The economic payoff for global warming emissions reduction

In order to meet the 1997 Kyoto treaty targets, U.S. carbon emissions must be severely curtailed. While top-down economic models predict that cutting carbon emissions will produce high costs, higher efficiency technology, such as residential electric heat pump water heaters, can cause carbon reduction to become profitable. In a single-family residence, replacing an electric resistance water heater with a heat pump water heater can reduce carbon emissions by 0.6 tons per year and produce savings of $1200 over a twelve-year period, rather than costs. National implementation of this single technology would reduce electric power plant carbon emissions by 5 percent. INTRODUCTION There is considerable analysis, discussion, and controversy in the United States over the economic costs of meeting the Kyoto treaty targets for the reduction of global warming gas emissions. These gases are primarily composed of carbon dioxide resulting from the combustion of fossil fuels. There are four primary means by which carbon emissions resulting from electricity generation can be addressed: changing the fuel composition used to generate electricity at a power plant, improving power plant conversion processes, raising the efficiency of end-use appliances and equipment, and altering individual lifestyles so as to use less energy. Since the combustion of fossil fuels results in carbon emissions, the mixture of fuel that is used in power plants can be altered to include more hydroelectric or solar power. The processes that convert raw fuel to electricity at a power plant can also be made more efficient, as can appliances and equipment in the home, such as air-conditioners or water heaters. Lifestyle changes could reduce the end uses of electricity, such as light, cool air, or hot water, which determine how much energy must be produced. By using top-down economic models, which include numerous difficult and debatable assumptions, economists have calculated the cost for reducing annual carbon emissions to be $100 to $200 per ton of carbon. This is approximately equal to the current cost of fossil fuels, meaning the effective cost of energy would double. Economists have calculated that this economic cost would lead to a reduction in gross domestic production, a societal cost that is both heavy and politically unacceptable (Passel, 1997). Conversely, a bottom-up analysis that looks at high efficiency technology solutions to reduce electrical use, and thereby the quantity of fuel burned, shows that the use of available technology can give a positive economic payoff (Jacard et al., 1996). By utilizing higher efficiency systems, the benefits enjoyed by the end-user are not affected. Higher efficiency water heating technology has been analyzed as an example of the positive economic payoff gained from using higher efficiency energy systems. SOURCES OF CARBON DIOXIDE EMISSIONS Thirty-four percent of the United States’ carbon emissions come from electricity generation. The majority of America’s electricity is produced by the combustion of fossil fuels. In 1995, 67.5% of the United States’ electricity came from fossil fuels, while 22.5% came from nuclear power, and only 10% came from renewable sources such as hydroand geothermal power. In 1980, 2287 billion kilowatt-hours of electricity were generated in the U.S., resulting in the emission of 418.3 million metric tons of carbon. By 1995, those numbers had grown to 2993 billion kilowatt-hours and 493.8 million metric tons of carbon. The growth rate for carbon emissions is approximately 6 million metric tons of carbon per year (DOE/EIA-0573(96)). By sector, industrial applications use 34% of America’s electricity, commercial use 31%, and residential use 35%. Within the residential sector, electric water heaters comprise 38% of America’s water heaters, and water heating accounts for approximately 8% of the carbon emitted by electrical power generation (EIA, 1995). The annual carbon emissions from a single electric resistance water heater are approximately equal to the annual carbon emissions from an automobile. Improving water heater efficiency is important both from an environmental and an economic viewpoint. RESIDENTIAL ELECTRIC WATER HEATERS Technology Electric water heaters used in U.S. residences are electric resistance water heaters. Assuming ideal thermal insulation, one unit of electricity will generate one unit of hot water in an electric resistance heater. However, electric heat pump