EIA forecast suggests Clean Energy and Security Act could add over $5 billion to US jet fuel costs in 2020
Fri 7 Aug 2009 – The US Energy Information Administration (EIA) this week released a report that looks at the potential economic impact of the American Clean Energy and Security Act 2009 (ACESA), the so-called Waxman-Markey bill. It forecasts that the proposed cap-and-trade system could lead to an increase in the price of jet fuel of 26 cents per gallon in 2020, rising to 47 cents per gallon in 2030. Based on a 2007 pre-recession total fuel consumption by US carriers of 19.886 billion gallons, this equates to an added $5.17 billion on the annual bill in 2020 and $9.35 billion in 2030.
The EIA, which supplies official US energy statistics and analysis, produced the report following a request by Chairman Henry Waxman and Chairman Edward Markey for an analysis of the Act (H.R. 2454) as passed by the US House of Representatives on June 26.
Unlike the European Union’s Emissions Trading Scheme, in which aircraft operators are directly affected by a cap on aviation emissions and must hold permits to cover them, under ACESA’s cap-and-trade system it is the oil companies that are responsible and would pass on the costs of compliance to the carriers in the form of increased fuel prices.
The EIA has come up with a range of jet fuel prices based on six possible scenarios, or ‘analysis cases’, that could result from the imposition of ACESA. The EIA has defined what it describes as a Reference case, which is designed to reflect only current laws and policies, so it explicitly avoids assumptions about ‘expected’ policy changes such as future fuel economy standards, taxes, or new regulatory requirements for conventional pollutants or GHGs. From an average jet fuel price of $2.17 per US gallon in 2007, the EIA forecasts a Reference case – i.e. without ACESA – price of $3.02 per gallon in 2020 and $3.33 per gallon in 2030.
Under the six ACESA cases, which cover a range of optimistic and pessimistic scenarios, the price ranges from $3.18 to $3.85 per gallon in 2020, and $3.58 to $4.97 in 2030.
The report’s most likely scenario is described as the Basic case, which represents an environment where key low-emissions technologies – including nuclear, fossil with CCS, and various renewable – are developed and deployed on a large scale in a timeframe consistent with the emissions reduction requirements of ACESA without encountering any major obstacles. It also assumes that the use of offsets, both domestic and international, is not overly constrained by cost, regulation, or the pace of negotiations with key countries covering key sectors.
Under the Basic scenario, the average cost of a gallon of jet fuel, which is the delivered price including the allowance cost after adjustment for free allocations, is estimated at $3.28 in 2020, rising to $3.80 in 2030.
Nancy Young, Vice President of Environment for the Air Transport Association of America (ATA) told GreenAir Online the EIA’s forecast backed up the ATA’s own impact assessment of ACESA on US carriers.
According to the Bureau of Transportation Statistics, which reports on actual figures supplied by US carriers, the average cost of jet fuel paid by all carriers in 2007 was $2.11 per gallon. The average price jumped by 45.76% in 2008 to $3.07 but for the first five months of this year it has fallen back to $1.74. At the beginning of this decade, in 2000, the price stood at just 81 cents per gallon.
As the price of jet fuel has risen, the consumption of jet fuel by US carriers has fallen. In 2000, carriers consumed a total of 20.373 billion gallons of jet fuel, whereas by 2008 the consumption had fallen to 18.854 billion gallons. US carriers used one billion less gallons in 2008 compared to the previous year, which represents a saving of around 9.6 million tonnes of CO2 emissions.
In the first five months to May, US jet fuel consumption has fallen by a dramatic 13.03% compared with the same period in 2008. If this trend is repeated for the remainder of the year, total consumption for 2009 could be down to around 16.5 billion gallons, a figure last seen in the early 1990s. Domestic jet fuel consumption accounts for around two-thirds of the total with international transportation making up the remaining one-third.
US carriers fuel cost and consumption 2000 to 2009 YTD (source: Bureau of Transportation Statistics)