SGA Climate Change

www.climatestrategies.us!!
Southern Regional Economic Assessment

of Climate Policy Options and Review of
Economic Studies of Climate Policy
White Paper Report
Prepared by the Center for Climate Strategies

for the Southern Governors’ Association
October 2009
CHAIRMAN
Bob Riley
Governor of Alabama
FIRST VICE CHAIRMAN

Beverly Eaves Perdue
Governor of North Carolina
SECOND VICE CHAIRMAN

Luis Fortuño
Governor of Puerto Rico
October 2009 EXECUTIVE DIRECTOR

Diane C. Duff
To my fellow Southern Governors:
I am pleased to present to you the final report produced by The Center for Climate Strategies
(CCS), “Southern Regional Economic Assessment of Climate Policy Options and Review of
Economic Studies of Climate Policy.”
This report is a product of my 2008-09 SGA Chairman’s Initiative, during which we began a
dialogue about climate change that took into account the unique environment and economy of
the South.
As you recall, CCS representatives presented the preliminary findings of their work at our 2009
Annual Meeting in Williamsburg. By looking at both the greenhouse gas reduction potential of
various policy options and the potential economic costs and benefits of those options, we were
able to have a constructive and timely dialogue. Many of you expressed an interest in exploring
this policy analysis further with the involvement of stakeholders in your state, and I encourage
you to access the expertise of the CCS team to do so.
I encourage you to thoroughly review the contents of this valuable document, and use it as a tool
in support of your specific climate change policy goals. Solid scientific and economic data will
help each of us make good decisions now and in the future about climate change and energy
policy options in our respective states.
I would like to thank each of you for working with me on these challenging issues throughout
my SGA chairmanship. I would also like to thank the Merck Family Fund, the Mertz Gilmore
Foundation, the Rockefeller Brothers Fund and the Turner Foundation for providing the funding
that made this report possible.
Sincerely,
Timothy M. Kaine
HALL OF THE STATES 444 NORTH CAPITOL STREET, NW SUITE 200 WASHINGTON, DC 20001
202/624-5897 FAX 202-624-7797 WWW.SOUTHERNGOVERNORS.ORG
Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, Missouri, North Carolina,
Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, U.S. Virgin Islands, Virginia, West Virginia
Southern Governors Association
Regional Economic Analysis of State Climate Policies
White Paper Report
Table of Contents
Acknowledgements…………………………………………………………………....…... v
Acronyms and Abbreviations ..………………………………………..…..……………... vii
Executive Summary............................................................................................…... . Ex-1
Chapters
Chapter 1 - Inventory and forecast of regional GHG emissions……………..……….. 1-1
Chapter 2 – Overview and analysis of regional GHG reduction potential and
financial costs and savings of mitigation policy options in all economic
sectors………………..……………………………………………………….. 2-1
Chapter 3 – ENERGY SUPPLY: Analysis of regional GHG reduction potential and
financial costs and savings of electricity generation, fossil fuel
extraction, processing and transmission potential technologies and
measures………………………………………………………………..….… 3-1
Chapter 4 – RESIDENTIAL, COMMERCIAL and INDUSTRIAL: Analysis of
regional GHG reduction potential and financial costs and savings of
stationary source emissions from structures plus industrial process
emissions potential technologies and measures………………….…….... 4-1
Chapter 5 – TRANSPORTATION and LAND USE: Analysis of regional GHG
reduction potential and financial costs and savings of mobile source
emissions plus land use efficiencies and impacts potential technologies
and measures………………………………………………......................... 5-1
Chapter 6 – AGRICULTURE, FORESTRY and WASTE MANAGEMENT: Analysis
of regional GHG reduction potential and financial costs and savings of
agriculture and forestry GHG sources and sinks plus waste
management activities including wastewater treatment potential
technologies and measures…………………………………………..…….. 6-1
Chapter 7 - Analysis and comparison of other studies of the economic impact of
GHG mitigation policy in the SGA region through analysis at the
regional, national or international levels……………………….….……….. 7-1
Center for Climate Strategies iii www.climatestrategies.us

SGA Climate Initiative
October 2009
Technical Appendices
Appendix A – Regional inventory and forecast data …………………………...……… A-1
Appendix B – Regional GHG reduction potential and financial costs/savings
estimation methodology……………………………………………………………....…... B-1
Appendix C – Energy Supply sector data sources, methods and key assumptions. C-1
Appendix D – Residential, Commercial and Industrial sector data sources,
methods and key assumptions ……………………………………………………..…..... D-1
Appendix E – Transportation and Land Use sector data sources, methods and key
assumptions …………………………………………………………………….………….. E-1
Appendix F – Agriculture, Forestry and Waste Management sector data sources,
methods and key assumptions …………………………………………………………... F-1
Appendix G – Climate economic impact studies and meta-analysis method….…..... G-1
Appendix H – List of climate economic impact studies reviewed and
macroeconomic study data tables………………………………..…………….……...… H-1
Center for Climate Strategies iv www.climatestrategies.us

Acknowledgements
Under the leadership of the Southern Governors’ Association’s 2008-09 Chairman, Virginia
Governor Timothy M. Kaine, The Center for Climate Strategies (CCS) was commissioned to
conduct an economic analysis and provide a detailed report of the results in support of SGA’s
member Governors’ efforts to identify cost effective policies and strategies that could be
implemented independently at the state level to address concerns about the impacts of climate
change. The early results of CCS’ analysis provided the foundation for extensive conversations
among Southern Governors during SGA’s August 2009 Annual Meeting in Williamsburg,
Virginia. This report represents the final results of their work.
By selecting climate change as the focus of his chairmanship, Governor Kaine facilitated a
constructive, bipartisan regional dialogue on this controversial, but important subject, and
ensured that each Governor walked away with a set of policy options that could be further
explored for application in their respective states. The process and the outcome is yet another
example of how SGA’s forum can support problem solving that improves the region’s quality of
life and secures an economically vibrant South. On behalf of SGA’s member Governors, I
would like to thank the Merck Family Fund, the Rockefeller Brothers Fund, the Turner
Foundation, and the Mertz Gilmore Foundation for their generous financial support, which made
this project possible.
In addition, many individuals contributed to the successful completion of this work on an

unusually ambitions timetable, and all of them deserve recognition:
CCS’ team of experts worked long hours over a few short months to complete this report, and I
would like to thank them all: Tom Peterson, Jeff Wennberg, Adam Rose, Dan Wei, Steve Roe,
Hal Nelson, Lewison Lem, Bill Dougherty, David von Hippel, Jim Wilson, Maureen Mullin,
Brad Strode, Jackson Schreiber, Noah Dormandy, Alison Bailie, Victoria Clark, June Taylor,
Joan O’Callaghan, Katie Pasko, along with many others who may never have come into contact
with SGA directly.
For the prompt attention of the staff throughout each of our Governors’ administrations who
assisted with the collection of data and the review of methods and assumptions, SGA would like
to thank the following individuals: in Alabama: Bryan Taylor; in Arkansas: Chris Masingill,
Kathryn Hazelett and Marc Harrison; in Florida: Corinne Stevens, Frank Walker, Jeremy Susac
and Steve Adams; in Georgia: Lauren Travis, Padgett Wilson, Bradford Swan, Lea Anne Foster
and Matthew Baxter; in Kentucky: Will Coffman, Len Peters and Karen Wilson; in Louisiana:
Jody Montelaro, Timmy Teepell, Sarah Olcott, Lori LeBlanc and Mike French; in Maryland:
Malcolm Woolf, Dana Thompson and Brian Hug; in Mississippi: Marie Sanderson and Patrick
Sullivan; in Missouri: Dustin Allison and Karen Massey; in North Carolina: Jim McCleskey,
Marion Sullivan, Jennifer Bumgarner and John Morrison; in Oklahoma: Nelda Kirk and Robert
“Bobby” Wegener; in Puerto Rico: Colleen Newman, Annie Mayol, Kaleb Rodriguez and Luis
Bernal; in South Carolina: Blair Goodrich; in Tennessee: Ryan Gooch, Will Pinkston, Matt
Saperstone, Tam Gordon and Paul Sloan; in Texas: Brandon Steinmann; in the U.S. Virgin
Islands: Steven Steele, Bevan Smith, Patricia Lord, R. Percy and Glenn Rothgeb; in Virginia:
v
Alfonso Lopez, Bennett Blodgett, Brian Shepard, Stephen Walz, Alleyn Harned, Preston Bryant
and Nikki Rovner; in West Virginia: Emily Castleberry, Scott Cosco and Jeff Herholt.
Jennifer Schwartz, SGA’s Federal Policy Director, and I, served as the interface between
Governors’ staff, Tom Peterson and Jeff Wennberg from the CCS team, and project funders.
Jennifer deserves special recognition for managing the intricacies involved in ensuring
constructive collaboration on this challenging issue.
SGA and CCS are both grateful to Senator John Warner (VA, retired) for his encouragement and
guidance throughout this process. His perspective on these issues, both from his personal
experiences and his 30-year career of public service and leadership, has been invaluable, and he
gave generously of his time for the benefit of this report and as a speaker and participant at
SGA’s annual meeting.
Finally, a special thank you to each of SGA’s member Governors for their willingness to come
together to explore such a challenging set of issues through the SGA forum. By sharing their
individual perspectives, goals and challenges, they continue to shape a dialogue that will result in
a stronger federal and state policy outcome.
Diane C. Duff
Executive Director
vi
Acronyms and Abbreviations
AASHTO American Association of State Highway and Transportation Officials
ACCF American Council for Capital Formation
ACEEE American Council for an Energy Efficient Economy
ACESA [Waxman-Markey] American Clean Energy and Security Act of 2009
AEO Annual Energy Outlook
AEO2009 Annual Energy Outlook 2009
AFW Agriculture, Forestry, and Waste Management sector
AR Arkansas
ASAP Appliance Standards Awareness Program
B5 fuel blend of 5 percent biodiesel and 95 percent petroleum
BAU business as usual
CAFE Corporate Average Fuel Economy [standards]
CAP Climate Action Plan
CAPAG North Carolina Climate Action Plan Advisory Group
CARB California Air Resources Board
CBO Congressional Budget Office
CCS Center for Climate Strategies
CCSR carbon capture and storage or reuse
CEP Clean Energy Project
CGE computable general equilibrium
CHP combined heat and power
CMAQ Congestion Management and Air Quality
CNG Compressed Natural Gas
CO2 carbon dioxide
CO2e carbon dioxide equivalent
CRA Charles River Associates
DOE [U.S.] Department of Energy
DSM demand-side management
DVD digital versatile disc
E10 fuel blend of 10 percent ethanol and 90 percent petroleum
E85 fuel blend of 85 percent ethanol and 15 percent petroleum
Eff Efficiency
EIA [U.S.] Energy Information Administration
EISA Energy Independence and Security Act of 2007
EPA [U.S.] Environmental Protection Agency
EPS environmental portfolio standard
ES Energy Supply sector
EV Electric Vehicle
feebate fee and rebate [program]
FIA Forest Inventory and Analysis
Center for Climate Strategies vii www.climatestrategies.us

October 2009
FL Florida
GDP gross domestic product
GHG greenhouse gas
GSP gross state product
H.R. House Bill
HDV heavy-duty vehicle
I&F Inventory and Forecast
ICE Internal Combustion Engine
IMPLAN Impact Analysis for Planning
I-O input-output
LCFS low-carbon fuel standard
LDV light-duty vehicle
LED light-emitting diode
LEED Leadership in Energy and Environmental Design™
LFG landfill gas
MD Maryland
ME Macroeconometric
MRN Multi-Regional National [Model]
MSI Management Information Services, Inc.
MS-MRT Multi-Sector, Multi-Region Trade Model
MSW municipal solid waste
N Nitrogen
N2O nitrous oxide
NAM National Association of Manufacturers
NAS National Academy of Sciences
NC North Carolina
NEEM North American Electricity and Environment Model
NEMS [U.S. EIA] National Energy Modeling System
NOx nitrogen oxides
NRC National Research Council
NRCS Natural Resources Conservation Service
NYSERDA New York State Energy Research and Development Authority
P&L Power & Light
PGE Pacific Gas & Electric
PHEV Plug-In Hybrid Electric Vehicle
PUC Public Utilities Commission
PURPA Public Utility Regulatory Policies Act
RCI Residential, Commercial, and Industrial sector
RFS renewable fuel standard
RGGI Regional Greenhouse Gas Initiative
RPS renewable portfolio standard
S. Senate Bill
Center for Climate Strategies viii www.climatestrategies.us

October 2009
SC South Carolina
SCE Southern California Electric
SDGE San Diego Gas & Electric
SGA Southern Governors' Association
SOV single-occupancy vehicle
TDM Transportation demand management
TLU Transportation and Land Use sector
TRB Transportation Research Board
TRU trailer refrigeration units
TSE truck stop electrification
ULI Urban Land Institute
US DOE U.S. Department of Energy
US DOT U.S. Department of Transportation
US EPA U.S. Environmental Protection Agency
USFS U.S. Forest Service
USVI U.S. Virgin Islands
VMT vehicle miles traveled
WARM WAste Reduction Model
WRI World Resources Institute
WTE waste to energy
Units of Measure
$ US Dollars
$/MMBtu cost per million British thermal unit
$/tCO2e dollars per metric ton of carbon dioxide equivalent
Btu British thermal unit
CO2e carbon dioxide equivalent
MMt million metric tons
MMtCO2e million metric tons of carbon dioxide equivalent
MWh megawatt-hour [one thousand kilowatt-hours]
t metric ton
tC/acre metric tons of carbon per acre
tCO2e metric tons of carbon dioxide equivalent
Center for Climate Strategies ix www.climatestrategies.us

Southern Governors’ Association Climate Initiative:
Executive Summary
Purpose of Study
The Southern Governors’ Association (SGA) commissioned The Center for Climate Strategies
(CCS) to conduct two tasks in support of Governor Kaine's Climate Change and Energy Security
Chairman’s Initiative. The Initiative's goal is to advance better understanding of climate
mitigation policy options, issues and impacts that are specific to the SGA region. The assigned
tasks are:
1. An economic assessment of SGA regional climate mitigation policy options, and
2. A compilation and comparative review of numerous independent studies.
Task One - Background and Summary Results

The SGA regional economic analysis, Task One, provides an aggregate regional economic
assessment of climate policy for the SGA region. The goal of this task is to provide governors
with information about the costs and/or potential cost savings of various policies for mitigating
greenhouse gases (GHGs), and to quantify the reduction of GHGs achieved through these
policies.
This report should not be viewed as a set of recommendations to the Governors. Rather, it
attempts to provide fact-based information that will assist the Governors in making decisions that
they believe are in the best interest of their states.
CCS accomplished the economic analysis by projecting updated cost effectiveness estimates (the
costs or savings per million metric ton [MMtCO2e] of GHG removed) from five comprehensive,
stakeholder-based climate action plans conducted under state authority in Arkansas, Florida,
Maryland, North Carolina, and South Carolina to the full SGA region through a factor-based
modeling process.
Each of these five state climate action plans provides a unique set of proposed climate policy
options covering all economic sectors, and a variety of policy tools designed for implementation
at the local, state or federal levels. The measures in these plans are based on stakeholder
decisions, and include individual policy design specifications and estimates of GHG reduction or
sequestration potential and cost-effectiveness.
From the period of 2006 through 2008 a total of over 300 state stakeholders and work group
representatives were involved in the planning process for all of the five states climate action
plans. Cumulatively, these stakeholders and representatives developed more than 200 policy
© Center for Climate Strategies, 2009. Ex-1 www.climatestrategies.us

SGA Climate Initiative, Executive Summary
October 2009
options for consideration by their state’s governor and/or legislature (proceedings and final
reports are available at www.climatestrategies.us ). Nationally, from the period of 2003 through
2009 a total of over 900 proposed policy options have been developed and analyzed through
state climate action planning processes in 20 separate state initiatives by over 1,500 stakeholders
and work group representatives (also available on the CCS website).
As a first step for the SGA regional economic analysis, emissions baselines and proposed policy
options of the five plans in the SGA region were updated to reflect the effects of recent federal
and state actions, the recession, and updated energy price forecasts. These updates resulted in
changes to the cost and GHG reduction estimates developed in the original state action plans.
Figure Ex-1. Comparison of old (2006-2008) vs. updated (2009) GHG emission forecasts
for the five states.
1200
1000
800
MMtCO2e
600
400
Prior Forecast (5-state Total)
200
Updated Forecast (5-state Total)
GHG – green house gas; MMtCO2e – million metric tons of carbon dioxide equivalent
This new forecast in Figure EX-1 shows emissions in the five states growing 7.5 percent between
2005 and 2009 and 13.5 percent from 2005 through 2020. (See Figure Ex-2.) This compares to a
previous estimated growth rate for the five states of 27.9 percent. This 48 percent decline in the
growth rate of emissions translates into roughly a ten percent reduction in overall emissions by
2020 compared to previous estimates for the five states, and is reflective of regional and national
trends.
These reduced business as usual (BAU) emissions levels are due primarily to effects of recent
federal policy (such as the new vehicle fuel economy standard, the Renewable Fuel Standard,
and energy efficiency provisions of the Energy Independence and Security Act of 2007). In
addition, the forecast is proportionately lower in the short-term due to additional effects of the
recession and energy price changes that disappear in the long term.

October 2009
Figure Ex-2. SGA region gross GHG emissions by sector, 2005.
Agriculture Waste
Fossil Fuel 6% Management
Industry 3%
1% Electricity
Consumption
Industrial Based
Process 37%
4%
Residential Fuel
Transportation Use
28% 2%
Commercial Fuel
Industrial Fuel Use
Use 2%
17%
Figure Ex-3. SGA region projected gross GHG emissions by sector, 2005 – 2020.
4000
3500
3000
MMtCO2e
2500
2000
1500
1000 Electricity (Consumption-based) Residential Fuel Use

Commercial Fuel Use Industrial Fuel Use
Transportation Industrial Process
500 Fossil Fuel Industry Agriculture
Waste Management
0
2005 2010 2015 2020
SGA – Southern Governors’ Association; GHG – greenhouse gas; MMtCO2e – million metric tons carbon
dioxide equivalent
The next step in the process was to develop business as usual GHG forecasts in all SGA states
and territories to provide a future baseline for analysis. The 2005 sources of emissions in the
entire SGA region (based on the inventory described in Chapter 1) are shown as a pie chart in
Figure Ex-2. Figure Ex-3 shows the projected growth in emissions through 2020. This
projection uses a “consumptions basis” for electricity. Emissions created due to electricity that is
imported to the SGA region is included in the projection.

October 2009
Table Ex-1. 23 SGA options by sector, GHG reduction potential and cost-effectiveness.
Estimated
Estimated
2020 Annual
Cost or Cost
GHG
Sector Climate Mitigation Actions Savings per
Reduction
ton GHG
Potential
Removed ($)
(MMtCO2e)
Agriculture, Forestry and Waste Management Sector
AFW-1 Soil Carbon Management 9.24 -$12.76
AFW-2 Nutrient Management 3.25 -$10.10
AFW-4 MSW Landfill Gas Management 20.81 -$0.42
AFW-7 Reforestation/Afforestation 87.89 $13.60
AFW-3 Livestock Manure - Anaerobic Digestion and Methane Utilization 2.53 $14.63
AFW-5 Enhanced Recycling of Municipal Solid Waste 84.03 $18.84
AFW-6 Forest Retention 28.22 $19.11
AFW-8 Urban Forestry 16.75 $57.20
Energy Supply Sector
ES-4 Coal Plant Efficiency Improvements and Repowering 80.04 $10.72
ES-1 Renewable Portfolio Standard 203.93 $19.62
ES-3 Carbon Capture, Storage or Reuse 61.45 $28.84
ES-2 Nuclear 100.94 $41.55
Residential, Commercial and Industrial Sector
RCI-3 Appliance standards 26.32 -$44.29
RCI-1 Demand Side Management Programs 201.94 -$40.33
RCI-2 High Performance Buildings (private and public sector) 108.33 -$36.05
RCI-4 Building Codes 93.83 -$18.00
RCI-5 Combined heat and power 90.99 $1.61
Transportation and Land Use Sector
TLU-1 Anti-Idling Technologies and Practices 13.13 -$83.51
TLU-2 Vehicle Purchase Incentives, including rebates 59.04 -$70.85
TLU-3 Mode Shift from Truck to Rail 13.71 -$35.52
TLU-5 Smart Growth/Land Use 33.02 $0.00
TLU-6 Transit 5.54 $12.73
TLU-4 Renewable Fuel Standard (biofuels goals) 40.28 $40.51
SGA – Southern Governors’ Association; GHG – greenhouse gas; MMtCO2e – million metric tons carbon dioxide
equivalent; MSW – municipal solid waste management.
Estimates of policy options also changed due to new information on energy prices and economic
forecasts, particularly as they affected avoided costs of new energy supplies. Updated results of
the five plans were then used to estimate the GHG reduction potential and cost or cost-savings
for the remaining 13 SGA states and territories. The analysis was focused on a subset of 23
major policy options and projecting them forward. These "super options," listed in Table Ex-1,
comprise 82.6 percent of the GHG reductions included in the five state climate action plans.
They were applied to the additional 13 SGA states and territories through a modeling process
that used 37 key geographic, demographic and economic factors and characteristics for each
sector, and each state or territory, designed to reflect the unique profile of each and the impacts
of adopting new climate policy measures.
Results show that a wide range of climate mitigation options have the potential to significantly
reduce GHGs, and that the cost-effectiveness of individual policy options varies significantly by

October 2009
sector and specific policy type. The range includes several options estimated to provide net
financial savings (due primarily to energy savings) of as much as $40-80 net savings per ton
CO2e, to several with net financial costs around $60 net costs per ton CO2e. Region-wide GHG
reduction potentials for the 23 options ranged from a low of 2.5 MMtCO2e in 2020 for the
manure management option to a high of more than 200 MMtCO2e in 2020 for the Demand Side
Management and Renewable Portfolio Standard options.
The cost effectiveness of each of the 23 options is displayed in the economy-wide cost curve in
Figure Ex-4. Figure Ex-5 shows the cost curve for each sector separately. (Each "step" of the
curve represents one of the policy options.) Options below the $0 line represent net cost savings.)
Figure Ex-4. SGA region economy-wide step-wise marginal cost curve, 2020.
$100
All Sector TLU ES AFW RCI
$80
AFW-5 AFW-8
$60
Marginal Cost ($/tCO2e)
AFW-3 AFW-6 ES-2

AFW-7
$40
TLU-6
ES-4 TLU-4
$20 RCI-5 ES-3
$0 ES-1
TLU-5
AFW-4
-$20 RCI-1 AFW-2
-$40 RCI-4 AFW-1
TLU-3
-$60 RCI-3 RCI-2
-$80 TLU-2
TLU-1
-$100
0 5 10 15 20 25 30 35 40 45
Percentage Reduction of 2020 BAU GHG Emissions
SGA – Southern Governors’ Association; TLU – transportation and land use; ES – energy supply; AFW –
agriculture, forestry, and waste management; RCI – residential, commercial, and industrial; $tCO2e – cost
per ton carbon dioxide equivalent; BAU – business as usual; GHG – green house gas
Note: Items below $0 line are cost savings.

October 2009
Figure Ex-5. Stepwise marginal cost curves of SGA region, by sector, 2020.
$100
TLU ES AFW RCI
$80
$60
$40
$20
$0
-$20
-$40
-$60
-$80
-$100
0 2 4 6 8 10 12 14 16 18
Percentage Reduction of 2020 Economy-wide BAU GHG Emissions
SGA – Southern Governors’ Association; $tCO2e – cost per ton carbon dioxide equivalent; BAU –
business as usual; GHG – green house gas. Note: Items below $0 line are cost savings.
The 23 “super options” listed in Table Ex-1 and described in Chapters 3 - 6 have the potential to
significantly reduce emissions in the SGA Region.
Task Two - Background and Summary Results

The comparative review of additional studies, Task Two, includes compilation of numerous
independent studies on the potential microeconomic (direct) and or macroeconomic (indirect)
effects of climate mitigation policy that were identified by SGA and/or CCS. The review
evaluated the role and impact of several factors that drive results of climate policy analysis, and
is divided into microeconomic and macroeconomic studies.
The goal of this task was to help governors understand why various studies result in potentially
different findings. This review does not draw conclusions about the merits of individual studies.
Rather, it objectively explains the assumptions and methods used in each study to reach the
study's findings.
Many of the identified studies did not provide sufficient transparency for review and underscore
the challenge of relying on or comparing unclear study approaches and findings. To the extent
possible all studies were qualitatively assessed and categorized. Studies with adequate
transparency were profiled based on a set of key factors of analysis, and then included in a
statistical "meta-analysis" to determine the relative importance of these factors in determining
macroeconomic estimates.
Microeconomic costs of climate mitigation policy are driven by four general factors that include:
1) which policy is included, 2) how it is designed, 3) how it is implemented, and 4) how it is
analyzed (data sources, methods, key assumptions).

October 2009
Studies that focused on a short list of expensive or aggressive policy options yielded higher cost
estimates than those focusing on a longer list of less expensive or less aggressive options. Studies
that focused on use of only one policy instrument, such as a tax or a standard, yielded higher
costs than studies focusing on a variety of tools, including both price and non-price instruments,
depending on the underlying policy options. In the heat and power and transportation and land
use sectors the inclusion or exclusion of low-cost demand-side management measures made a
significant difference.
The choice of data sources, methods, and key assumptions plays a key role in cost estimates.
Studies using static and worst case assumptions, or older data sources, generally show higher
costs than studies using more dynamic methods, better case assumptions, and newer data
sources. Stakeholder and technical work group review significantly affects these choices and
enhances transparency.
Macroeconomic costs of climate policy are driven predominantly by microeconomic inputs and
cost curves reflecting the choice and mix of specific policy options. Higher cost inputs for policy
options generally show higher negative impacts on jobs, income and economic growth.
However, high costs may lead to positive gains where the multiplier effects are stronger in new
versus old spending areas and where the spending on mitigation and sequestration attract new
investment into the state.
Similarly, low costs or cost savings may reduce jobs and income in some sectors, but this effect
will likely be more than offset by increased purchasing power of consumers arising from lower
costs of energy and other goods, and overall expansion in reinvestment arising from capital
savings. Other key factors affecting macroeconomic results include assumed levels of economic
efficiency, adjustment potential, and technology change rates.

Chapter 1
Forecast of Regional Greenhouse Gas Emissions
I. Introduction
This chapter summarizes the business-as-usual (BAU) forecast1 of regional greenhouse gas
(GHG) emissions in the 16 states and two territories that comprise the Southern Governors’
Association (SGA) from 2005 to 2020. For the five states with State Action Plans developed
(Arkansas, Florida, Maryland, North Carolina, and South Carolina), the projections are updates
to earlier assessments developed through state stakeholder planning processes and
comprehensive analysis of emissions in all sectors and key activity areas for each state. The
results of updated BAU analysis show significant declines in projected emissions due to the
effects of recent federal actions and the recession. Figure 1-1 compares the old and the updated
emissions forecast for the five states in aggregate.
Figure 1-1. Comparison of the old (2006-2008) vs. updated (2009) GHG emission
forecasts for the five states.
1200
1000
800
MMtCO2e
600
400
Prior Forecast (5-state Total)

200
Updated Forecast (5-state Total)
GHG = greenhouse gas; MMtCO2e = million metric tons of carbon dioxide equivalent.
Note: The old forecasts for the five states were developed at different times over the last several years.
The GHG emissions forecasts for the five states have been updated to include the effects of the
recent national economic downturn, new energy demand, and price forecasts from the U.S.
Department of Energy’s Energy Information Administration Annual Energy Outlook 2009
(AEO2009), and recent federal and state actions, such as the new federal fuel efficiency
(corporate average fuel economy [CAFE]) standard for vehicles, the new renewable fuel
standard (RFS), and adoption of the Energy Independence and Security Act of 2008 (EISA). The
1
"Business as usual" means the emissions expected assuming none of the climate policy measures under
consideration are implemented.
Center for Climate Strategies 1-1 www.climatestrategies.us

October 2009
BAU forecast updates for these five states have been calculated by sector: Heat and Power
Supply; Residential, Commercial, and Industrial Fuel Uses and Processes; Waste Management;
Agriculture and Forestry; and Transportation and Land Use.
The methodology, data, and key assumptions used to estimate the 2020 GHG emissions for the
remaining SGA states and territories are presented in Appendix A. Because the remaining
11 states and two territories did not undertake the detailed stakeholder process that the five states
completed, the Center for Climate Strategies (CCS) has used publically available data to estimate
their BAU GHG emission forecasts. The major data sources are the 2005 base year GHG
emissions inventory from the Climate Indicators Web site of the World Resources Institute and
the future years’ projections of energy consumption by sector in AEO2009. These updated
assessments are not as detailed as estimates developed through state stakeholder planning
processes, nor do they capture all modifications potentially requested by stakeholders in the
states that undertook such processes. Nonetheless, they constitute the best publicly available data
that can be consistently applied across the SGA region.
The regional GHG emission forecasts reported in this chapter include all six types of GHGs
included in the U.S. GHG inventory: carbon dioxide (CO2), methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Emissions of these GHGs are
presented using a common metric, “CO2 equivalence” (CO2e), to provide an “apples to apples”
comparison of the radiative-forcing effects of tonnage reductions of each GHG type.
The methods used for these assessments are consistent with national and international standards,
as well as state GHG standards developed by the U.S. Environmental Protection Agency State
Greenhouse Gas Inventory Tool, augmented by additional data and levels of detail required to
meet the needs of individual states and their policy development processes. Results are consistent
with state GHG inventory and forecast assessments conducted through state climate planning
processes elsewhere in the United States by CCS. They are described in the final Inventory and
Projections reports available on the State Action Plan Web sites (available at
www.climatestrategies.us).
It is important to note that the projected GHG emission estimates reflect the emissions associated
with the electricity generation needed to meet the region’s demand, known as a consumption-
based approach to emissions accounting. This approach includes all emissions associated with
generation needed to meet in-state demand, including the emissions from imported power.
Another way to measure electricity emissions is to consider the GHG emissions produced by
electricity generation facilities physically located in the state, which is called the production-
based method. Electricity emissions will be reported on both consumption and production bases;
however, all total emission results reported in the tables and figures in this chapter are
consumption-based. Similar approaches were used in other sectors.
The projected emissions reported in this chapter are gross emissions, rather than net emissions.
This means sinks of GHG emissions (removal of emissions from the atmosphere, or negative
emissions) from forest sinks and soil sinks are not included in the analysis or the numbers
reported here. The contributing or offsetting effects of terrestrial carbon sequestration can be
positive or negative, depending on several factors. Updates to these calculations were not made

October 2009
due to time constraints. Further development of these estimates is possible based on the same
methods previously applied in state climate action plans.
II. Forecast Results

Table 1-1 provides a summary of BAU GHG emissions estimated for the SGA region by sector
for 2005, 2010, 2015, and 2020. The projections are also shown graphically in Figure 1-2.
Table 1-1. SGA region gross GHG emissions forecast by sector.

2005 2010 2015 2020
Emissions Source MMtCO2e MMtCO2e MMtCO2e MMtCO2e
Electricity Production-Based 1,183.2 1,211.3 1,252.3 1,297.1
Electricity Consumption-Based 1,169.0 1,191.8 1,233.3 1,278.3
Residential Fuel Use 79.2 78.2 78.4 81.2
Commercial Fuel Use 59.3 60.3 63.1 66.2
Industrial Fuel Use 537.0 481.5 495.9 489.8
Transportation 903.8 928.8 966.6 993.4
Industrial Process 111.7 114.4 128.9 142.4
Fossil Fuel Industry 33.9 35.8 37.9 39.7
Agriculture 189.1 178.9 179.8 180.9
Waste Management 96.6 110.4 126.7 146.5
Total Gross Emissions (Consumption-Based) 3,179.7 3,180.2 3,310.7 3,418.4
SGA = Southern Governors’ Association; GHG = greenhouses gas; MMtCO2e = million metric tons of
carbon dioxide equivalent. Totals are based on consumption-based estimates. Production-based estimates
are provided for illustration.

October 2009
Figure 1-2. SGA projected gross GHG emissions by sector, 2005–2020.

4000
3500
3000
2500
MMtCO2e
2000
1500
1000 Electricity (Consumption-based) Residential Fuel Use

Commercial Fuel Use Industrial Fuel Use
500 Transportation Industrial Process
Fossil Fuel Industry Agriculture
0
2005 2010 2015 2020
SGA = Southern Governors’ Association; GHG = greenhouse gas; MMtCO2e = million metric tons of
carbon dioxide equivalent
In Figure 1-2, the total GHG emissions show a declining trend between 2007 and 2009, which is
mainly due to the economic recession. The total emissions are projected to experience a steady
increase starting in 2010, as the economy is expected to gradually recover. Between 2005 and
2020, the total gross emissions from the region are projected to climb from 3,179.7 million
metric tons carbon of dioxide equivalent (MMtCO2e) to 3,418.4 MMtCO2e, increasing by 238.8
MMtCO2e, which translates to 7.5% growth from 2005 to 2020. The 2005–2020 average annual
growth rate for the regional total gross emissions is 0.5%. The following sectors are projected to
show the following changes between 2005 and 2020:
• Waste Management annual increase of 2.8% total: 51.6%;
• Industrial Process annual increase of 1.6%, total: 27.5%;
• Fossil Fuel Industry annual increase of 1.1%, total: 17.3%;
• Transportation annual increase of 0.6%, total: 9.9%;
• Electricity annual increase of 0.6%, total: 9.4%;
• Industrial Fuel Use annual decrease of –0.6%, total: -8.8%; and
• Agriculture sector annual decrease of –0.3%, total: -4.3%
Table 1-2 and Figure 1-3 show the relative contributions from individual sectors to the regional
GHG emissions growth between 2005 and 2020. Emissions associated with electricity
consumption and emissions from the transportation sector are projected to be the largest
contributors to future GHG emissions growth, followed by emissions associated with waste
management. Other sources of emissions growth include industrial process and residential and
commercial fuel uses.

October 2009
Table 1-2. Gross emissions changes by sector, 2005–2020.

2005–2020 Emissions
Changes by Sector
Sector (MMtCO2e)
Electricity Production-Based 113.9
Electricity Consumption-Based 109.3
Residential Fuel Use 1.9
Commercial Fuel Use 6.8
Industrial Fuel Use –47.3
Transportation 89.7
Industrial Process 30.7
Fossil Fuel Industry 5.8
Agriculture –8.2
Waste Management 49.8
Total (Consumption-Based) 238.8
MMtCO2e = million metric tons of carbon dioxide equivalent.
Figure 1-3. Sector contributions to gross emissions growth in SGA region, 2005–2020.
Waste Management
Agriculture
Fossil Fuel Industry
Industrial Process
Transportation
Industrial Fuel Use
Commercial Fuel Use
Residential Fuel Use
Electricity Consumption Based
-60 -30 0 30 60 90 120

MMtCO2e
SGA = Southern Governors’ Association; MMtCO2e = million metric tons of carbon dioxide equivalent.
Figure 1-4 and Figure 1-5 show the percentage emissions from different economic sectors in
2005 and 2020. The principal sources of the SGA region’s GHG emissions in both 2005 and
2020 are electricity consumption and transportation, accounting for 37% and 28% of total
emissions in 2005, respectively, and 38% and 30% in 2020. The percentage emissions from the
electricity and transportation sectors in the SGA region were both slightly higher than the
national averages in 2005, which were 34% and 27%, respectively. The percentage emissions
from residential and commercial fuel use in the SGA region (4%) are lower than the national
average level (8%) while the industrial fuel use in the SGA region (17%) is higher than the
national average level (14%).

October 2009
Figure 1-4. SGA region gross GHG emissions by sector, 2005.
Agriculture Waste
Fossil Fuel 6% Management
Industry 3%
1%
Electricity
Consumption
Based
Industrial Process 37%
4%
Residential Fuel
Transportation Use
28% 2%
Commercial Fuel
Industrial Fuel Use
Use 2%
17%
SGA = Southern Governors’ Association; GHG = greenhouse gas.
Figure 1-5. SGA region gross GHG emissions by sector, 2020.

Waste
Agriculture Management
5% 4%
Fossil Fuel
Industry
1%
Electricity
Industrial
Consumption
Process
Based
4%
38%
Residential Fuel
Transportation Use
29% 3%
Commercial
Industrial Fuel Fuel Use
Use 2%
14%
SGA = Southern Governors’ Association; GHG = greenhouse gas.

Chapter 2
Overview and Summary of SGA Regional Economic
Assessment of Climate Actions
I. Study Method
Assessment of the potential future economic impacts of climate mitigation actions in the
Southern Governors' Association (SGA) region involved three general steps: (1) identification of
a set of major policies from U.S. state climate action plans of greatest relevance and impact on
the SGA region; (2) updating cost-effectiveness assessments of related policies within the five
existing state plans; and (3) projecting these major policies and other significant actions
identified by SGA to the remaining SGA states and territories through a factor-based modeling
process that took into consideration unique characteristics of each state/territory. Chapter 1
summarizes the results of regional greenhouse gas (GHG) impact assessments, and Appendix A
provides the specific data sources, assumptions, and methods used for these assessments.
Existing State Plan Updates

SGA regional projections are based upon the analytical results of GHG reduction potential and
net costs or savings from public stakeholder climate action planning processes conducted in
Arkansas, Florida, Maryland, North Carolina, and South Carolina between 2006 and 2008. Over
300 stakeholders and technical work group representatives were appointed by the Governors’
offices and/or state agencies in the five states and were charged with formulating nonbinding
recommendations through formal consensus-building processes, under the oversight of the states.
The Center for Climate Strategies (CCS) provided facilitation and technical assistance to each of
these efforts. They were conducted through consistent public decision processes involving
stepwise, sequential decision making and formal stakeholder approvals (documentation of these
processes and proceedings is available at www.climatestrategies.us).
The identification, design and analysis of policy option recommendations in the five states’
action planning processes involved preliminary fact finding by CCS and state agencies through
the development of a draft inventory and forecast of GHG emissions, and a draft inventory and
catalog of existing and planned actions that reduce emissions in each state, combined with
actions undertaken in one or more other U.S. states (over 300 actions in all sectors). Next,
stakeholder advisory groups engaged in joint fact-finding and policy development processes that
involved the following sequential steps and stakeholder decisions:
1. Expansion of the initial states’ catalog of actions to fill gaps and provide a full range of
potential actions of relevance to the state.
2. Narrowing of the catalog of actions to a set of top 10 or so draft policy options for each
sector based on screening criteria that included GHG reduction potential, cost-effectiveness,
co-benefits or costs, and feasibility considerations.
3. Development of draft policy design parameters for each individual policy option (timing,
level of effort, coverage of implementing parties, etc.).
4. Modifications of inventory and forecast estimates if/as needed.

October 2009
5. Identification of preferred data sources, methods, and assumptions for analysis.

6. Identification of preferred or potentially applicable policy implementation tools.
7. Development of estimated GHG reduction potential and costs/savings per metric ton of GHG
removed for specific individual policy options.
8. Identification and qualitative or quantitative assessment of co-benefits and costs for specific
individual policy options.
9. Development of estimated GHG reduction potential and costs or savings per metric ton of
GHG removed for all policy options combined.
10. Final approval of individual policy option recommendations and related planning goals.
11. Development of final report language.
12. Transmittal of the final report to the convening body, typically the Governor’s office.
Because each state process was conducted independently and focused on individual state needs,
and because they were stakeholder-driven and conducted at different times over the past few
years, key differences exist between their final outcomes and results. Because the states also
share many common issues and characteristics, the results overlap substantially in key policy
areas as well.
As a next step for the SGA analysis, the results of the five states plans were updated using
consistent methods that addressed:
• The effects of the recession on assumed levels of economic growth and other economy-
driven assumptions;
• The effects of changes in fuel prices;
• The impacts of recent state or federal actions on assumed future levels of GHG emissions in
the absence of the proposed new GHG reduction policies.
CCS’s work with more than 20 states across the nation—including the five SGA states
previously noted—has identified more than 900 specific policy options that have been
considered by the various states. However, due to the limitations of this project, CCS could not
comprehensively update all of these policy options. Instead, a list of 23 so-called "super options"
was proposed and evaluated by CCS following SGA approval. These super options are actually
categories of more specific policies that could be implemented at the state level. They were
chosen because they are viewed as (1) having the greatest GHG reduction potential; (2) being
gateway options with limited near-term reduction potential but holding great promise in later
years (carbon capture and storage or reuse, nuclear); or (3) having limited potential statewide but
are highly cost-effective and important for other reasons (state lead by example). These 23 super
options represent 82.6% of the overall GHG reductions associated with the five existing states
plans.
Scale-Up to the SGA Region

Next, CCS used a set of 37 key factors for each state and territory for which a climate action plan
had not been developed to individually tailor each of the 23 super options for each jurisdiction.

October 2009
The state- and territory-specific results were then aggregated to a regional total. Appendix B
contains a detailed discussion of the key factors and methods used, including a hypothetical step-
by-step example. This bottom-up approach offers a much better approximation because it
incorporates many of the unique characteristics of each state and territory and avoids “regional
average” assumptions.
Estimated state- and territory-projected emissions were totaled by policy option, giving a region-
wide estimate of GHG reductions for each option. Likewise, state- and territory-estimated costs
or savings to implement each option were summed to give regional total expected cost impacts.
Costs and savings include capital, operating, and maintenance costs with capital costs or savings
annualized over the expected life of the option. The stream of costs for the 2010–2020 study
period was then discounted to a net present value total. Costs and savings are also presented as a
"cost-effectiveness" ratio of dollars per metric ton of carbon dioxide equivalent (tCO2e) reduced.
Limitations of the Method

The updated analytical results from the five SGA states with existing climate plans form the
basis for the extrapolation to the SGA region as a whole. This analysis uses these results to
project what the regional reductions and costs might be for each of the policy options on the
super options list, assuming that all of the jurisdictions within the region were to enact similar
measures. In an ideal world, each SGA state would go through the full stakeholder process and
choose to analyze those policies that they believe are most relevant and critical to their own
unique situation. Across a region as large and diverse as the SGA region, this extrapolation can
provide useful guidance regarding the overall magnitude of the GHG reduction potential of this
set of options, and a rough approximation of the cost. But it cannot serve as a substitute for the
analytical results of in-depth, locally informed, individually crafted, and publicly vetted policy
proposals.
II. Overview of Projected Greenhouse Gas Emissions and Costs

This section contains a summary of the results of the regional analysis. A more detailed
discussion of specific options and methods can be found in the Chapters 3–6 and in their
corresponding appendices (C, D, E, and F).
Figure 2-1 ranks the 23 super options in ascending order of estimated regional GHG reduction
potential in 2020, from the smallest (Livestock Manure Management) to the largest (Renewable
Portfolio Standard).1 Colors indicate sectors. Figure 2-1 indicates that the policies expected to
offer the greatest GHG regional reductions are in the Power Supply (blue) and Residential,
Commercial and Industrial (orange) sectors. These include improved building codes, combined
heat and power, nuclear power, high-performance buildings, demand-side management
programs, and a renewable portfolio standard.
1
A description of each super option is available in the Chapters 3–6.

October 2009
Figure 2-1. Super options' regional GHG reduction potential, from smallest to largest.
250
ES RCI AFW TLU
200
MMtCO2e
150
100
50
0
Lives
Nutrie
Trans
Soil C
Anti-I
Urban
MSW
Fores
Smar
Rene
CCSR
Coal
Enha
Refor
Comb
Build
Nucle
High
DSM
Rene
Mode
Appli
Vehic
ing C
ance
tock M
dling
Plant
nced
Perfo
t Gro
wable
wable
estatio
Progr
it
le Pu
t Rete
ar
nt Ma
arbon
ined h
Land
Shift
Fores
odes
wth/L
Techn
stand
rman
Recy
rchas
Efficie
fill Ga
ams
from
nage
ntion
anure
Fuel
Portfo
n/Affo
eat a
Mana
try
and U
ce Bu
cling
a
e
Truck
o
ment
s Man
ncy Im
n
r
logies
lio St
resta
g
Incen
t
d pow
anda
emen
ilding
se
f MSW
to Ra
anda
tion
agem
prove
tives
rd
er
t
rd
il
ent
ment
s
SGA = Southern Governors’ Association; GHG = greenhouse gas; ; ES = energy supply; RCI =
residential, commercial, and industrial [fuel use]; AFW = agriculture, forestry, and waste management;
TLU = transportation and land use; MMtCO2e = millions of metric tons of carbon dioxide equivalent; MSW
= municipal solid waste; CCSR = carbon capture and storage or reuse; DSM = demand-side
management;
Figure 2-2 ranks options by cost or cost savings per metric ton of GHG removed. The vertical
axis indicates the cost-effectiveness as net regional cost or cost savings per ton of GHG removed.
Options at the left dropping below the “0” line are expected to produce a net regional cost
savings, and those toward the right of the “0” line are expected to impose net regional costs.
Colors indicate sectors. Figure 2-2 indicates that the options offering the most cost-effective
reductions are in the Residential, Commercial, and Industrial (orange) and Transportation and
Land Use (purple) sectors. These include anti-idling technologies, appliance standards, vehicle
purchase incentives, demand-side management programs, high-performance buildings, shifting
freight modes from truck to rail, and improved building codes.

Figure 2-2. Super options ranked by cost or cost savings per metric ton of GHG removed.
$100
ES RCI AFW TLU
$50
$0
-$50
-$100
SGA = Southern Governors’ Association region; GHG = greenhouse gas; ES = energy supply; RCI =
residential, commercial, and industrial [fuel use]; AFW = agriculture, forestry, and waste management;
TLU = transportation and land use; $/tCO2e = dollars per metric ton of carbon dioxide equivqlent
(reduced); DSM = demand-side management; MSW = municipal solid waste; CCSR = carbon capture
and storage or reuse.
A common way to convey the information in both Figures 2-1 and 2-2 is a stepwise marginal
cost curve. The curve, or step function, ranks the options from most to least cost-effective,
similar to Figure 2-2, but also conveys the GHG reduction potential of each option by giving
each a horizontal "step" proportional to its GHG reduction potential. Figure 2-3 is the SGA
regional cost curve for all 23 super options. Table 2-1 lists the options, their GHG reduction
potential, and their cost-effectiveness in the same order of cost-effectiveness as shown from left
to right in Figure 2-3.
The horizontal axis in Figure 2-3 represents the percentage of GHG emission reductions in 2020
for each option relative to the business-as-usual forecast (see Chapter 1). In the figure, each
horizontal segment represents an individual policy. The width of the segment indicates the GHG
emission reduction potential of the option in percentage terms. For example, an option step

October 2009
running from 3 to 8 on the horizontal axis would be expected to reduce emissions in 2020 in an
amount equal to 5% of the total projected emissions in that year (assuming none of the options
are implemented). The location of the step relative to the vertical axis shows the average cost (or
saving) of reducing 1 tCO2e of GHG emissions with the application of the option.
The cost curve indicates that options range in cost-effectiveness from about $83 per metric ton in
net cost savings to nearly $60 per metric ton in positive costs. The listed options with cost-
effectiveness estimates can be found in Table 2-1.
Figure 2-3. Stepwise marginal cost curve of SGA, 2020.
$100
All Sector TLU ES AFW RCI
$80
AFW-5 AFW-8
$60
AFW-3 AFW-6 ES-2

AFW-7
$40
TLU-6
ES-4 TLU-4
$20 RCI-5 ES-3
$0 ES-1
TLU-5
AFW-4
-$20 RCI-1 AFW-2
-$40 RCI-4 AFW-1
TLU-3
-$60 RCI-3 RCI-2
-$80 TLU-2
TLU-1
-$100
0 5 10 15 20 25 30 35 40 45
Percentage Reduction of 2020 BAU GHG Emissions
GHG = greenhouse gas; SGA = Southern Governors’ Association; TLU = transportation and land use; ES = energy
supply; AFW = agriculture, forestry, and waste management; RCI = residential, commercial, and industrial; $/tCO2e =
dollars per metric ton of carbon dioxide equivalent (reduced); BAU = business as usual (i.e., no climate-related
emission reductions undertaken). Note: Items below $0 line are cost savings.
Finally, the results are presented as a family of cost curves, showing each sector as a separate
line. Figure 2-4 indicates that across each sector, RCI has the second lowest cost and greatest
GHG reduction potential of the four, while TLU has the lowest cost options, but also the least
potential for GHG reductions.

October 2009
Figure 2-4. Stepwise marginal cost curves of SGA, by sector, 2020.

$100
TLU ES AFW RCI
$80
$60
$40
$20
$0
-$20
-$40
-$60
-$80
-$100
0 2 4 6 8 10 12 14 16 18
GHG = greenhouse gas; SGA = Southern Governors’ Association; TLU = transportation and land use; ES
= energy supply; AFW = agriculture, forestry, and waste management; RCI = residential, commercial, and
industrial; $/tCO2e = dollars per metric ton of carbon dioxide equivalent (reduced); BAU = business as
usual (i.e., no climate-related emission reductions undertaken). Note: Items below $0 line are cost
savings.
Comparison of Results with Other Estimates

Chapter 7 contains an analysis of a variety of studies that have to varying degrees sought to
estimate future GHG reduction potentials and costs or savings for different mitigation and
sequestration policy options and tools. While the current study is the only one undertaken for the
specific purpose of indicating GHG mitigation potentials for the SGA region, and the only one to
rely upon the findings of multiple southern state stakeholder-driven climate plans, many other
studies exist that focus on portions of the SGA region. Chapter 7 also provides a comparative
analysis of the findings reached by others to provide some context to these results and how they
might change given alternative methods and assumptions.

October 2009
Table 2-1. Options Ranked in Descending Order of Cost-Effectiveness

Estimated
Estimated
2020 Annual
Cost or Cost
GHG
Sector Climate Mitigation Actions Savings per
Reduction
ton GHG
Potential
Removed ($)
(MMtCO2e)
TLU-1 Anti-Idling Technologies and Practices 13.13 -$83.51
TLU-2 Vehicle Purchase Incentives, including rebates 59.04 -$70.85
RCI-3 Appliance standards 26.32 -$44.29
RCI-1 Demand Side Management Programs 201.94 -$40.33
RCI-2 High Performance Buildings (private and public sector) 108.33 -$36.05
TLU-3 Mode Shift from Truck to Rail 13.71 -$35.52
RCI-4 Building Codes 93.83 -$18.00
RCI-5 Combined heat and power 90.99 $1.61
Livestock Manure - Anaerobic Digestion and Methane
AFW-3 2.53 $14.63
Utilization
ES-3 CCSR 61.45 $28.84
ES-2 Nuclear 100.94 $41.55
MMtCO2e = million metric tons of carbon dioxide equivalent; TLU = transportation and land use; AFW =
agriculture, forestry, and waste management; RCI = residential, commercial, and industrial; ES = energy
supply

Chapter 3
Energy Supply (Heat and Power Generation) Sector
I. Overview of Greenhouse Gas Emissions
Greenhouse gas (GHG) emissions from the energy supply sector in the Southern Governors'
Association (SGA) region include emissions from electricity generation and direct fuel use. The
energy supply sector represented approximately 37% of gross GHG emissions for the region in
2005. Electricity exports are projected to account for a small portion of gross GHG emissions
over the 2005–2020 period, varying between 1% and 2%.
Total baseline GHG emissions from the energy supply sector are expected to increase from 2005
base year levels of 1,180 million metric tons of carbon dioxide equivalent (MMtCO2e) to about
1,300 MMtCO2e by 2020 on a production basis,1 or by approximately 10% over the 16-year
period and at a 0.61% annual rate. It is important to emphasize that these GHG trends are evident
prior to the implementation of any of the energy supply mitigation measures discussed in this
chapter, and reflect the planning assumption that sufficient fossil-fired capacity is built within the
region to satisfy future retail electricity demand growth. This trend is summarized in Figure 3-1.
Figure 3-1. Projected energy supply GHG emissions, 2005–2020.
1400
1200
MMtCO2e
1000
800
600
400
200 Electricity Production
0 Based
MMtCO2e = million metric tons carbon dioxide equivalent
Much of the region’s energy supply sector is based on coal-fired generation. However, the share
of GHG emissions from coal-fired generation varies significantly across the region. In 2005, for
example, it ranged from 42% in Florida to 85% in Maryland to 90% in Arkansas. Like other
regions of the country, the projected growth in electricity sales in the South is the primary driver
for GHG emissions. The projected average annual growth rate of electricity sales between 2005
and 2020 varies rather substantially across the United States—from about 0.46% per year for the
West South Central region (Texas, Louisiana, Arkansas, and Oklahoma) to about 1.15% per year
1
“Production basis” means emissions from all generation located within the region, regardless of where it is
consumed. “Consumption basis” means emissions resulting from electricity consumed within the region, regardless
of where it is generated.

October 2009
for the West North Central states (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota,
and South Dakota). This rate incorporates current demand-side management programs.
Opportunities for reducing the growth in GHG emissions attributable to energy production and
supply include reducing the carbon intensity of in-state electricity generation through the
introduction of new renewable resources such as wind and biomass, the addition of carbon
capture and storage technologies for existing (through retrofits) coal-fired stations once such
technology is commercially available, expanding the use of nuclear power, and expanding
combined-heat-and-power systems. Opportunities to reduce GHG emissions through options that
further reduce electricity consumption can be found in the residential, commercial, and industrial
sector are detailed in Chapter 4 of this report.
II. Overview of Mitigation Options' Estimated Impacts

Four “super options” for the energy supply sector were evaluated and are summarized in Table
3-1. The quantified options would lead to emission reductions and dollar costs of:
• 446 MMtCO2e in 2020. This represents a reduction of 34% from the projected 2020 energy
supply production-based electricity emissions.
• The weighted-average cost of these policies is about $27.3 per metric ton of CO2e avoided.
Table 3-1. Summary list of energy supply mitigation options.

Estimated 2020 Estimated Cost or
Energy Supply
Sector Annual GHG Cost Savings per
Climate Mitigation Options
Reduction Potential Metric Ton of GHG
(MMtCO2e) Removed ($)
ES-3 Carbon Capture and Storage 61.45 $28.84
ES-2 Nuclear Power 100.94 $41.55
ES = energy supply; GHG = greenhouse gas; MMtCO2e = million metric tons of carbon dioxide equivalent.
Figure 3-2 arranges the data in Table 3-1 so that each mitigation option’s supply and cost per
metric ton of GHG reduction can be compared. The Renewable Portfolio Standard (RPS)
contributes the largest share of the 446 MMtCO2e reduction total. Figure 3-3 shows the emission
reductions from the mitigation options in 2020, which range from carbon capture and storage, at
14% of reductions, to the RPS at nearly half of the annual reductions in 2020.

October 2009
Figure 3-2. Energy supply marginal cost curve.
$60
$50
$40
ES-2: Nuclear
$30
$20 ES-3: CCSR

ES-1: RPS
$10
ES-4: Coal Plant Efficiency
$0
-$10
0 2 4 6 8 10 12 14 16 18 20
$/tCO2e = dollars per ton of carbon dioxide equivalent (reduced); RPS = Renewable Portfolio Standard;
CCSR = Carbon Capture, Storage or Recovery; GHG = greenhouse gas.
Note: Items below $0 are cost savings.
Figure 3-3. Percentage of 2020 reductions by each energy supply mitigation option.
CCSR = carbon capture, storage, and recovery.
The four following super mitigation options were developed from the five existing SGA state
Climate Action Plans. These options were analyzed in most of the five states, and their
reductions typically represent a significant portion of total energy supply reductions within those
sectors and state plans. Several other GHG mitigation options from the five states were not
included due to time constraints, such as transmission system upgrades, a generation
performance standard, and others. A brief overview of each of the four super mitigation options
in the SGA analysis follows.

October 2009
Renewable Portfolio Standard
An RPS is a requirement that utilities must supply a certain, generally fixed percentage of
electricity from an eligible renewable energy source(s). About 20 states currently have an RPS in
place. In some cases, utilities can also meet their portfolio requirements by purchasing renewable
energy certificates from eligible renewable energy projects. Some state plans have explored use
of a renewable energy payment, or feed-in tariff, as an alternative. The methodology used here
did not "pick" a single standard for application to the region; rather, it applied the GHG
reductions and associated costs to the other jurisdictions, assuming a blend of the RPS proposals
contained in the five state plans.
Nuclear Energy
Nuclear power has historically been a low-GHG source of electric power. No new nuclear power
plants have come on line in the United States since 1996. The Energy Policy Act of 2005
included provisions encouraging the construction of new nuclear units. There are currently nine
new plant applications on file with the Nuclear Regulatory Commission, some of which are
within the SGA region.
Carbon Capture and Storage
This policy refers to the capture of CO2 from fossil fuel-fired power plant emissions and its
sequestration in geologic formations, including oil and gas reservoirs, unminable coal seams, and
deep saline reservoirs. Broadly, three different types of technologies exist: post-combustion, pre-
combustion, and oxyfuel combustion. After capture, the CO2 must be transported to suitable
storage sites by pipeline, and then monitored over the long term to ensure permanent storage of
the CO2.
Coal Plant Efficiency Improvements and Repowering
This option involves improving efficiency at existing plants through such improvements as more
efficient boilers and turbines, improved control systems, or combined-cycle technology. This
could also include switching to lower- or zero-emitting fuels at existing plants, or new capacity
additions. Policies to encourage efficiency improvements and repowering of existing plants
could include incentives and/or regulations.

Chapter 4
Residential, Commercial, and Industrial Sectors
I. Overview
The residential, commercial, and industrial (RCI) sectors primarily address the energy efficiency
of buildings (including factories), but also include power used for industrial processes. Activities
in the RCI sectors produce greenhouse gas (GHG) emissions when fuels are combusted to
provide space heating, process heating, and other applications or when electricity is consumed.
Direct fuel use, emissions associated with electricity consumption, and industrial processes total
about 62% of the region’s gross GHG emissions in 2005. This ratio is expected to hold fairly
constant through 2020, when it will represent approximately 59% of regional emissions.
Therefore, the region’s future GHG emissions will depend heavily on future trends in the
consumption of electricity and other fuels in these sectors, as well as the carbon content of fuels
consumed.
Figure 4-1 shows the estimated growth in GHG emissions by RCI sector through 2020 for the
Southern Governors' Association (SGA) region, including electricity use. For the 16-year period,
the fastest growth in GHG emissions is the industrial process emissions, which are forecasted to
grow at a 1.7% annual rate—albeit from a small base. More important, GHG emissions in the
residential and commercial sectors are expected to grow at 0.2% and 0.7% per year, respectively.
Much of the growth in GHG emissions over the period can be attributed to electricity demand,
which is estimated to grow at an average of 0.6% per year over 2005–2020. Industrial fuel use
emissions are expected to decline at about 0.5% per year.
Figure 4-1. Projected residential, commercial, and industrial GHG emissions by sector in
the SGA region: 2005–2025.
2500
2000
1500
MMtCO2e
1000
Industrial Process Industrial Fuel Use
500 Commercial Fuel Use Residential Fuel Use
Electricity Consumption Based
0
GHG = greenhouse gas; SGA = Southern Governors' Association; MMtCO2e = million metric tons of carbon dioxide
equivalent

II. Overview of Mitigation Options Estimated Impacts
The RCI sectors provide some of the largest and most cost-effective options for GHG reductions.
A wide range of potential options exist in the form of energy efficiency, conservation, and
process improvements. For the SGA analysis, the Center for Climate Strategies developed five
"super options" for the RCI sectors that offer the most significant, cost-effective GHG emission
reductions within the region. These were drawn from a larger number of specific policy options
recommended by the five states’ action plans, and by 15 plans in other regions. These options
and results are summarized in Table 4-1. The quantified mitigation options could lead to
emissions savings from reference case projections of:
• 530 million metric tons of carbon dioxide equivalent (MMtCO2e) per year by 2020. This
represents over 25% of 2020 RCI and consumption-based electricity emissions in the SGA
region, or 15% of total regional 2020 emissions.
• The weighted-average cost of these policies is a net savings of nearly $29 per MMtCO2e.
Figure 4-2 arranges the data in Table 4-1 so that each mitigation option’s supply and cost per
metric ton of GHG reduction can be compared. Demand-Side Management (DSM) programs at –
$40/metric ton (that is a net savings of $40 per ton), contribute the largest share of the 530
MMtCO2e total. The highest-cost option, Combined Heat and Power (CHP) at -$4/metric ton can
be seen just below the $0 axis. (CHP, also known as co-generation, is the simultaneous
production of electricity and heat from a single fuel source or from waste heat.) The negative
costs (below the $0 axis) represent cost savings.
Table 4-1. Summary list of RCI mitigation options, ranked by cost savings.
Estimated 2020
Estimated Cost or
Annual GHG
Residential, Commercial, and Industrial (RCI) Cost Savings per
Option Reduction
Climate Mitigation Options Metric Ton of GHG
Potential
Removed ($)
(MMtCO2e)
RCI-3 Appliance Standards 26.32 –$44.29

RCI-1 Demand-Side Management Programs 201.94 –$40.33
RCI-2 High-Performance Buildings (Private and Public Sectors) 108.33 –$36.05
RCI-4 Building Codes 93.83 –$18.00
RCI-5 Combined Heat and Power 90.99 $1.61
GHG = greenhouse gas; MMtCO2e = million metric tons of carbon dioxide equivalent; RCI = residential, commercial,
and industrial.
Note: Negative values in the final column represent net cost savings. Costs and/or savings are determined based on
the levelized cost (including capital, labor, operation and maintenance, administrative charges) of each RCI measure
less its avoided costs for fuel or electricity.

October 2009
Figure 4-2. Residential, commercial and industrial marginal cost curve.

$20
$10
$0
RCI-5: CHP
-$10
-$20
RCI-4: Building Codes
-$30
-$40
RCI-1: DSM RCI-2: High Performance Bldgs
-$50
RCI-3: Appliance Standards
-$60
0 2 4 6 8 10 12 14 16 18 20
$/tCO2e = dollar cost per metric ton of carbon dioxide equivalent (reduction); RCI = residential, commercial, and
industrial; CHP = combined hear and power; DSM = demand-side management; GHG = greenhouse gas;
The mitigation options were designed to eliminate overlap between options. Each of the existing
five state climate action plans explicitly accounted for interactions between mitigation options
within the RCI sectors. Therefore, the extrapolation of these mitigation options to the SGA
region also accounts for these interactions.
It should be noted that there is overlap in the expected emission reductions and costs between
policies in the RCI and energy supply (ES) sectors. RCI demand-side options interact with
supply-side options related to heat and power production: as demand is reduced, fewer supply
adjustments are required to meet emission reductions goals. The two primary interactions
between the RCI and ES sector policies, for instance, both concern the renewable portfolio
standard (RPS). Most of the RCI options decrease overall electricity demand. At the same time,
the RPS options are usually based on meeting a percentage of sales with specific renewable
electricity resources. RCI demand reductions can thus reduce the cost of compliance for RPS
options; however, the extent of this cost savings is not included in most existing SGA state
analyses.
Finally, certain ES policies (including an RPS) will have the effect of reducing the GHG
emissions intensity (MMtCO2/megawatt-hour) associated with energy production, so RCI
policies that target electricity use will have a reduced impact on overall emission reductions.
However, this impact is likely to be small and has not been reflected in this or previous analyses.
Figure 4-3 shows the relative emission reductions from the mitigation options in 2020. There is
much variation in the scale of emission reductions from the mitigation options. Appliance
standards capture 5% of possible reductions, while CHP, building codes, and high-performance
buildings (beyond codes) are each responsible for approximately 20% of the total reductions.

October 2009
The largest mitigation option is associated with DSM, which accounts for nearly 40% of total
reductions.
Figure 4-3. Percentage of 2020 reductions by RCI policy mitigation options*.
RCI = Residential, Commercial and Industrial fuel use.

*Reductions from these options net of any overlaps between options.
The mitigation options described briefly below not only provide emission reductions and costs
savings, but offer additional benefits as well. These benefits include savings to consumers and
businesses on energy bills, which can have macroeconomic benefits; a reduction in spending on
energy by low-income households; reduced peak demand and electricity system capital and
operating costs (reducing the risk of power shortages, mitigating energy price increases and price
volatility); improved public health as a result of reduced pollutant and particulate emissions by
power plants; reduced dependence on imported fuel sources; and employment expansion and
economic development opportunities.
For the RCI mitigation options presented here to yield the levels of savings described, there will
also be a need to develop supporting policies to help make the mitigation options effective.1
1
These supporting policies could include streamlined permitting and net metering for CHP and other distributed
generation, systems benefits charges to fund DSM programs, utility rate decoupling, and incentives to encourage the
required level of DSM activity by energy distributors.

Residential, Commercial, and Industrial Mitigation Options
The five following “super option” mitigation policies were developed from the five existing
SGA state climate action plans. These options were analyzed in most of the five states, and their
collective reductions typically represent about 80% of the total RCI reductions. Various small
mitigation options were not included in the following analysis. One could therefore assume that
another 20% (~100 MMtCO2e) of mitigation potential is available, but is not quantified or
presented below. Some examples of the options not included in the set of super options include
energy savings sales tax, green loans and mortgages, real-time metering and other demand-
response measures, educational programs, phase-out of incandescent lighting, and green power
purchasing.
Because most energy use occurs in buildings, mitigation options center on improving energy
efficiency in buildings. DSM is the most general option that deploys energy efficiency across all
the types of energy use: space conditioning, windows, water heating and other end uses and
technologies, including Energy Star and other high-performance equipment. DSM also targets
efficiency improvements in industrial fuel use and processes.
Efficiency improvements occur through improvements in building shells both in the building
energy code option and in high-performance buildings. The building energy code option
improves regional building codes to meet or exceed national-level building energy codes. The
high-performance buildings option includes government “lead by example,” as well as private-
sector above-code construction. Third-party standards and certification from the Leadership in
Energy and Environmental Design Green Building Rating System™ (LEED) or Green Globes
are often used to calculate emission reductions opportunities and associated costs.
Appliance standards enhance the efficiency of energy-consuming equipment within the

buildings. This option either regulates equipment not covered by federal regulations or else
targets higher efficiency levels than existing federal regulations.
CHP pursues opportunities to capture waste heat from commercial and industrial processes to
generate electricity using CHP projects.
Demand-Side Management Programs
The DSM program developed here targets existing building retrofits, but (to a lesser extent) also
includes new buildings that are not covered by building codes or high-performance building
options. This option involves implementing new or expanding existing energy efficiency
programs for all sectors, including the RCI and agricultural sectors. Demand-side management
also targets efficiency improvements in industrial fuel use and processes. DSM is the most
general option that deploys energy efficiency across all the types of energy use: space
conditioning, windows, and water heating and other end uses and technologies, including Energy
Star and other high-performance equipment. To implement expanded energy efficiency

October 2009
programs, SGA jurisdiction could revise existing statutes to clarify support and provide
incentives for utility investments in cost-effective energy efficiency.
High-Performance Buildings (Public and Private Sectors)
This option targets clean energy technologies for significant GHG emission reductions in new
and retrofitted buildings in the SGA region. It provides energy efficiency targets for existing
buildings that are much higher than code standards that incorporate aspects of advanced/next-
generation building designs and construction standards, such as LEED or a comparable standard.
These standards can reduce building energy consumption by 30% or more compared to baseline
building code levels.
State or Regional Appliance Standards
Appliance efficiency standards can be implemented at the state or regional level for appliances
not covered by federal standards, or where higher-than-federal standard efficiency requirements
are appropriate. Regional coordination for state appliance standards can be used to avoid
concerns that retailers or manufacturers may either resist supplying equipment to one state that
has advanced standards, or focus sales of lower-efficiency models on a state with less stringent
efficiency standards. Typical products that are assumed to be eligible for state or regional
standards are commercial boilers, compact audio products, DVD (digital versatile disc) players
and recorders, liquid-immersed distribution transformers, medium-voltage dry-type distribution
transformers, pool heaters, portable electric spas (hot tubs), and residential pool pumps.
Improved Building Codes
Building energy codes specify minimum energy efficiency requirements for new buildings or for
existing buildings undergoing a major renovation. Almost half of all U.S. GHG emissions
annually are associated with the operation of buildings, along with the embodied energy of
building materials.2 Given the long lifetime of most buildings, improving the energy efficiency
of buildings in the region—for example, by strengthening building energy codes—will have a
considerable immediate and ongoing impact on reducing building-sector GHG emissions.
Updates to the codes need to be made regularly, and code enforcement in the region needs to be
strengthened. Also, SGA jurisdictions can improve codes that are not limited to heating,
ventilation, and air conditioning systems, including day lighting design to reduce lighting needs,
electric lighting design, building envelope design, and integrated building design strategies.
Combined Heat and Power
CHP refers to any system that simultaneously or sequentially generates electric energy and
utilizes the thermal energy that is normally wasted, significantly increasing efficiency over
2
U.S. Department of Energy, Energy Information Administration. “U.S. Energy Consumption
by Sector.” Available at: http://www.architecture2030.org/!building_sector/index.html.

October 2009
separate generation of electricity and thermal energy. Many CHP systems are capable of an
overall efficiency of over 80%—double that of conventional systems. Another significant
advantage is the reduced transmission and distribution losses associated with centralized power
generation.
Existing data suggest the existence of a very large unrealized potential for CHP in the Southeast.3
However, energy recycling, including CHP, is challenged by several non-economic factors, such
as regulatory and environmental permitting complexity or uncertainty, utility resistance to CHP
because of potential loss of expected revenue, and increased complexity of facility design and
operations. Additional installations of new CHP systems by residential, commercial,
institutional, and industrial energy consumers, and continued operation or expansion of existing
systems, could be encouraged through a combination of regulatory changes (starting with a
review of state and regional policies on permitting, net metering, standby rates, interconnection,
and other issues affecting CHP), education and information transfer, and incentive programs.
3
A very short list of the recent CHP studies done for the region includes
http://www.chpcenterse.org/pdfs/
FL_Workshop_Presentations/005%20Market%20for%20CHP%20in%20Florida,%20Hampson.p
df (p. 26); and American Council for an Energy-Efficient Economy, Summit Blue Consulting,
ICF International, Synapse Energy Economics. 2008. Energizing Virginia: Efficiency First.
ACEEE Report Number E085. Available at: http://www.aceee.org/pubs/e085.htm (p.19).

Chapter 5
Transportation and Land Use Sectors
I. Overview
The transportation sector is vital to the economy of the Southern Governors' Association (SGA)
region. It is also a primary contributor to greenhouse gas (GHG) emissions in the region. In
2005, the sector accounted for 29% of total GHG emissions, or about 903 million metric tons of
carbon dioxide equivalent (MMtCO2e) of gross GHG emissions. Emissions from the sector are
expected to increase by roughly 10%, to 992.9 MMtCO2e, between 2005 and 2020.
Transportation’s percentage share of total GHG emissions in the region is expected to hold
steady over this period, accounting for about 28% of the state’s net growth in gross GHG
emissions in 2020. Land-use patterns and carbon fuel content greatly influence transportation
emissions.
Figure 5-1 shows the historic and projected trend of transportation sector GHG emissions for the
SGA region, and Table 5-1 shows historic and projected transportation GHG emissions for 2005,
2010, 2015, and 2020 in the context of the other sectors.
Figure 5-1. Historic and projected transportation sector emissions for the SGA region,
2005–2020.
1200
1000
800
MMtCO2e
600
400
200
SGA = Southern Governors' Association; MMtCO2e = million metric tons carbon dioxide equivalent;

October 2009
Table 5-1. SGA region gross GHG emissions forecast by sector (MMtCO2e).
Sector 2005 2010 2015 2020
Electricity Production-Based 1,183.2 1,211.3 1,252.3 1,297.1
Electricity Consumption-Based 1,169.0 1,191.8 1,233.3 1,278.3
Residential Fuel Use 79.2 78.2 78.4 81.2
Commercial Fuel Use 59.3 60.3 63.1 66.2
Industrial Fuel Use 537.0 481.5 495.9 489.8
Transportation 903.8 928.8 966.4 992.9
Industrial Process 111.7 114.4 128.9 142.4
Fossil Fuel Industry 33.9 34.3 34.9 35.1
Agriculture 189.1 270.2 285.2 303.5
Waste Management 76.2 87.9 102.0 119.2
Total Gross Emissions (Consumption-Based) 3,159.3 3,247.5 3,388.1 3,508.5
SGA = Southern Governors' Association; GHG = greenhouse gas; MMtCO2e = million metric tons of carbon dioxide
equivalent
The Energy Independence and Security Act (EISA) of 2007 contains a provision to increase the
corporate average fuel economy (CAFE) of light-duty vehicles (passenger cars and light trucks)
to 35 miles per gallon by 2020. The SGA reference case projection includes the projected
emission reductions due to EISA's CAFE and biofuels provisions. This baseline adjustment
significantly reduced the SGA region emissions baseline from previous estimates that treated
new CAFE policies as a proposed option. Increases in vehicle fuel economy resulting from EISA
will lead to reduced CO2 and other GHG emissions from on-road vehicles. The effect of the new
CAFE standards was accounted for in the baseline forecast before estimating the GHG
reductions from the various transportation and land use (TLU) policy strategies discussed
below.1
II. Overview of Policy Strategies and Estimated Impacts

The six TLU “super options” considered for the SGA are drawn from a larger group of
stakeholder-recommended options in the five SGA states with completed climate action plans
and 15 other state climate plans. These are the options for the TLU sectors that offer the most
significant potential for economic benefits and emission savings. They generally include actions
that reduce fuel consumption by reducing travel demand; actions that reduce fuel consumption
by improving vehicle efficiency; and actions that reduce the carbon content of fuels. Scenario
analysis of the SGA TLU super options shows that implementation could lead to GHG emission
reductions of 164.73 MMtCO2e annual reductions in 2020.
The weighted-average cost of the recommended policies is –$24.67/metric ton of carbon dioxide
equivalent (tCO2e). This average value includes policies whose individual cost-effectiveness
ranges from a net savings of about $84/tCO2e to a net cost of $41/tCO2e. The six options are
1
In 2009, the Obama Administration proposed CAFE standards with a more aggressive timetable than EISA. The
Administration’s standards demand greater fuel efficiency and therefore GHG reductions in the near-term but are nearly the same
as EISA in the year 2020 and beyond. While the SGA regional baseline principally relies on the EISA standard, there is not a
significant difference in the year 2020 between the two for the purpose this analysis.

October 2009
listed in Table 5-2 with their estimated annual GHG reduction potential and costs or savings. The
estimated percentage impacts of the individual policies are shown in Figure 5-2.
Table 5-2. Summary list of transportation and land use “super options”.
Estimated
Estimated
2020 Annual
Cost or Cost
Transportation and Land Use (TLU) GHG
Sector Savings per
Climate Mitigation Actions Reduction
ton GHG
Potential
Removed ($)
(MMtCO2e)
TLU-1 Anti-Idling Technologies and Practices 13.13 –$83.51
TLU-2 Vehicle Purchase Incentives, including rebates 59.04 –$70.85
TLU-3 Mode Shift from Truck to Rail 13.71 –$35.52
GHG = greenhouse gas; MMtCO2e = million metric tons of carbon dioxide equivalent
Note: Negative values in the final column represent net cost savings.
Figure 5-2 presents a stepwise marginal cost curve for the SGA region. The horizontal axis
represents the percentage of GHG emission reductions in 2020 for each option relative to the
business-as-usual (BAU) forecast. (Under BAU no energy- or climate-related actions are
undertaken that reduce emissions.) The vertical axis represents the marginal cost of mitigation
(expressed as the cost-effectiveness of each policy option on a cumulative basis, 2010–2020). In
the figure, each horizontal segment represents an individual option. The width of the segment
indicates the GHG emission reduction potential of the option in percentage terms. The location
of the segment relative to the y-axis shows the average cost (or saving) of reducing 1 tCO2e of
GHG emissions with the application of the option.
The vehicle and fuel strategies show the greatest potential to reduce greenhouse gas emissions.
The travel activity and freight strategies show smaller but still significant potential to reduce off
of the baseline forecast emissions. The lowest cost strategies include Anti-Idling, Vehicle
Purchase Incentives and Freight Mode Shift.
It should be noted that all costs are calculated on a state economy-wide basis, and not from the
perspective of specific entities, including state government. State expenditures to provide vehicle
purchase incentives are therefore treated as transfers within the economy and not costs (state
revenues from taxpayers increase to pay for state payments to vehicle purchasers). As a result,
the net benefit to the state economy is largely the savings resulting from the avoided purchase of
imported fuels. Of course such a program would also produce indirect economic effects: higher
taxes reduce discretionary income and the economic activity it would generate; increased auto
sales and auto salvage activity will increase income to dealers, manufacturers (if in-state),
salvage operators and create jobs in these and related businesses. These effects are not
considered in this analysis, but could be estimated through a supplemental macroeconomic
analysis as was performed for the Florida and North Carolina climate plans.

October 2009
Figure 5-2. Stepwise marginal cost curves for the SGA region TLU sector.
$80
$60 TLU-4: RFS

$40
TLU-6: Transit
$20 TLU-5: Smart Growth
$0
-$20 TLU-3: Mode Shift from Truck to Rail

-$40
TLU-2: Vehicle Purchase Incentives
-$60
-$80
TLU-1: Anti-Idling Technologies and Practices
-$100
0 1 2 3 4 5
SGA = Southern Governors' Association; TLU = transportation and land use; $/tCO2e = dollars per metric ton of
carbon dioxide equivalent; RFS = Renewable Fuel Standard; GHG = greenhouse gas emissions.
Transportation and Land Use

Strategy Descriptions
The strategies analyzed for the TLU sectors are described briefly here and in more detail in
Appendix E of this report. The strategies analyzed not only could result in significant GHG
emission reductions, but offer a variety of additional benefits as well. These benefits include
reduced local air pollution, healthier communities, and economic development and job growth
from in-state biofuel production.
Anti-Idling Technologies and Practices
This policy option aims to reduce GHG and other emissions from unnecessary idling of heavy-
duty vehicles, including trucks and buses. Much of this idling takes place during mandatory rest
periods to provide heating or cooling of the truck’s cabin air. Additional idling occurs during
vehicle operation, for example, when loading and unloading buses and trucks. This option would
reduce the trucking industry’s carbon footprint and GHG emissions, while maintaining the
current level of service to the state and nation, and encouraging the development and expansion
of intermodal and long-distance rail capacity to support both local and transcontinental rail
service. The U.S. Department of Transportation’s Federal Highway Administration lists two
major categories of emission-reducing strategies:

October 2009
• Technical strategies, which modify a piece of equipment or its fuel to reduce emissions.
Alternatives to long-term truck idling include the use of technologies, such as automatic
engine shut-down/start-up system controls, direct-fired heaters, auxiliary power units, and
truck stop electrification.
• Operational strategies, which change the way a piece of equipment is used, resulting in lower
emissions. Vehicle idling can be reduced by enforcing anti-idling ordinances and/or
encouraging the use of alternatives to idling. Many states and local governments have
adopted idling regulations for trucks and buses.
Vehicle Purchase Incentives, including Rebates
The SGA region can reduce its GHG emissions by improving the fuel economy of the light-duty
vehicle fleet. This option includes several policies and programs to encourage the purchase of
low-GHG-emission vehicles through financial and other incentives, such as feebates, tax credits
for low-GHG vehicles, operating incentives for low-GHG vehicles, and vehicle registration fees
that are reduced for low-emission vehicles and increased for high-emission vehicles.
Mode Shift From Truck to Rail
This option focuses on strategies to encourage more use of rail freight, for example through
improvements to railroad infrastructure and rail yards. In many cases, carrying freight by rail
rather than trucks can reduce emissions and fuel consumption, while also reducing congestion on
major roadways. Shifting freight from trucks to rail also decreases impacts on highway
infrastructure, and may reduce truck-related idling.
Renewable Fuels Standard (Biofuel Goals)
This option encourages state and national industries to reach for specific goals, as measured by
specific volume amounts or percentages of advanced biofuels that would produce fewer GHG
emissions when considered on a per-volume and/or per-energy-unit basis. A state could
incentivize the development of in-state industries and businesses that produce and distribute
alternative fuels, with the goal to increase the use of alternative fuels that emit less GHGs in
automobiles and other gasoline-powered vehicles. Another approach could be to set standards
that require a certain amount or percentage of fuel sold within the state to be a renewable fuel
(e.g., ethanol or biodiesel). This percentage could gradually increase over time. The state could
help facilitate transition to renewable fuels by regulating quality standards for fuel blends.
Smart Growth/Land Use
This policy aims to bring about reductions in GHG emissions through smart growth planning. A
state could achieve this by providing incentives and promoting redevelopment projects that
establish more energy-efficient land-use patterns. Smart growth planning looks at how land-use

October 2009
planning, site planning, and urban design at the community level can help achieve carbon and
GHG emission reduction goals.
This option calls for incentives and programs to encourage smart growth, including downtown
revitalization, transit-oriented development, and enhanced pedestrian and bicycle infrastructure,
thereby reducing vehicle miles traveled. Additionally, this policy option would provide both
technical and financial support to local and regional agencies.
These goals can be accomplished through (1) multi-jurisdictional land-use planning and zoning
policies, tax-base sharing, and state and local incentives; (2) market-based approaches in future
land development and housing policies that focus investments toward achieving higher-density,
transit-oriented, and compact or mixed-use development; and (3) integrated transportation
policies, investments, system management, and pricing.
Transit
This policy option will shift passenger transportation from single-occupant vehicles (SOVs) to
public transit, thereby reducing GHG emissions. This option seeks to double transit passenger
miles; increase the percentage of people who walk, bicycle, carpool, vanpool, or telecommute;
and develop and implement policies and strategies that expand non-automobile infrastructure and
provide modal alternatives to SOV travel. The availability of funding for the provision of
additional transit services may be uncertain.
This will be achieved by improving existing transit service, such as increasing service frequency,
offering more forms of transit, improving the quality of service, promoting ridesharing activities,
and reducing travel times on selected transit routes. Additionally, fare reductions, employer
subsidies, and state incentives may all be offered to assist in increasing ridership.

Chapter 6
Agriculture, Forestry, and Waste Management Sectors
I. Overview of AFW Greenhouse Gas Emissions and Sinks
The agriculture, forestry, and waste management (AFW) sectors are responsible for moderate
amounts of the Southern Governors' Association (SGA) region’s current greenhouse gas (GHG)
emissions and also provide significant levels of carbon sequestration. The AFW contribution to
GHG emissions in 2005 was about 9% of the region’s total. The forestry sector in the Southeast
provides a net sink of carbon dioxide (CO2). It is not included in these estimates of gross CO2
emissions due to the limited amount of time available and the expected use of gross emission
estimates (excluding sinks) as a baseline. However, this baseline can be developed in the future.
By 2020, the agriculture and waste management sectors are expected to contribute about 9% of
the region’s GHG emissions (see Figure 6-1).
Figure 6-1. Projected agriculture and waste management GHG emissions in the SGA
region: 2005–2025.
500
450 Waste Management

Agriculture
400
350
300
MMtCO2e
250
200
150
100
50
GHG = greenhouse gas; SGA = Southern Governors' Association; MMtCO2e = million metric tons of carbon dioxide
equivalent. Note: Excludes CO2 sinks; hence, the forestry sector is not shown.
Agricultural emissions include methane (CH4) emissions from enteric (animal intestinal)
fermentation and manure management, and from rice cultivation. Also included are emissions of
CO2 from oxidized soil carbon (resulting from tilling soil) and from applications of urea and
lime. Nitrous oxide (N2O) emissions come from activities that increase nitrogen in the soil,
including fertilizer (synthetic, organic, and livestock) application and production of nitrogen-
fixing crops (legumes) and agricultural burning. Emissions from fossil fuel combustion within
the agricultural sector are included in the industrial fuel use totals.

October 2009
Waste management includes emissions from the management and treatment of solid waste and
wastewater. Emissions from waste management consist largely of CH4 emitted from landfills;
however, emissions are also included for municipal solid waste (MSW) combustion. Emissions
from wastewater treatment include both CH4 and N2O. Emissions from fossil fuel use in the
waste management sector are captured in the industrial fossil fuel use estimates (for stationary
combustion sources) and the transportation sector (for mobile combustion sources, including
waste collection trucks).
II. AFW Emission Estimates

To develop emission estimates for the 13 SGA jurisdictions that did not undertake a an in-depth
stakeholder planning process, the Center for Climate Strategies (CCS) developed estimates by
applying weighted averages from the five states with inventory and forecasts. These weighted
averages were developed based on key factors for each emissions sector:
• Agriculture—crop cultivation: harvested crop acres;
• Agriculture—livestock production: total head of dairy cattle, beef cattle, and swine; and
• Waste Management—uncontrolled landfill emissions based on application of the U.S.
Environmental Protection Agency's (EPA’s) State Inventory Tool in default mode.
Historical growth rates in these key factors were used to develop state-level growth rates for each
of the 13 jurisdictions without a GHG forecast.
III. Overview of AFW Mitigation Options' Estimated Impacts

CCS developed eight “super options” for the AFW sectors that offer the most significant GHG
emission reductions within the region. These options were drawn from a larger set of proposed
actions by the five SGA states with climate action plans and 15 other state climate action plans.
The general activity areas from which these options were drawn include land protection,
management practices, and renewable energy expansion. Results are summarized in Table 6-1.
The quantified mitigation options could lead to emissions savings from reference case
projections of:
• Over 250 million metric tons of carbon dioxide equivalent (MMtCO2e) per year by 2020:
o GHG reductions are included from the forestry sector, resulting from increases in carbon
sequestration above the baseline. Therefore, it is not appropriate to compare this estimate
of 2020 reductions against the gross AFW sector emissions total for 2020 of 327
MMtCO2e (which represent the emissions from the agriculture and waste management
sectors).
o The GHG reductions also include those from reduced energy consumption in other
sectors (e.g., electricity reduction resulting from urban forestry programs, fossil fuel
reduced during manufacturing/transport of materials/packaging from enhanced
recycling). Hence, this is another reason why it is not appropriate to compare the 250
MMtCO2e to 2020 gross emission estimates for the AFW sector.
o The reductions represent about 7% of total regional 2020 emissions.
• The weighted-average cost of these policies is about $16 per metric ton (t) of CO2e.

October 2009
Table 6-1. Summary list of AFW mitigation options in order of cost per metric ton.
Estimated 2020 Estimated Cost

Annual GHG or Cost Savings
Agriculture, Forestry and Waste Management
Sector Reduction per Metric Ton
(AFW) Climate Mitigation Options
Potential of GHG
(MMtCO2e) Removed ($)

Livestock Manure - Anaerobic Digestion and
AFW-3 2.53 $14.63
Methane Utilization

AFW = Agriculture, Forestry and Waste Management; GHG = greenhouse gas; MMtCO2e = million metric tons of
carbon dioxide equivalent; MSW = municipal solid waste. Note: Negative values in the final column represent net cost
savings. Costs and/or savings are determined based on the levelized cost (including capital, labor, operation and
maintenance, administrative charges) of each AFW measure less its avoided costs (fuel, electricity, landfill tipping
fees, etc).
Figure 6-2, the marginal cost curve on the next page, arranges the data in Table 6-1 so that each
mitigation option’s supply and cost per metric ton of GHG reduced can be compared. Each
mitigation option’s GHG reduction potential is shown as a percentage of the 2020 economy-wide
business-as-usual (BAU) forecast on the horizontal axis. This is a particularly important
comparison for the AFW sectors, given the discussion above about the potential for AFW
options to reduce both intra- and inter-sector emissions. Each step in Figure 6-2 represents an
option in Table 6-1, with options moving from left to right in the same order as they are listed in
the table from top down.
For each step of reduction shown on the horizontal axis, the net cost of achieving these
reductions is shown on the vertical axis. For these selected mitigation options in the SGA region,
total economy-wide GHG reductions would be between 7% and 8%. The figure shows that about
1% of the economy-wide reductions could be achieved with a net cost savings. About another
6% could be achieved with moderate net costs around $20/metric ton, while the remaining
reductions would cost $57/metric ton.

October 2009
Figure 6-2. Agriculture, forestry and waste management marginal cost curve, 2020.
$60
$50 AFW-8: Urban Forestry
$40
$30
AFW-6: Forest Retention
$20
AFW-5: Enhanced Recycling of MSW
$10 AFW-3: Livestock Manure
AFW-7: Reforestation/Afforestation
$0
AFW-4: MSW Landfill Gas Mgt.
-$10
AFW-2: Nutrient Mgt.
AFW-1: Soil Carbon Mgt.
-$20
0 2 4 6 8 10
SGA = Southern Governors' Association region; AFW = agriculture, forestry and waste management; $/tCO2e =
dollar cost per metric ton of carbon dioxide equivalent (reduced); MSW = municipal solid waste BAU = business as
usual (i.e., no climate-related emission reductions undertaken); GHG = greenhouse gas
The mitigation options were designed to eliminate overlap between options both within and
outside of the AFW sector. Still, some small potential remains for overlap with options in other
sectors, such as landfill gas utilization and manure methane reductions that could reduce
emissions in either the electricity generation or the RCI sectors. Also, some of the reductions
achieved through implementation of urban forestry programs are energy reductions through
shading and wind protection of buildings and homes. Finally, a substantial component of waste
recycling emission reductions stems from reductions in energy consumed during the extraction,
manufacturing, and transport of raw materials. (These are emissions that, without recycling,
would reside in the industrial fuel use and transportation sectors.) Nutrient management emission
reductions also include some product life-cycle emission reductions. While recognizing the
potential for interaction with measures considered in other sectors,1 CCS does not anticipate that
there is direct overlap with these other measures requiring further adjustment of estimated
reductions and costs.
1
For example, the overlap between high-performance buildings (private and public sector) and energy reductions
achieved through urban forestry programs (shading and wind protection). There is an interaction here in that higher-
performance buildings would not benefit from increased shading to the same extent as current buildings that are less
efficient. However, within the period of analysis (through 2020), CCS expects that the effects of this interaction are
negligible.

October 2009
Figure 6-3 shows the emission reductions from the mitigation options in 2020. There is much
variation in the scale of emission reductions from the mitigation options. Livestock manure
methane utilization and nutrient management both contribute 1% of the overall reductions for the
selected mitigation options. On the other hand, reforestation/
afforestation and enhanced recycling each provides about one-third of the total 2020 reductions.
These results should not be viewed as a limitation of the potential for livestock and landfill
methane programs. As described above, the results are based on the policy designs of the five
states with climate action plans, not on the economic potential of each option.
For recycling, it is important to note that, like all other CCS analyses, the GHG emission
reductions are estimated on a life-cycle basis. This means that emission reductions that occur due
to the reduced need for new production from raw materials are included along with the reduced
emissions for managing the waste that would have resulted during landfilling or other “end-of-
use” waste management. The reduced emissions associated with new production from raw
materials make up a substantial portion of the life-cycle emissions, potentially up to 90%,
depending on the material involved. Some portion of the processes involved in raw material
extraction, manufacturing, and transport likely occurs outside of the SGA region; hence, those
GHG reductions will also occur outside of the region. In state processes supported by CCS, the
stakeholder advisory groups elected to retain these reductions, since they were contingent upon
actions taken within their states.
Figure 6-3. Percentage of 2020 reductions by AFW policy mitigation option
AFW = agriculture, forestry, and waste management; CH4 = methane; mngt = management; MSW = municipal solid
waste; LFG = landfill gas
The mitigation options described briefly below offer not only GHG emission reductions at
moderate costs, but also a host of additional benefits. These benefits include green-collar
employment expansion and economic development opportunities (enhanced recycling, tree
planting/maintenance, renewable energy project development); air quality benefits (reduced

October 2009
emissions of air pollutants from livestock operations, landfills); savings to consumers and
businesses on energy bills (urban forestry), which can have macroeconomic benefits; reduced
dependence on imported fuel sources (landfill and livestock methane programs); and reduced
water pollution (landfill and livestock methane projects).
Agriculture, Forestry, and Waste Management

Mitigation Options
The eight following “super option” mitigation policies were developed from the five existing
SGA state climate action plans, as these options were analyzed in most of the five states, and
their reductions typically represent meaningful GHG reductions with moderate net societal costs.
Other AFW mitigation options were not included in the following analysis. One could therefore
assume that potentially another 50% (>100 MMtCO2e) of GHG reductions from mitigation
options are available from these existing options, but are not quantified or presented below due
to the time constraints of this study. Some examples of these include MSW source reduction,
wastewater treatment plant efficiency programs, forest management for carbon sequestration,
and on-farm energy efficiency programs.
Soil Carbon Management
The amount of carbon stored in the soil can be increased by the adoption of such practices as
land conservation, no-till cultivation, and crop rotation. Reducing summer fallow and increasing
winter cover crops are complementary practices that reduce the need for conventional tillage. In
addition, the application of biochar (i.e., charcoal) may also increase soil carbon content and
stabilize soil carbon. By reducing mechanical soil disturbance, these practices reduce the
oxidation of soil carbon compounds and allow more stable (long-term) aggregates to form. Other
benefits include reduced wind and water erosion, reduced fuel consumption, and improved
wildlife habitat. For the SGA analysis, implementation was assumed to occur via no-till
cultivation. An additional benefit includes lower energy use/GHG emissions during cultivation
(diesel fuel), as well as the cost savings for fuel.
Nutrient Management
Improving the efficiency of fertilizer use and other nitrogen-based soil amendments can reduce
N2O emissions. Excess nitrogen not metabolized by plants can leach into groundwater and/or be
emitted to the atmosphere as N2O. Better nutrient utilization can lead to lower N2O emissions
from runoff. Also, the life-cycle emissions associated with the manufacture and transport of
these nutrients are reduced. Implementation can occur through better management practices and
adoption of generally accepted agriculture management practices.

October 2009
Livestock Manure—Anaerobic Digestion and Methane Utilization
This option seeks to reduce methane emissions from livestock manure by installing manure
digesters on livestock operations. Methane energy from the manure digesters is used to create
heat or power, which offsets fossil fuel–based energy production and the associated GHG
emissions. For the SGA analysis, anaerobic digestion is paired with electricity production using
an engine and generator set. The electricity is used to offset on-site electricity use. The joint U.S.
Department of Agriculture/EPA AgSTAR program maintains extensive information on manure
management technologies, including anaerobic digestion (http://www.epa.gov/agstar/).
Reforestation/Afforestation
This option covers establishing forests on land that has not historically been forested (e.g.,
agricultural land—“afforestation”) or promoting forest cover and associated carbon stocks by
regenerating or establishing forests in areas with little or no present forest cover
(“reforestation”). In addition to tree planting, additional practices such as soil preparation,
erosion control, and stand stocking to ensure conditions that support forest growth could be
needed. GHG benefits accrue as a result of the incremental carbon sequestration that occurs in
the treated area versus its BAU level of sequestration.
Forest Retention
Much of the carbon stored in forest biomass and soils can be lost as a result of land-use
conversion to developed use. Reducing the rate at which existing forests are cleared and
converted can protect the carbon stored on these lands (one-time loss of CO2 to the atmosphere)
as well as their annual sequestration potential. Conservation easements purchased from
landowners are a common method to achieve forest protection.
Urban Forestry
Maintaining and expanding urban and suburban tree canopies can reduce GHG emissions
through enhanced carbon sequestration and storage in tree biomass. Indirect emission reductions
may also occur by reducing heating and cooling needs as a result of planting shade trees. The
SGA analysis assumes that new tree-planting programs target areas that would benefit from the
energy savings associated with an expanded urban canopy.
Municipal Solid Waste Landfill Gas Management
Controlling methane emissions from landfills reduces GHG emissions at the site, and use of this
methane as a source of energy offsets emissions from fossil fuel use (e.g., to produce electricity
or heat/steam). A number of approaches can be used to control/utilize landfill methane, ranging
from flaring methane at smaller sites to installing methane collection and utilization systems at
larger sites (e.g., those not addressed by federal regulations). The analysis for SGA uses

October 2009
weighted averages of the GHG reductions and costs for the differing approaches adopted by the
five states with climate action plans.
Enhanced Recycling of Municipal Solid Waste
Enhancing existing recycling programs requires less waste management via landfilling or
combustion, and thus reduces the methane emissions associated with landfilling and the GHG
emissions from waste combustion, where practiced. In addition to the emissions from these “end-
of-use” waste management methods, significant GHG reductions are achieved on a life-cycle
basis, because recycling an item uses less energy than producing a new item from raw material.
The SGA analysis includes these life-cycle reductions, regardless of where they occur
geographically.

Chapter 7
Comparison of Varying Economic Impact Analyses of
Greenhouse Gas Mitigation Policy Options
I. Introduction to Economic Analysis of Climate Policy Options
The microeconomic (direct) and macroeconomic (indirect) impacts of possible climate
mitigation policy options have been analyzed extensively in recent years by many different
parties and interests. This chapter provides an overview comparison by sector of several studies
of climate economics that focus, at least in part, on the Southern Governors' Association (SGA)
region or its individual states and territories. This review provides a discussion of key factors that
significantly affect study results, a profile of several key studies based on these factors, and a
statistical analysis for a subset that shows the relative importance of individual factors on
specific outcomes. The purpose of this review is to inform and educate policymakers about the
effects of study design choices on end results to enable better interpretation and application of
studies to policy decisions.
Microeconomic and macroeconomic outcomes of climate policies are closely linked. Typically,
climate policy analyses first look at microeconomic effects to determine the direct cost or
savings associated with the implementation of the policy. These results are then used as inputs to
a second phase that evaluates indirect macroeconomic impacts such as the overall impact on
employment, income and economic growth. Microeconomic analysis is typically conducted
through calculations of net financial cost-effectiveness, or net dollars per metric ton of
greenhouse gas (GHG) removed. This analysis is focused on parties directly involved in or
affected by the implementation of options, and on the direct impacts of action, such as GHG
reductions and direct implementation costs or savings.1
Macroeconomic analysis is designed to capture the broader and more integrative effects of policy
action. These are often called “ripple effects” or “multiplier effects” and include calculations of
policy impacts on employment, labor, the prices of goods and services, and economic growth.
Depending on the level of detail and modeling tools used, these results may be focused on a
single sector or the entire economy, and they may distinguish between specific industries within
sectors, and by various socioeconomic population segments.
Macroeconomic analysis relies heavily upon the use of direct microeconomic costs and benefits
as inputs into models to calculate indirect effects. As a result, the direct costs or savings per ton
of GHG removed by policy options is one of the most important determining factors of
macroeconomic analysis. This is confirmed by statistical analysis conducted through this review
for SGA. Section II of this chapter examines the specific factors that influence direct costs and
savings of policy options, while Section III examines macroeconomic factors in detail and
provides a meta-analysis. Some of the studies reviewed here blend both microeconomic and
macroeconomic analysis, at times without sufficient clarity to determine specific input
1
A delineation of typical direct versus indirect costs in each sector is provided by the Center for Climate Strategies
(CCS) to state planning groups prior to undertaking economic analysis, and is available on the CCS Web site:
www.climatestrategies.us

October 2009
assumptions' outcomes. This review attempts to catalog and compare the studies that have been
complied, but is challenged by a lack of transparency in many of the studies.
II. Microeconomic Analyses

Introduction
The direct cost of any climate mitigation policy is calculated for a reduction of expected
emissions from a ‘baseline’ which assumes no policy was implemented, often called ‘business as
usual’. Baseline definitions vary, but can include existing, planned, and likely actions. Baseline
calculations for the five states' planning processes included existing and formally planned
(approved) actions. Likely options were sometimes evaluated, as needed, for comparison. Many
variables are included in the forecasting of policy baselines as well as potential new policy
options. They include (1) the types and mix of policy options; (2) the specific design of these
options in terms of stringency, timing, coverage of parties, and other definitional parameters; (3)
the choice of policy instrument, for instance including price or non-price mechanisms; and (4) a
series of specific choices on the specifications for analysis that include data sources, calculation
methods, and key assumptions.
In each of the five states' planning processes, the specification for analysis was ultimately
decided by stakeholders and work group members through the consensus-building process. In
many study processes, these decisions are made unilaterally by an entity or analyst and are not
subject to public participation or group review. In others, these choices are peer-reviewed by
recognized experts allowing the authors to revise their assumptions and approaches prior to the
completion of their work. In the five state’s processes stakeholders and technical work group
members provided review and also reached facilitated agreements on policy and study choices.
Microeconomic Analyses of Greenhouse Gas Mitigation Actions in Key Sectors

Heat and power supply and residential, commercial, and industrial fuel use.
This analysis reviews the microeconomic climate change studies for the energy sector, including
residential, commercial, and industrial (RCI) as well as heat and power supply (energy supply
[ES]). Electricity generation and RCI fuel use comprise over two-thirds of total U.S. carbon
dioxide (CO2) emissions, with transportation-related emissions contributing a large portion of the
balance.2 The ES and RCI sectors are expected to contribute the bulk of GHG mitigation in
economy-wide climate policies. Aspects of RCI GHG reductions can be thought of as “demand-
side” GHG mitigation, which complements ES “supply side” reductions. These two sectors
should be analyzed together when performing energy policy analysis. Much of the difference in
cost estimates between various studies is due to the lack of integration of the two sectors, as
described below. Full details of these studies can be found in Appendix G of this report.
This review considers seven different studies including studies analyzing the Lieberman-Warner
Climate Security Act (S. 2191) from the 109th Congress and the Waxman-Markey American
Clean Energy and Security Act from the 110th Congress. The list of studies, ranging from high
to low cost estimates is as follows:
2
See: http://epa.gov/climatechange/emissions/usinventoryreport.html. p.4.

Table 7-1. Summary of studies reviewed: heat and power and RCI sectors.
Author/Title Note Findings
American Council for Capital Formation, the National Analysis of the This study finds costs of
Association of Manufacturers, and the U.S. Chamber of Lieberman-Warner $55 to $64/metric ton
Commerce. (2008). Climate Security Act CO2 in 2020, rising to
http://www.accf.org/media/dynamic/1/media_190.pdf (S. 2191) Using the between $227 to
National Energy $271/metric ton CO2in
Modeling System 2030 using a proprietary
version of the U.S.
Energy Information
Administration (EIA)
National Energy
Modeling System
Montgomery et al. (2009). Impact on the Economy of the Analysis of Waxman- In 2015, the cost of a
American Clean Energy and Security Act of 2009 Markey (H.R.2454). CO2 allowance is
(H.R.2454). Prepared for the Black estimated to be $22, by
http://www.crai.com/uploadedFiles/Publications/impact-on- Chamber of Commerce 2030, the allowance cost
the-economy-of-the-american-clean-energy-and-security- by Charles River could increase to $46
act-of-2009.pdf Associates. per metric ton (pp. 3-4)
Hausman, et al. (2009). Productive and Unproductive Costs Analysis of Waxman- Mitigation costs are
of CO2 Cap-and-Trade. http://www.synapse- Markey (H.R.2454). equal to $10/ton (p.5).
energy.com/downloads/cap-and-trade.pdf Assumes $20/ton costs
passed through to
consumers
EIA. (2009). Energy Market and Economic Impacts of H.R. Analysis of the 2020 allowance prices at
2454, the American Clean Energy and Security Act of 2009. Lieberman-Warner $32, 2030 allowance
August. Climate Security Act (S. prices at $65
http://www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html 2191) Using the
National Energy
Modeling System
Creyts, Jon, Derkach, Anton, Nyquist, Scott, Ostrowski, Ken All technologies have a
and Stephenson, Jack. 2007."Reducing U.S. Greenhouse marginal cost less than
Gas Emissions: How Much at What Cost?," McKinsey & or equal to $50/tonne.
Company. 40% of supplies
http://www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_fina available at negative
l_report.pdf costs (cost savings) (p.
xii)
Laitner, S. (2009). The Positive Economics of Climate Economy is much less Shows CO2 prices of
Change Policies: What the Historical Evidence Can Tell Us. carbon intensive than in $331 per metric in 2050
ACEEE. http://www.aceee.org/pubs/e095.htm reference case, so
higher impact of CO2
prices is lessened due
to fewer reductions
being needed
American Council for an Energy-Efficient Economy Resource assessment Finds 28 MT reductions
(ACEEE), Summit Blue Consulting, ICF International, of all cost effective by 2025 (including
Synapse Energy Economics. 2008. Energizing Virginia: energy efficiency, CHP, reductions associated
Efficiency First. ACEEE Report Number E085. Washington, and demand response with imported power
D.C.: American Council for an Energy-Efficient Economy. opportunities in VA
http://www.aceee.org/pubs/e085.htm.
RCI = residential, commercial and industrial [energy/fuel use]

October 2009
Differences in Cost Estimates.

The range of cost estimates analyzed here is significant. The study conducted by the American
Council for Capital Formation, the National Association of Manufacturers, and the U.S.
Chamber of Commerce, estimates that a 30% GHG reduction below 2005 levels by 2030
imposes a cost of $250 per metric ton of GHG emissions reduced. For the Waxman-Markey bill,
which has less aggressive CO2 targets, Charles River Associates (CRA 2009) and the U.S.
Department of Energy's Energy Information Administration (EIA 2009) estimate a 2030
allowance price of about $46 and $65/ton, respectively, in the base case. The American Council
for an Energy-Efficient Economy et al. (ACEEE 2008) shows GHG mitigation at a cost savings.
Several key variables account for the differences in these cost estimates. The variables analyzed
here include the type of model, top-down versus bottom-up models, the existence of market
barriers and market failures to supply DSM mitigation measures, the extent of peer review, the
costs of avoided energy, the carbon intensity of avoided electricity generation resources, and the
inclusion of stakeholder input.
Level of untapped efficiency in the market.
A summary of the most important factors determining compliance costs must start with the
assumptions about the existence or the scale of demand-side management (DSM), or energy
efficiency, mitigation activities. DSM activities are already occurring at varying levels in most
jurisdictions in the country, and the models that include DSM activities are more likely to reflect
lower costs of mitigation for future state climate policies. Laitner and ACEEE et al find the
lowest cost of mitigation because of the assumed existence of large, low cost DSM supplies. The
July 2009 EIA analysis of the Waxman-Markey bill includes only limited demand-side
reductions from the aspects of the bill that reduce energy consumption. The Charles Rivers
Associates (CRA) model does not contain explicit representation of DSM measures. Recent
surveys of DSM best practices indicate much larger supplies of available GHG mitigation than in
the EIA analysis, with utilities achieving incremental, annual demand reductions of 2% of sales.
Given that the utilities operating in these states have mandates for cost-effectiveness, one can
infer that the demand-side resources being deployed are at or below the cost of new energy
resources.
Top-down (economic) versus bottom-up (engineering) modeling methods.
Two basic types of models that have been developed to estimate GHG mitigation costs: top-
down and bottom-up, or some combination of these. The cost differences between these two
types of models for a given reduction target have been debated for decades.3 Top-down
economic models typically assume all cost-effective DSM measures have already been
implemented, or that all existing capital is efficient. Engineering models (bottom-up) can show
low or negative cost mitigation measures due to the detailed representation of technologies
within the model.4 For example, technology based models have itemized representation of end-
3
The differences between the two types of models are laid out in the complementary
macroeconomic study analysis in Section III below. For a qualitative assessment of the
differences between the two types, see Charles D. Kolstad and Michael Toman. (2001). The
Economics of Climate Policy.
4
The label "negative cost" is misleading and perhaps should be called “below-market” price measures. Energy
efficiency measures in these studies (such as high-efficiency residential furnaces or commercial lighting) still have
capital, labor, and perhaps some additional operating costs. So, from an initial cost standpoint, these are positive cost
options. However, from a life-cycle cost perspective, energy efficiency measures can be potentially less expensive

October 2009
use equipment in residential and commercial building sectors that allow these models to simulate
the uptake of more energy efficiency equipment either due to retirement or retrofit.
Peer-reviewed versus proprietary modeling methods.
This variable assesses the range of outside input that a model responsible for a study has
received. The highest cost/metric ton estimates come from the two proprietary models reviewed
here: CRA’s model is proprietary and the National Energy Modeling System model operated by
Science Applications International Corporation (for industry groups) has been heavily modified.5
The algorithms and assumptions behind these models potentially lead to their higher costs. The
EIA’s National Energy Model has been peer reviewed. Expert peer reviews by a range of subject
matter experts can analyze in detail the supply and demand functions and assumptions. Expert
peer review is much more in depth than the type of review that users of a model in a modeling
process would typically provide.
Stakeholder driven.
In these modeling efforts, stakeholders typically provide the study’s specifications regarding
GHG mitigation measures, costs or savings and availability. This doesn’t necessarily mean that
the model’s algorithms used to generate costs for the stakeholder process are peer reviewed.
Stakeholder-driven estimates (including those in the database of existing SGA state climate
action plans) show larger GHG reduction potentials and lower costs than some of the non-
stakeholder-driven studies. This is likely due to the availability of low or negative costs DSM
supplies that stakeholder driven processes tend to identify through comprehensive review.
However, the ACEEE et al (2008) report for Virginia, as well as other resource assessments
showing large reduction potentials at costs below the assumed avoided cost, are not necessarily
stakeholder-driven. ACEEE reports do have users of the data that can comment on the relevance
of the findings, but the degree to which the models have received explicit stakeholder input is
unclear.6 Broad based stakeholder groups typically look at a full range of choices and, as a
consequence, are potentially better at resolving conflicts related to costs by finding alternatives.
However, this is contingent on a well designed process.
Avoided costs.
Avoided costs are the assumed cost of the energy (or other cost) that the RCI or new electricity
supply measure is replacing, or avoiding. Avoided costs of energy in a modeling exercise can be
either full (retail) end-user prices, wholesale prices, or somewhere in between. In general, the
higher the assumed avoided cost of energy, the more mitigation options can be taken that are
than baseline measures after considering the associated additional fuel or electricity expenditures. Hence, the term
“below-market” cost option is used here.
5
CRA notes that an expert panel convened by the Electric Power Research Institute (EPRI), the electric industry’s
research think tank, reviewed the “model development and study” for an analysis of the costs of California’s climate
policies. The extent of the review for the current study is not specified.
http://www.crai.com/uploadedFiles/RELATING_MATERIALS/Publications/BC/Energy_and_Environment/files/CR
A_NMA_S2191_April08_2008.pdf
6
Other non-stakeholder-driven studies are potentially very optimistic regarding GHG reduction
supplies. The April 2009 World Resources Institute Issue Brief Southeast Energy Opportunities
Local Clean Power (not reviewed here) predicts medium-term renewable electricity supplies of
40% of 2006 sales for the region--typically higher than found in EIA and other government
studies. Available at: http://pdf.wri.org/southeast_local_clean_power.pdf.

October 2009
cost-effective. As an example, the range of DSM actions that can be undertaken at $90 per
megawatt-hour (MWh) is greater than at $30/MWh.
Avoided CO2 assumptions.
This assumption relates to the CO2 emissions that are assumed to be avoided due to the policy or
measure being implemented. For the energy supply sector, the assumption about which
electricity generation technology is displaced by energy efficiency or renewable electricity is
critical to determining the cost effectiveness of these options. If the new technology is displacing
more carbon intensive generation resources (such as coal), the cost per ton of GHG mitigated by
the energy efficiency or renewable energy technology will be lower. Economy-wide modeling
exercises typically run a no-policy reference case, and then run a policy case and compare the
CO2 emissions from the two runs. In these cases, the avoided CO2 assumption for electricity is
the difference between the generation fuel mix in the policy and no-policy cases.
Agriculture, Forestry, and Waste Management (AFW) Sectors.
Four studies were reviewed that included mitigation options in the AFW sectors. Two of the four
studies focused on terrestrial carbon sequestration options in the agriculture sector (e.g., soil
carbon management programs) and forestry sector (e.g., afforestation/reforestation of cropland or
pasture). The other two studies included coverage of solid waste management options, including
landfill gas management and recycling. Below are examples of the key drivers in the analysis of
GHG reduction and costs associated with the AFW mitigation options covered in this analysis for
the SGA.
Agriculture: for soil carbon management, the degree of soil carbon saturation, the
implementation mechanisms (e.g., no-till cultivation), and the treatment of costs/cost savings
(e.g. need for new technologies, fuel savings);
Forestry: for afforestation programs, while the cost of tree planting programs is an important
input, a far more important input is the cost of land acquisition or conservation easements and
the period over which GHG reductions and costs are estimated (due to high up front capital
costs);
Waste Management: for landfill gas management, several options exist and varying baselines are
applicable (i.e. no control to a site already controlled with methane collection and flaring).
Depending on the selection of mitigation approach and baseline management, significant
differences in cost will result. For recycling, most researchers capture the lifecycle GHG benefits
associated with increased recycling rates, however, not all analyses factor in the avoided costs of
energy use in upstream production. Where these avoided upstream energy costs are included, the
mitigation approach is much more cost effective.
Based on the available comparative literature, several of the key drivers and their ramifications
are described in more detail below. Appendix G of this report provides details on all four studies.
Agricultural soil carbon management.
An important type of GHG mitigation option in the agriculture and forestry sectors is terrestrial
carbon and the enhancement of CO2 sequestration levels or the protection of existing carbon
stocks. In agriculture, CO2 sequestration can be enhanced through soil carbon management
programs (e.g., no-till cultivation). Agricultural soil carbon can be protected through land
conservation (e.g., avoided development). CCS’ analysis for SGA included GHG mitigation
through agricultural soil carbon management assumed to be implemented via no-till cultivation.

October 2009
Key drivers in estimating GHG reduction include the assumed CO2 uptake rate and capacity of
agricultural soils. In addition to the variability of soils to sequester carbon, there is a finite
capacity of every soil to continue to indirectly capture CO2 through gains in soil carbon. Most
analyses will assume 20 to 30 years of carbon sequestration can occur before the capacity of the
soil is reached. For cost estimates, the range has tended to be slightly negative (a cost savings) to
$30 per metric ton (t) of CO2. The McKinsey study7 shown in Appendix G (Table G-8) estimated
high cost savings (–$56/tCO2). While there was not enough detail available in the documentation
to determine the cause of this,8 the following key assumptions affect costs: consideration of fuel
savings (from avoided tilling), consideration of incentive payments to farmers to adopt no-till
practices, treatment of the potential for lower crop yields, and capital costs for new equipment
that allow for no-till planting.
Forestry – afforestation and reforestation.
Afforestation/reforestation of cropland or pastureland is a common option considered to increase
sequestration. For assessing GHG reductions in the United States, data on regional carbon
accumulation rates from the U.S. Forest Service are used by most investigators. Hence, large
variations would not be expected by two different researchers addressing the same project. On
the cost side, however, potentially the biggest driver behind differing estimates of cost-
effectiveness is the period over which costs and benefits are evaluated. Forest carbon projects
continue to deliver GHG reductions over periods of decades. So an analysis that only considers
sequestration over a 20 or 30-year period will look much more expensive than an analysis that
considers the full time frame over which the project accumulates carbon (reaches steady-state
conditions).
Another important cost issue for forest carbon projects is whether credit is taken for the
increased value of carbon sequestered in harvested biomass. Consideration of these future-year
benefits (sometimes 60–80 years in the future) will also substantially reduce costs.
Finally, the basic elements of afforestation/reforestation costs include an establishment (planting)
cost and either an acquisition/easement cost or an opportunity cost. Opportunity costs cover the
loss of revenue from the previous land use (e.g., crop revenue or pasture revenue). In particular,
these acquisition/easement costs can vary dramatically from region to region. The studies shown
in Appendix G (Table G-8) found afforestation/reforestation costs to range from about $3 to
$100/tCO2e. Key drivers in these studies appear to be the previous land use (cropland, pasture,
degraded forest). Afforestation of cropland was found to be the most expensive due to the
opportunity costs involved.
Municipal Solid Waste (MSW) Management.
In Appendix F, the MSW management-related options compared cover two of the most common
GHG mitigation approaches in this sector: landfill gas (LFG) management and recycling. For
LFG management, there is no “one-size-fits-all” approach to achieving GHG reductions, and this
issue above all drives the differences that one will find in estimates of GHG reductions or costs
associated with mitigation options.
7
McKinsey & Company. 2009. Pathways to a Low-Carbon Economy, Version 2 of the Global Greenhouse Gas
Abatement Cost Curve. http://www.mckinsey.com/clientservice/ccsi/pathways_low_carbon_economy.asp.
8
It is important to note that the McKinsey study is a global analysis of GHG mitigation actions; not one that
provides estimates specific to application in North America.

October 2009
Several other approaches could also be considered under the umbrella of “LFG management.” In
one analysis, the approach to LFG management could be to utilize the methane currently being
collected and flared for energy purposes. In another analysis, the approach might be to install a
collection and utilization system where none currently exists. The first approach involves some
capital investment to install the energy utilization equipment (e.g., engine/generator set, turbine,
boiler) and gas cleanup, along with annual operation and maintenance costs. However, the
collection system and flare are already in place. Hence, the energy payback will likely drive a
short-term recovery of the capital costs and a resulting cost savings for the approach.
The actual energy utilization approach taken is also very important in determining the overall
costs of the approach. For example, direct use of the gas in a nearby offsite boiler has very low
capital costs and should result in a cost savings. A small engine/generator set for producing
electricity has a much longer payback and would likely result in a small net positive cost-
effectiveness estimate. The value of energy produced to offset electricity or natural gas is also an
important driver. In fact, CCS suspects that it could be the driver in the second analysis of LFG
utilization shown in Appendix G, where positive costs are shown for direct use of LFG (more up-
to-date assessments with current energy prices would be expected to show a net cost savings for
direct-use projects).
For recycling projects, the most important issue for differing estimates of GHG reductions is
whether a life-cycle approach was taken to account for the embedded GHGs in the waste
material. A life-cycle approach counts the reductions achieved by recycling an item versus
producing it from raw materials. A direct-benefit approach would only address the emission
reductions achieved through the change in how the waste was managed. For example, emissions
from landfilling or waste combustion in a baseline would be compared to the emissions
associated with the management of a recycled product. CCS has found that the direct emissions
component might make up only 10% of the life-cycle GHG emissions associated with recycling.
The only comparison study CCS found was the McKinsey study9 (see Appendix G, Table G-9),
which does account for life-cycle GHG reductions.
On the cost side, there are several important cost elements:
! annual costs for implementing recycling programs (including the capital costs for new
collection or material-recovery equipment and facilities),
! the avoidance of landfill tipping fees,
! the value of recycled commodities, and
! accounting for avoided energy costs: an important consideration for assessing costs when
life-cycle GHG reductions are estimated is whether to account for the net avoided costs
for energy savings that result at the site of raw material extraction, transport, and
manufacturing (due to the lower energy requirements of recycling). CCS suspects that
accounting for these energy savings produced the net cost savings estimates shown by the
McKinsey study as summarized in Appendix G (–$17/tCO2). CCS does not include these
in its estimates of net societal costs for a state analysis, which leads to higher costs in
9
McKinsey & Company. 2009. Pathways to a Low-Carbon Economy, Version 2 of the Global Greenhouse Gas
Abatement Cost Curve. http://www.mckinsey.com/clientservice/ccsi/pathways_low_carbon_economy.asp.

October 2009
CCS’ analyses (in CCS’ work, these net societal costs are estimated only within the
borders of the state).
Transportation & Land Use.
The transportation sector is one of the major contributors to GHG emissions. Transportation
sources represent 27% of U.S. total emissions. Emissions from the transportation sector have
also been growing rapidly.
Some of the key parameters that affect the outcome of cost and microeconomic analysis for the
TLU sector results include:
• Assumptions about future fuel prices, including both petroleum and non-petroleum
alternative fuels
• Assumptions about the discount rate, to account for the time value of money and the
value of capital investments with a long life-span.
• Data inputs on expected costs of new technologies as they enter into the marketplace and
increase their share of the market.
• Assumptions about future growth in rates of amounts of travel, usually measured in terms
of vehicle miles of travel (VMT) or mileage accumulation rates of vehicles.
• Different trends in shares for different vehicle technologies in the new vehicle market
that might be expected for newly purchased vehicles.
Review of Studies and Reports Analyzing U.S. Potential for GHG Emission Reductions.
Analysis of transportation and land-use (TLU) systems from the perspective of climate change
emissions is a relatively new area of work. Within the past decade, the amount of new work on
this topic has grown substantially, and with this new work our understanding of the relationships
between transportation systems and user behavior has improved. There is general consensus
among analysts about four major areas of energy and climate emissions analysis for the TLU
sectors.
First, because most inventory analyses show that the bulk of TLU sector emissions come from
on-road use of motor vehicles, the primary focus of work has been on light-duty vehicles
(LDVs). Several decades of work have resulted in a good understanding of the potential for
advances in energy efficiency from changes in LDVs and the fuels they use. There is general
agreement among the studies that significant potential exists for reductions in GHG emissions
from changes in vehicles and fuels.
From an economic standpoint, the work in these first two areas has focused on the "supply" side,
and more recent work has been undertaken on the "demand" side of on-road LDV travel. Within
the past several decades, many local and regional governments implemented travel demand
management strategies for multiple reasons, including reduction of traffic congestion and
maintenance of other urban quality-of-life concerns. Until recently, energy efficiency and the
reduction of GHG emissions have not been the primary motivators for consideration of these
strategies. However, more recent work on management of travel demand has led to advances in
understanding of this third area—travel activity.
Finally, in recent decades the amount of goods moved has grown rapidly. This rise in freight
movements has increased interest in analysis of the use of heavy-duty vehicles (HDVs) to
transport freight. From an energy consumption and GHG emissions perspective, studies and

October 2009
analyses of this fourth area—movement of goods by HDVs —have increased only within the
past two decades.
Five Categories of Cost for Analysis of Transportation and Land Use Strategies.
It is helpful to consider five categories of costs when conducting analysis of cost-effectiveness of
transportation and land use (TLU) strategies. The five categories highlight five different aspects
of how costs and cost savings may vary for each specific situation.
1. Does the existing activity level of person movement or goods movement stay constant,
increase, or decrease?
2. Does the mode of transportation stay the same or shift (i.e. from auto to transit, or from
truck to rail)?
3. Do the movements rely upon existing infrastructure or does the infrastructure change?
4. Do existing vehicles transport the people or goods, or do different vehicles need to be
used?
5. Does the fuel type stay the same, or are different types of fuels used?
The answers to each of these five questions can affect the potential costs and net savings
associated with different strategies. We can see, based upon this analysis of five categories, that
the fuel price used in the estimation process is a key input. The resulting cost effectiveness
estimate can in fact change from net positive cost to net cost savings if higher fuel price
assumptions are used.
Two other assumptions are particularly important to cost-effectiveness analysis. The discount
rate affects the relative weight of costs and savings in different years. The cost of technologies is
the other extremely important factor that affects cost effectiveness analysis. Whether the
technologies relate to changes in fuels, vehicles, or infrastructure, it is important to recognize
that many analysts of energy and climate policy assume a declining unit cost of technology
implementation over time. The operating assumption is that innovation and productivity
improvements will result in lower unit costs in the future. The studies of how innovative
technologies have increased in the marketplace generally show that the ‘learning curve’ results in
lower unit costs for a given technological improvement over time.
Many cost analyses of alternative fuels incorporate assumptions that unit costs of non-petroleum
fuels will decrease in the future. As a result, alternative fuels have the potential to provide cost
savings relative to petroleum-based fuels, which are commonly expected to increase in cost in
the future. Fuel price forecasts produced by the United States Department of Energy (DOE) and
the International Energy Agency (IEA) include the possible scenarios where retail prices of
gasoline and diesel fuel increase over time. The increasing prices for petroleum-based fuels are
sometimes contrasted against the expectation that as more alternatives are produced, their unit
costs will reduce in the future. So analyses of costs of alternative fuels show the unit costs of
alternative fuels declining while petroleum-based fuels are increasing.
One significant study that produced estimates of cost-effectiveness of transportation sector
strategies to reduce greenhouse gas emissions was conducted at the University of California,
Davis (Lutsey, 2008 and Lutsey and Sperling, 2009) The summary Table G-4g in Appendix G
shows some of the key results of the UC Davis Lutsey analysis. These results provide a good

October 2009
summary of study results related to vehicle and fuel technologies, and are generally consistent
with the McKinsey report (Table G-4a, Appendix G) that has received wider attention. Cost
effectiveness estimates ranged from -$75 per ton CO2e for incremental efficiency technologies
for light duty vehicles to $51 for biofuel substitution.
To complement the results for the vehicle and fuel technology categories, it is helpful to
summarize findings for cost-effectiveness that relate to travel activity strategies. Strategies and
measures that seek to reduce travel and trips are usually referred to as transportation demand
management (TDM) measures. There is a long history of TDM programs at all levels of
government, and the federal Congestion Management and Air Quality (CMAQ) Improvement
Program has provided funding to a number of TDM projects and programs around the United
States since the program was authorized in federal legislation in 1991.
The United States Congress asked the National Academy of Sciences (NAS) to conduct a review
of the CMAQ program, and the NAS study (Table G-4e, Appendix G) provides one of the few
comprehensive sets of data related to the cost effectiveness of various travel related strategies.
These results show a range of estimated cost-effectiveness for different types of travel strategies,
based upon a survey of other more detailed studies. Cost effectiveness results ranged from $37
per ton for traffic flow improvements to more than $1,000 per ton for telecommuting.
More recently, the Urban Land Institute released a study entitled “Moving Cooler,” which
provided additional data on travel related strategies and their potential for reducing GHG
emissions between 2010 and 2050 for the entire United States (Table G-4f, Appendix G). For
some categories of strategies, the Moving Cooler results represent the first available data that
includes estimates of GHG reductions and estimates of costs and savings for the same scenario.
Some of the Moving Cooler” estimates are comparable to the CMAQ results, although the
specifics of what is in each category vary. The results for several key strategies studied by
Moving Cooler and CMAQ are within the same order of magnitude.
The differences between these results can be explained in large part by the factors described the
earlier. For transit expansion, the difference in cost can be attributed to different types of transit
technology. So for large urban areas, Moving Cooler analyzed rail systems, which tend to be
more expensive than the bus systems analyzed in the CMAQ study. The traffic signal control
(e.g. signal synchronization) results are close to one another. For the highway incident
management results, the values are also close to one another. The fact that one result is a net
savings and one result is a net cost shows the influence different assumptions have on the
expected cost-effectiveness of a policy option.
III. Macro-Economic Analyses

Introduction
For the macroeconomic review, the factors affecting the impacts of climate change policy on
economic output and employment have been analyzed by surveying nearly three dozen studies
on the subject and including most of them in a formal statistical analysis. These studies were
prepared by a diverse set of government agencies, consulting firms, trade organizations and
research institutions (the studies, some of their major characteristics and their impact results are
listed in Table G-2, Appendix G; detailed summaries of each study are presented in Appendix
H).

October 2009
Every study that included mitigation options that were expected to yield overall cost savings
predicted an expansionary macroeconomic impact. Nearly every study that included overall cost-
incurring options predicted negative macroeconomic impacts.
Most of the other factors with a statistically significant influence on the outcome related to
various types of "substitution effects" that, if present, would reduce economic activity in some
segments of the economy. Examples include substitution of gas-fired electricity or renewable
electricity generation for coal-fired generation and reductions in electricity output in general due
to energy efficiency improvements displacement of ordinary investment by investment in GHG
mitigation. Ways of avoiding such trade-offs include minimizing investment requirements in
mitigation that compete with other investment, or making the new investment "additive" to a
state by attracting funds from outside its borders to avoid a net loss in capital. A positive
outcome can also be promoted by minimizing adverse effects on key sectors of the economy
such as power generation and petroleum refining. In addition, macroeconomic impacts can be
improved by choosing not to implement the more costly options in the policy mix. Of course,
implementing cost-saving mitigation and sequestration and finding ways to reduce the cost of all
options are the most direct ways to improve economic outcomes from climate policy.
Because the choice, design and implementation of policies involves many customized choices,
the macroeconomic impacts of climate policy are not necessarily predestined. Low cost and high
benefit approaches can be formulated. Our findings can aid decision makers in tailoring policies
that maximize positive macroeconomic outcomes. Note also that this is quite apart from the
economic benefits of reducing potential losses caused by climate change, such as property losses
resulting from increased storm intensity.
Modeling Accuracy
Data and Forecasts.
Any model is only as good as the data used to construct it, the assumptions on which its
application is based, and the ability of the modeler to use the tool adeptly. In general, primary
data—source data on actual implementation and operating experience—are considered the most
accurate. However, most climate action plans have a 15- to 30-year future time horizon, and thus
must predict many microeconomic/technical considerations, such as direct capital and operating
costs. There are a number of approaches to this, including market-penetration analysis,
extrapolation of technological innovation (with a focus on cost reduction), and the Delphi
method (consensus of a panel of experts). A variant of the latter is the stakeholder process used
in the formulation of most climate action plans at the state level (see, e.g., CCS 2009).10 This
involves convening experts from a variety of perspectives on the topic and then arriving at a
consensus on the numbers. The accuracy depends on the expertise of the participants, the manner
of facilitation of the inquiry, and the extent to which political or other biases enter in the
judgment.11 Accuracy is promoted with an open process, fair-handed facilitation, and
documentation of competing numbers. One way to overcome some of the uncertainties of the
10
CCS (2009). Climate Action Planning in the States: Structured Stakeholder Processes Show Stimulating Results,
Kenneth A. Colburn, Center for Climate Strategies Project Manager, in EM, April 2009, the monthly magazine
of the Air and Waste Management Association.
11
The issue of bias arises in any variant of the Delphi method, or any method for that matter.

October 2009
data is to use sensitivity analysis and gauge the robustness of the estimates. Clearly, this
approach has the advantage of the inclusion of a broad range of expertise.
Many of the parameters of various models cited are assumed or are adapted from other models.
This is especially the case for state-level input-output (I-O) models and computable general-
equilibrium (CGE) models at all levels (see Appendix G for a description of these models). This
much less so for macroeconometric (ME) models, which are based on formal statistical
estimation from time series or cross-section, and some sub-models that contain extensive
microeconomic data on energy technologies and their operation (see, e.g., MARKAL, IPM,
NEEM).12
Assumptions.
Assumptions have a major impact on the results of the macroeconomic models. Each modeler
must decide on such questions as the extent to which investment in energy-saving equipment will
attract investment from outside the state or simply "crowd out" other investment from within its
borders (with our without the assistance of review and input from others). Many other important
assumptions relate to individual behavior. Examples include whether people respond to a price
signal and the extent they may change their habits. Assumptions also pertain to governments in
relation to whether they offset their own mitigation expenditures by increasing taxes or
displacing other spending, or what they do with any new net revenue received from auctioning
cap-and-trade permits or a carbon tax.
The models that incorporate human behavior (CGE and to a lesser extent ME) typically assume
decision makers act rationally and have perfect information to make choices, in which case they
will always make a consistent and direct decision in response to a price signal, such as a subsidy
or tax. In the case of new technologies, this is typically not the case because of uncertainties. It
may also not happen due to other important side considerations beyond the price signal, or
because decision makers do not have full control over their preferred responses (fragmented
markets and split incentives). This assumption usually leads to economic impacts that are less
onerous or more cost saving than warranted. The same is true for assumptions about the ease of
substitution of one mitigation option for another.
Other considerations overlap between assumptions in the model itself and those applied through
its application. Some models, especially I-O, omit key macro linkages because of their inability
to incorporate them in a straightforward manner. Thus, the absence of substitution or the inability
to pass cost increases or savings along to customers is a limitation of these models, except in rare
cases where it is reasonable to assume these linkages are not important. Some of the missing
linkages cut both ways. Lack of cost pass-through capability will dampen both the positive effect
of energy-saving equipment and the negative impact of mandating relatively high-priced options.
Other assumptions are less inherent in the model, but rather relate to a given application. A prime
example is the pace of technological change in relation to decreasing mitigation costs over time.
12
Energy Technology Systems Analysis Program. (2009). Market Allocation Model (MARKAL).
http://www.etsap.org/markal/main.html; ICF International. (2009), Integrated Planning Model (IPM),
http://www.icfi.com/Locations/doc_files/Canada-IPM-global.pdf ; Charles Rivers Associates. (2009). Multi-
Region National-North American Electricity and Environment Model (MRN-NEEM),
http://www.crai.com/consultingexpertise/Content.aspx?tID=828&subtID=842&tertID=894

October 2009
Another is how government will utilize any revenues it might obtain from implementing a
policy.
Causal Factors.
A list of causal macroeconomic factors is discussed below and in other sections of the report. A
full set of definitions is provided in Appendix G. Below, we explain how each factor influences
the macroeconomic impacts of climate policy options. The first set of causal factors relates to the
characteristics of the list and scope of policy options and their design, and can differ by level of
effort (scale), timing, and the inclusion or exclusion of parties who are required to implement or
react to the policy (coverage). As one attempts to mitigate higher percentages of pollutants,
marginal and total costs generally increase after a certain point and cost-saving or low-cost
options begin to be dominated by increasingly expensive options. Other basic characteristics of
policy options relate to the choice of policy instrument, such as price versus non-price signals
(for some actions, price incentives may be more cost effective than others, depending on market
barriers, and non-price signals may similarly be more cost-effective in some circumstances than
others). All of these have a direct or indirect bearing on macroeconomic impacts.
The next set of causal factors relates to macroeconomic linkages, or relationships between
various groups in the economy (e.g., businesses, households, and government) and their
interaction through the marketplace or the regulatory context. If a policy option requires up-front
financial investment, such as energy-saving equipment, it makes a significant difference whether
the investment funds are additive to the geographic region or whether they offset ordinary
investment in buildings and equipment or ordinary consumption. If they are additive (e.g., they
attract investors from outside the region or from increased savings within its boundaries without
somehow reducing consumption there), they will, all other things equal, have a stimulating effect
on the economy.
If the investment in mitigation options displaces other investment, the effect is unknown. It
could be positive if this investment calls forth greater direct productivity increases than the
investment that it displaces, but it is equally likely that it will have a neutral or negative effect.
Some investment actions also have greater multiplier effects than others. Increased production of
energy-saving equipment will require successive rounds of upstream demands for inputs into the
supply chain of the production process.13 An analogous sequence of impacts is associated with
any direct down-side effects, such as initial decreases in productivity. The multiplier can be as
much as three times the impact of the direct effects for the nation as a whole and a factor of two
for an average-size state. However, other considerations, such as substitution effects and price
effects, are likely to mute it.
Other cost savings or cost increases associated with a policy option also have multiplier effects.
Cost pass-throughs move in the same direction as the initial stimuli or dampening effects.
Savings should result in decreases in overall production costs, and hence in prices, in sectors
where the product is used directly and in turn in all affected “downstream” sectors dependent on
the product indirectly. Cost increases move in the other direction. However, costs or savings are
not typically passed through entirely to the next round, depending on the degree of competition
in the industry and adjustments that are made by market participants. These can vary
13
In more sophisticated models, these impacts are referred to as general equilibrium or
macroeconomic effects.

October 2009
significantly. Sectors with higher competitive pressures are less likely to be able to pass any
costs or savings on to their customers. Also, regulated industries may not be able to pass along
cost changes or will only be able to do so with some time delay. On the other hand, history
suggests that consumers and producers tend to adjust significantly to new constraints or signals,
particularly in the long term, because of technology, innovation and substitution.
Various offsetting effects exist in relation to the implementation of climate policy options. For
example, even if it involves cost savings, an option that promotes energy conservation, such as
household appliance efficiency, will have a dampening effect through a decrease in demand for
electricity production. In a similar vein, some policy options increase the demand for one
product, and therefore have a stimulating effect, while decreasing the demand for its direct
substitute. Energy conservation has another unusual aspect, often referred to as the "rebound
effect." This refers to the fact that an increase in vehicle fuel efficiency, for example, makes it
cheaper to drive, and hence stimulates the direct and indirect demand for gasoline, thereby partly
offsetting the initial GHG reductions. Studies indicate that this rebound effect is on the order of
15%–20% (see, e.g., Greene et al., 199914). It can be interpreted as an increase in cost per unit of
emissions reduced, and has an effect on aggregate demand for gasoline in relation to other goods
and services.
The pace of technological change, as well as its ripple effect, has an effect on macroeconomic
impacts. Technological improvement results in lower costs over time. If the study includes these
considerations, it will be more likely to yield much more positive (or less negative) economic
impacts than one that omits them.
Administrative costs refer to the expenditures needed to monitor and enforce a policy. This
might also include information dissemination for those who regulate or are otherwise influenced
by a policy. Although this involves additional economic activity, it is usually considered to have
a dampening effect on the macroeconomy, since these costs, often but not always, come at the
expense of more productive uses of personal income or government revenues.
Market transaction costs or obstacles refer to the fact that many policies do not readily respond to
a price signal. This results from various types of market failure, such as the divergence between
motivations of apartment building owners and renters (referred to as the principal-agent problem)
and lack of information or myopia regarding cost-saving alternatives. The latter incurs additional
costs of obtaining the necessary information to make a prudent decision (National Commission
on Energy Policy, 2005).15
Other variables that affect macroeconomic impacts include the benefits of GHG reductions
(avoided climate change risks and damages). These would include avoidance of productivity
losses in agriculture and forestry, avoided health care and productivity costs, national security
costs, and avoided property damage from, for example, sea level rise. Very few macroeconomic
studies these days include this consideration. A related category is co-benefits of GHG
mitigation. For example, energy conservation reduces not only GHG emissions but also
emissions of particulates, sulfur oxides, and other more conventional pollutants. These also are
14
Greene, D.L., J.R. Kahn, R.C. Gibson. 1999. "Fuel Economy Rebound Effect for U.S. Household Vehicles."
Energy Journal 20(3): 1-31.
15
National Commission on Energy Policy. 2005. Ending the Energy Stalemate: A Bipartisan Strategy to Meet
America's Energy Challenge. Available at: http://www.energycommission.org/.

October 2009
typically omitted from macroeconomic studies, or, where they are mentioned, they are not
quantified as part of the impacts on indicators such as gross domestic product.
Still, another consideration is whether the revenues obtained from auctioning of emission permits
or establishing a carbon tax are used to reduce an existing, distorting tax, such as a sales tax.
Another expansionary use is the application of these funds for research and development in
lowering the costs of climate policy options within the policy time horizon.
Misuse of Models.
Unfortunately, it is possible for the author(s) of a macroeconomic impact report to stack the deck
for or against a given policy. This can be done by the choice of the model itself. If an analyst
wants to promote a set of cost-saving mitigation policy options, the use of an I-O model will
more readily be able to do so because the standard application of this modeling approach does
not include any offsetting effects (those that move in the opposite direction of the initial
stimulus). The same is true of promoting policies that are relatively expensive to implement and
the analyst wants to show negative impacts. All the multipliers will move in the same direction,
thereby compounding the direct effect.
Otherwise, analysts can selectively include or exclude key linkages in CGE and ME models, and
evoke data and assumptions that are slanted toward an outcome. For example, EIA data are
usually considered to be more pessimistic about the future costs of renewable energy. Assuming
investment in renewables will not attract any dollars from outside the state also mutes any
positive macroeconomic impacts from them or exaggerates any negative ones.
The major way to identify, and to some extent to overcome these problems, is to provide full
transparency of modeling choices and to perform a sensitivity analysis on model parameters and
assumptions. These can be examined to test their robustness (the extent to which changes in them
affect the results). This also enables the reader to better evaluate the results, especially in terms
of factors that most influence them.
The final misuse of models stems from applying them incorrectly. This is usually not intentional
but typically stems from a lack of familiarity of the basics and/or subtleties of the model by the
analyst.
Analysis of Studies
A full discussion of the formal method used to analyze the macroeconomic studies can be found
in Appendix G, sections III and IV, under the heading “Meta-Analysis.” Here we provide a brief
summary of the method and the results. Meta-analysis is a statistical technique to determine what
explanatory factors most affect the outcome of a diverse set of studies. The results of each study
as a whole or with respect to individual options it analyses are the “observations” that provide a
synthesis of findings.
The meta-analysis results found the following four factors to be the most significant:
The cost or cost savings of an option or group of options simulated.
Not surprisingly, if cost savings were present, on average, the impact on GDP is positive,
meaning that an economic stimulus will take place. The opposite will take place if net costs are
incurred in implementing the option or policy.
Investment addition.
If investment in new equipment increases baseline investment, there will be a positive stimulus

October 2009
to GDP. If investment in cleaner technologies displaces ordinary investment this stimulus will
not take place, and in fact there may be a dampening effect on the economy. This stems from the
fact that the investment in cleaner technologies may reduce emissions, but may not necessarily
improve the productivity of the economy in producing ordinary goods and services.
Substitution effects.
This refers to a general category of effects that offset potential gains in the economy from
climate action plans. It would include the fact that greater spending on natural gas will displace
expenditures on coal, and that expenditures on electricity from renewable sources will displace
generation from fossil fuels. It does not mean that the net effect is negative, but only that such
offsetting effects must be factored in.
Nuclear power.
This is a difficult variable to interpret. Our analysis suggests that the absence of nuclear
electricity generation as an option is expected to raise GDP impacts. There are potentially two
reasons for this. First, nuclear power is a relatively expensive policy option, and as such would
otherwise be expected to raise costs and have a negative impact on a state's economy. Second,
studies that commonly show negative impacts tend to include this option. Whereas the first
reason is intuitive, our analysis also supports the second. Cross-tabulation indicates that of the 34
observations in our analysis, 12 included nuclear power. Of those 12, 9 cases were from studies
that generated negative impacts.
The results just presented indicate that if the models do contain most of the macroeconomic
linkages, are based on sound data, and make reasonable assumptions, they will can a reasonable
outcome. As noted above, some of the model types omit a significant number of linkages (e.g.,
substitution effects), are based on data less solid than others, and have invoked biasing
assumptions. The difficulty in assessment is that the better models yield reasonable results for
the assumptions they use, even if the assumptions are biased. The reader is referred to Appendix
H for detailed presentation of the assumptions invoked in each study, so as to draw his or her
own conclusion about whether the study is credible on this score.
Conclusion
One of the potential contributions of this SGA Climate study is how it can be used to improve
pending and future climate change legislation. If policymakers know what causes negative
macroeconomic consequences, they may be able to make appropriate adjustments to reduce such
outcomes. One obvious strategy is to favor the lowest cost measures, or those with the highest
positive multiplier effects.
The creation of a competitive advantage with respect to climate change legislation is also a good
strategy. However, there are two perspectives on how this can be done. One is that climate
change legislation is costly, and thus it is preferable to let other jurisdictions make commitments
first and thereby lessen their competitive advantage. This is seen as one of the reasons why
China, for example, has not made any commitments to reduce its GHG emissions. The other
perspective takes a more favorable view of “getting out in front” of the issue, if doing so results
in direct cost savings, and even if it does not. The latter instance is still a "winner" if a state can
attract investment in mitigation or sequestration from outside its borders, thereby avoiding the
displacement (“crowding out”) effect of having to draw only on investment funds from within its
borders. Another way to enhance the multiplier effect is to attract manufacturers of new "green"

October 2009
technology into the jurisdiction, so that purchases do not “leak” spending across the border.
From this perspective, these options enhance the competitive position of the state.
Impacts can also be made more positive by lessening administrative costs and market
transactions costs. One key to the former is to find the appropriate policy instruments to
implement the climate action plan.

SGA Climate Change

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SGA Climate Change

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www.climatestrategies.us!!

Southern Regional Economic Assessment

White Paper Report

Prepared by the Center for Climate Strategies

FIRST VICE CHAIRMAN

SECOND VICE CHAIRMAN

October 2009 EXECUTIVE DIRECTOR

To my fellow Southern Governors:

Center for Climate Strategies iii www.climatestrategies.us

Center for Climate Strategies iv www.climatestrategies.us

In addition, many individuals contributed to the successful completion of this work on an

Center for Climate Strategies vii www.climatestrategies.us

Center for Climate Strategies viii www.climatestrategies.us

Center for Climate Strategies ix www.climatestrategies.us

Task One - Background and Summary Results

© Center for Climate Strategies, 2009. Ex-1 www.climatestrategies.us

© Center for Climate Strategies, 2009. Ex-2 www.climatestrategies.us

1000 Electricity (Consumption-based) Residential Fuel Use

© Center for Climate Strategies, 2009. Ex-3 www.climatestrategies.us

© Center for Climate Strategies, 2009. Ex-4 www.climatestrategies.us

AFW-3 AFW-6 ES-2

Percentage Reduction of 2020 BAU GHG Emissions

© Center for Climate Strategies, 2009. Ex-5 www.climatestrategies.us

Task Two - Background and Summary Results

© Center for Climate Strategies, 2009. Ex-6 www.climatestrategies.us

© Center for Climate Strategies, 2009. Ex-7 www.climatestrategies.us

Prior Forecast (5-state Total)

Center for Climate Strategies 1-1 www.climatestrategies.us

Center for Climate Strategies 1-2 www.climatestrategies.us

II. Forecast Results

Table 1-1. SGA region gross GHG emissions forecast by sector.

Center for Climate Strategies 1-3 www.climatestrategies.us

Figure 1-2. SGA projected gross GHG emissions by sector, 2005–2020.

1000 Electricity (Consumption-based) Residential Fuel Use

Center for Climate Strategies 1-4 www.climatestrategies.us

Table 1-2. Gross emissions changes by sector, 2005–2020.

Fossil Fuel Industry

Industrial Fuel Use

Commercial Fuel Use

Residential Fuel Use

Electricity Consumption Based

-60 -30 0 30 60 90 120

Center for Climate Strategies 1-5 www.climatestrategies.us

Figure 1-4. SGA region gross GHG emissions by sector, 2005.

SGA = Southern Governors’ Association; GHG = greenhouse gas.

Figure 1-5. SGA region gross GHG emissions by sector, 2020.

Center for Climate Strategies 1-6 www.climatestrategies.us

Existing State Plan Updates

Center for Climate Strategies 2-1 www.climatestrategies.us

5. Identification of preferred data sources, methods, and assumptions for analysis.

Scale-Up to the SGA Region

Center for Climate Strategies 2-2 www.climatestrategies.us

Limitations of the Method

II. Overview of Projected Greenhouse Gas Emissions and Costs

Center for Climate Strategies 2-3 www.climatestrategies.us

Center for Climate Strategies 2-4 www.climatestrategies.us

Center for Climate Strategies 2-5 www.climatestrategies.us

Figure 2-3. Stepwise marginal cost curve of SGA, 2020.

AFW-3 AFW-6 ES-2

Percentage Reduction of 2020 BAU GHG Emissions

Center for Climate Strategies 2-6 www.climatestrategies.us

Figure 2-4. Stepwise marginal cost curves of SGA, by sector, 2020.

Comparison of Results with Other Estimates