On July 3, 2003, EIA released an economic analysis of S. 139: the Climate Stewardship Act introduced by Senators John McCain and Joe Lieberman. The EIA analysis was undertaken at the request of Senator James Inhofe, with additional analyses requested by the bill’s sponsors.
The Center has examined the EIA analysis and believes that the model’s structure, combined with unrealistic input assumptions, results in unrealistically high cost projections. Key factors driving up the costs in the EIA analysis include:
Structural issues with EIA’s model, including inflexibility in altering existing equipment (capital stock), limited ability to consider improvements in technology driven by regulatory changes, and lack of existing low-cost energy efficiency opportunities.
Assumptions regarding natural gas supply (low) and price (high), relatively high expectations for “business as usual” emissions growth (including presumed rapid expansion of coal-powered electricity), and limited energy conservation measures even with a sustained price signal.
Additional sensitivity cases (many pre-determined by the requests of the Senators soliciting EIA’s analysis) that also generally serve to drive up projected costs. These include cases with even higher natural gas prices and cases limiting certain advanced low-emitting technologies for the generation of electricity.
A more technologically rich and flexible model accompanied by more realistic assumptions regarding modeling inputs would yield lower cost projections.