and offsets are not constrained.

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