Cost Impacts of Near-Term Emission Reductions Q11. You have testified that near-term emissions reductions will actually raise the cost of achieving their objective—¿.e., “haste makes waste." Could you expand on this concept? All To reduce carbon dioxide emissions will be expensive even if all countries agree to institute policies and even if these policies are implemented with maximum efficiency. Unfortunately, the approaches scheduled to be discussed in Kyoto greatly increase the cost of any given emissions reduction. There are two fundamental reasons for this increase. First, imposing a requirement for carbon dioxide emissions reductions on the industrialized countries but not on the developing countries will be to a large degree selfdefeating Energy costs will be much lower in countries that do not limit emissions compared to those that do, causing investment in energy-intensive industries to move out of industrial countries into developing countries. Demand for travel and motor vehicles is likely to increase in developing countries, because of lower fuel prices, while it will decline in the U.S. and other industrial countries. As a result of the shift of industry and greater fuel consumption, carbon emissions from developing countries will increase, offsetting a significant share of the emissions reductions achieved by the industrial countries. Making sure that these impacts do not occur requires a level playing field for energy prices across all countries, a result that can only be guaranteed by full participation of the developing countries. The latter must agree to emissions caps and some mechanism equivalent to an emissions trading program that equates the marginal cost of reducing emissions across all countries. Paradoxically, many if not most developing countries will face somewhat slower economic growth even if industrial countries unilaterally limit emissions. The entire world is connected by trade. Emissions limits in industrial countries will tend to lower the prices that developing countries receive for their exports. It will also increase the cost of the goods that developing countries import from industrialized nations. Second, even if all countries were to commit to reducing their carbon dioxide emissions, placing emphasis on near-term emissions limits would raise the costs of achieving any eventual reduction in global warming by causing the countries agreeing to near-term limits to forego important cost-saving opportunities. These opportunities include the significant cost reductions achievable through avoiding premature obsolescence of capital equipment, as well as the cost savings resulting from the development and implementation of lower-cost technologies for reducing emissions. Since any global warming impacts are driven by concentrations and not emissions of greenhouse gases, countries that incur these extra costs do not necessarily generate any offsetting benefits. These adverse effects on both industrial and developing countries can be avoided if a more inclusive and measured approach to emissions reduction is taken compared to those |