of emissions compared to current policies, and any policy to specifically reduce emissions should deal comprehensively with all of the greenhouse gases and address both emissions sources and pollutant sinks so that more cost-effective options are taken. We believe that the composite of actions that comprise the National Energy Strategy provides an approach to limiting U.S. greenhouse gas emissions that meets these three criteria. All schemes of implementing a CO2 cap begin with the government determining an overall amount or rate of emissions it will allow, the total of which is initially allocated to members of the economy either by assignment or by sale. There are a multitude of mechanisms for allocating and selling these rights, all of which have income distribution and macroeconomic implications. With respect to the issue of differences between an emissions tax or emissions cap schemes, economic theory indicates that under conditions of perfect competition the two approaches are equally efficient. In the case of the emissions tax, the tax rate is set and quantity adjustments occur to find the optimal use of carbon. In the case of the emissions cap, the quantity is set and prices adjust to find the optimum. The carbon tax is, of course, not an emissions tax as generally discussed, but rather an input tax. As such, it provides no incentives for the use of emissions reduction techniques in the flue gas or to capture carbon out of the atmosphere. In principle, therefore, the carbon tax may be less efficient than emissions taxes or caps. Under more real world conditions, the question of which technique is less costly is an empirical question. Studies which will provide insight into the question of the relative cost-effectiveness of different policy instruments are underway now, including within the Department of Energy. The Department is completing a Congressionally-mandated evaluation of policy instruments which should be available to the Congress later this year. Question 2a: QUESTIONS FROM CONGRESSMAN COOPER I reviewed with interest the Department of Energy's analysis of the NES potential effect on global climate change. It is difficult to determine the degree of improvement expected from new initiatives in the NES as opposed to progress already enacted in the Clean Air Act Amendments of 1990. It would help my understanding of this issue if you could Projected carbon dioxide emissions separated by section Answer: To show the effect of the Clean Air Act Amendments of 1990 (CAAA), which is not included in the current policy base case, we have run a case in which the CAAA is removed from the NES Actions case. This is discussed under the answer for question 2.c. Question 2b: Projected carbon dioxide emissions from those Answer: Tables and a figure are attached. |