1. Greenhouse Gas Policy and CO 2 Cost Assumptions GRAC Meeting January 22, 2009

2. January 20, 2009 2 Outline  Summary of ECO Securities Reports  Carbon reduction targets and cost for three general cases  Possible analyses for the 6 th plan  Review of 5 th plan assumptions  Discussion of 6 th plan assumptions

3. January 20, 2009 3 ECO Securities Reports  Literature review of carbon cost forecasts  Carbon reduction supply curves  Sequestration and storage  High-level estimate of carbon cost for three specific scenarios

4. January 20, 2009 4 Assessing Carbon Cost  Uncertainty surrounding future carbon market prices is great due in part to the many variables that affect it.  Short-term forecast: driven by policy and market variables  Long-term forecast: driven by population and economic growth assumptions

5. January 20, 2009 5 Three General Cases Examined  Case 1: WCI only, no national or global policies  Case 2: National and international policies target emissions to 1990 levels by 2030  Case 3: Aggressive national and global policies target CO 2 concentrations at 550 PPM by 2100

6. January 20, 2009 6 Carbon Reduction Targets  Case 1: WCI  15% below 2005 levels by 2020  125 million tons reduction  Case 2: National  15% below 2005 levels by 2030  Estimated 2030 emissions 8.5 billion tons  2.3 billion tons reduction  Case 3: Global  Limit concentrations to 550 PPM  30 billion tons reduction by 2100 globally from current emissions (40 billion tons)

7. January 20, 2009 7 Estimated Carbon Cost  Case 1:  $10 to $20 per ton (no time line)  Case 2:  $20 to $50 per ton (no time line)  Case 3:  $30 in 2020 and $50 in 2030

8. January 20, 2009 8 Possible 6 th Plan Analyses  NW RPS mandates, assumed carbon costs (ECO Securities or elsewhere) and probability distribution – assess CO 2 emission total  Remove NW RPS, change carbon penalty until emission total equals the total in the base case  Multiple cases with increasing carbon allowance prices to create a reduction supply curve for the NW power system

9. January 20, 2009 9 5 th Power Plan Assumptions  CO 2 tax can arise in any election year  Appears in about two-thirds of simulated futures  Uniform distribution between $0 and $15 per ton from 2008-16 and between $0 and $30 after 2016

10. January 20, 2009 10 5 th Plan CO 2 Tax Deciles

11. January 20, 2009 11 What we need for the Plan  Base case CO 2 allowance cost through 2030  For the electricity price forecast  For the Portfolio Model analysis  High and low range of allowance cost and associated 20-year profiles for the Portfolio Model  Probability distribution for the 20-year allowance cost profiles for the Portfolio Model  What do we assume about green tags and tax credits and how do they correlate with the carbon allowance?