Preliminary results – DO NOT QUOTE
THE FOREST PRODUCTS INDUSTRY AT A CROSSROADS:
PRELIMINARY NEMS ANALYSIS OF RENEWABLE STANDARDS AND CAP AND TRADE POLICIES
CAP AND TRADE POLICIES
Prepared for 2009 TAPPI Engineering, Pulping & Environmental Conference
October 14, 2009
Marilyn A. Brown and Youngsun Baek
School of Public Policy
Georgia Institute of Technology
Contents
• The Pulp and Paper Industry
– Energy Consumption
– Possible Uses of Biomass Residues
• Energy and Climate Policies with Impacts on the Industry
gy
p
y
– Renewable Electricity Standard (RES)
– Carbon Cap and Trade System (CCT)
– Expanded Industrial Energy Efficiency
Expanded Industrial Energy Efficiency
• Methodology: National Energy Modeling System (NEMS)
• GT‐NEMS results
– Impacts on CO
I
t
CO2 Emissions, Electricity Prices, and Biomass Prices
E i i
El t i it P i
d Bi
Pi
• Conclusions
Energy Consumption in the Paper Industry
Energy Consumption in the Paper Industry
• Total Industrial Sector accounts for
– 32%
32% of the national energy budget of the national energy budget
– 27% of U.S. CO2 emissions
Evolving Energy and Climate Change Policies l
• In recent years, the U.S. Congress has proposed hundreds of climate change‐related proposals (Pew, 2007).
• However, the long‐term operating costs and competitive advantage are uncertain.
• An increasing number of U.S. companies have been participating in voluntary greenhouse gas emissions reduction programs and registries to prepare for eventual federal regulations (Southworth, 2009).
• The existing greenhouse gas emissions reduction registries in the U.S. differ in ways that could affect the provision of y
p
credit under future federal legislation (DiMascio, 2007). Possible Uses of Biomass Residues f
from the Pulp and Paper Industry h
l
d
d
Manufacturing Processes
On‐Site
Steam and Electricity Generation
Products
Forest Products Market
Electricity Generation
Biomass Residues
Residential & Commercial
Space Heating
Transportation
Biofuels
(Ethanol/ Bio‐
diesel)
di l)
Policies with Potentially Large Impacts on the Pulp and Paper Industry
h
l
d
d
A national renewable electricity standard (RES)
at o a e e ab e e ect c ty sta da d ( S)
A U.S. greenhouse gas cap and trade system
Expansion of industrial energy efficiency policies
Expansion of industrial energy efficiency policies
Plus, recently strengthened renewable fuels standards (RFS)
( )
How might forest products and biomass residues from the pulp and paper industry be utilized ?
What extent would the policy changes affect the industry?
•
•
•
•
Renewable Electricity Standard (RES) (1)
Renewable Electricity Standard (RES) (1)
• A renewable electricity standard (RES) is a legislative y
( )
g
mandate requiring electricity suppliers in a given geographical area to employ renewable resources to generate a certain amount or percentage of renewable
generate a certain amount or percentage of renewable power by a target year.
yp
y
y pp
p
• Typically, electricity suppliers can either produce their own renewable energy or buy renewable energy credits. • Therefore, this policy blends the benefits of a Therefore this policy blends the benefits of a
“command and control” regulatory paradigm with a free market approach to environmental protection. Renewable Electricity Standard (RES) (2)
Renewable Electricity Standard (RES) (2)
• Because
Because of the inconsistencies, and the desire of the inconsistencies and the desire
to accelerate the growth of renewable power production the U S Congress is considering
production, the U.S. Congress is considering implementation of a national standard.
• Recent Congressional proposals tend to be Recent Congressional proposals tend to be
consistent with President Obama’s campaign platform in 2008 included a commitment to
platform in 2008 included a commitment to 25% renewable electricity production by 2025. Carbon Cap and Trade System (CCT) (1)
Carbon Cap and Trade System (CCT) (1)
• CO2 emissions can be controlled with various emissions can be controlled with various
policies including energy and carbon taxes and cap‐and‐trade
cap
and trade systems.
systems
• Ten northeastern states are currently participating in the Regional Greenhouse Gas
participating in the Regional Greenhouse Gas Initiative (RGGI), but more than half of the U S states do not even have GHG reduction
U.S. states do not even have GHG reduction goals. Carbon Cap and Trade System (CCT) (2)
Carbon Cap and Trade System (CCT) (2)
• Key
Key design features of a cap
design features of a cap‐and‐trade
and trade program:
– Emission targets
Emission targets
– Point of Regulation
– Price Ceiling and Floor
Price Ceiling and Floor
– Offsets
– Banking and Borrowing
B ki
dB
i
– Allocation of allowances
Expanded Industrial Energy Efficiency
Expanded Industrial Energy Efficiency
• The
The pulp and paper industry is able to cut its pulp and paper industry is able to cut its
energy consumption by investing in improved equipment and practices that will pay for themselves through reduced energy bills.
– Industrial assessment for upgrading plant utility
– Acceleration of the use of Combined Heat and Power (CHP) equipment
– Manufacturing process improvement M
f t i
i
t
(* We are in the process to model industrial energy efficiency and will have more complete results shortly.)
Renewable Fuels Standard (RFS)
Renewable Fuels Standard (RFS)
• A
A renewable fuels standard (RFS) is a policy renewable fuels standard (RFS) is a policy
instrument used to expand the displacement of gasoline and diesel with renewable fuels
of gasoline and diesel with renewable fuels.
• Such fuels are defined in the Energy Policy Act of 2005 (EISA 2005) as a motor vehicle fuel
of 2005 (EISA 2005) as a motor vehicle fuel that is produced from plant or animal products or wastes as opposed to fossil fuel
products or wastes, as opposed to fossil fuel sources. Methodology: National Energy Modeling System (NEMS)
d l
(
)
Supply of Biomass/
Biomass/ Other Renewable Technologies
Dedicated /
Biomass/ Biomass Co‐firing Plants
Biomass Consumption for CHP/ Total Industrial Biomass
Biomass Consumption
Source: National Energy Modeling System: An Overview 2003, EIA 2003
Detailed Policies modeled in GT‐NEMS
Detailed Policies modeled in GT
NEMS
•
•
•
•
RES (Obama’s Pledge)
– 10 percent of U.S. electricity would come from renewable sources by 10
fUS l
i i
ld
f
bl
b
2012, and 25 percent by 2025
CCT
– Carbon tax prices: Start at $15 per ton of CO
p
$ p
)
2((2005 dollars) in 2012 growing at 7% annually and reach $51per ton in 2030
– Allowance redistribution system: Gives 90% of allowances to electricity load serving entities and 10% to generators
Industrial EE
Industrial EE
– DOE’s industrial energy savings assessment programs
– Tax credits and R&D activities focused on the use of combined heat and power (CHP)
– Manufacturing process efficiency improvement (in progress)
(
)
– 20% installation subsidy for CHP equipment (in progress)
RFS
– Already modeled in a NEMS BAU scenario
Already modeled in a NEMS BAU scenario
** Projections from the GT‐NEMS could be different from projections from the original NEMS
U.S. energy intensity is forecast to decline
gy
y
(thousand Btu per 2000 dollar)
* Excludes process efficiency improvement from Industrial EE
CO2 emissions from electricity generation could decline to pre‐1995 levels by 2030 p
y
(million metric tons carbon dioxide equivalent)
* Excludes process efficiency improvement from Industrial EE
The three policies would result in increased industrial electricity prices
l t i it
i
(2007 dollars per million Btu)
* Excludes process efficiency improvement from Industrial EE
The industrial electricity price increases from CCT would be moderated by Industrial EE
ld b
d t d b I d t i l EE
(2007 dollars per million Btu)
* Excludes process efficiency improvement from Industrial EE
RES leads to higher biomass prices in the electric power sector
(2007 dollars per million Btu)
* Excludes process efficiency improvement from Industrial EE
Conclusions
• Each policy reduces CO2 emissions, and as a package, the three policies could cut CO2 emissions from the electricity sector by estimated 42%. • The RES and carbon cap and trade policies have the largest effects in this regard. • These policies would increase the price of timber and other forest‐
based biomass inputs, relative to a business as usual scenario. • The carbon cap and trade policy can result in a 10 to 20% increase in the price of industrial electricity, but this increase could be moderated by expanding industrial energy efficiency programs as
moderated by expanding industrial energy efficiency programs as “complementary policies”.
• These results underscore the value of designing a portfolio of climate policies that can achieve the desired reduction in CO
p
2
2 emissions at minimal expense to the economy.
• Keep in mind that the results for industrial energy efficiency are preliminary due to modeling challenges that we are in the process of resolving. Your comments are welcomed.
f
l i Y
t
l
d
Contact to the authors:
Contact to the authors:
• Marilyn
Marilyn A. Brown A Brown
(marilyn.brown@pubpolicy.gatech.edu)
• Youngsun Baek (gth733f@mail.gatech.edu)
Youngsun Baek (gth733f@mail gatech edu)
Supplementary Charts
Supplementary Charts
• S‐1
S 1. Energy and Climate Policy Impacts:
Energy and Climate Policy Impacts:
Estimated Percentage Changes in 2020 and 2030
• S‐2. Biopower Supply Changes in 2020 and 2030
S‐1 Energy and Climate Policy Impacts:
Estimated Percentage Changes in 2020 and 2030 Estimated
Percentage Changes in 2020 and 2030
(Preliminary Results)
Point of Impact
CO2 Emissions
from Electricity
y
Generation
Industrial
Electricity Price
Biomass Price in
Electric Power
Sector
Total Industrial
Energy
Consumption
Federal
Renewable
Electricity
Standard
Electricity
Suppliers
U.S. GHG Cap
and Trade
Industrial Energy
Efficiency Policies
All
(Three Combined
Policies)
Mostly
“upstream”
sources off GHGs
GHG
Industrial Sector
Energy End-Users
-7% (2020)
-9% ((2030))
-11% (2020)
-32% ((2030))
-2% (2020)
-2% ((2030))
Electricity
Suppliers/
M l ““upstream””
Mostly
sources of GHGs/
Industrial Sector
-17% (2020)
-42% ((2030))
+5% (2020)
-5% (2030)
+10% (2020)
+20% (2030)
-2% (2020)
-2% (2030)
+6% (2020)
+18% (2030)
+37% (2020)
+160% (2030)
+4% (2020)
+28% (2030)
0% (2020)
0% (2030)
+15% (2020)
+67% (2030)
-5% (2020)
+1% (2030)
-1% (2020)
-1% (2030)
-1% (2020)
-2% (2030)
-3% (2020)
-4% (2030)
S‐2 Biopower Supply Changes in 2020 and 2030 (
(Preliminary Results)
y
)
BAU
Federal
Renewable
Electricity
Standard
U.S. GHG Cap
and Trade
Industrial
Energy
Efficiency
Policies
All
(Three
Combined
Policies)
Biopower Supply
(billion kWh)
92 (2020)
124 (2030)
382 (2020)
637 (2030)
232 (2020)
282 (2030)
90 (2020)
118 (2030)
364 (2020)
549 (2030)
Share of Biopower
to Total Electricity
(%)
2.00% (2020)
2.46% (2030)
8.25% (2020)
12.39% (2030)
5.12% (2020)
5.82% (2030)
2.00% (2020)
2.37% (2030)
8.14% (2020)
11.58% (2030)