Tennessee tax revenues would be reduced by $1.5 billion and the unemployment rate would approach 6.6% in 2010.

Real output in Tennessee would fall by $5.3 billion relative to the baseline in 2010.

Tax revenues would fall by 9.9% in 2010.

The unemployment rate would rise to 6.6% in the carbon abatement scenario in 2010.

Government Impacts: Tennessee

Tennessee would face a possibly significant decline in tax revenue associated with the imposition of policies aimed at meeting the Kyoto Protocol target. Tax revenues could decline 9.9% below baseline projections in 2010. This has significant implications for public policy, which would be exacerbated by the possibility of increased unemployment. Specifically, Tennessee's unemployment rate is expected to approach 6.6% in 2010. With increases in unemployment and decreases in revenue, the state would be confronted with a daunting problem: how to provide support for its unemployed workers.

Gross State Product

Adopting carbon emission limits would put Tennessee at risk of losing $5.3 billion real dollars of output in 2010 relative to the baseline projection. In percentage terms, the state stands to lose approximately 3.0% of its potential output. As economic growth slows, the manufacturing sector would suffer the most severe decline in real output, but the nonmanufacturing sector also would lose $4.1 billion in real output in 2010 versus the baseline.

Tax Revenues

As a result of the imposition of a global agreement to limit carbon emissions, real tax revenues in Tennessee would fall 9.9% below the baseline projection in 2010. As a percentage of gross state product, baseline tax revenues would be 8.7%. This assumes no changes in tax policy in Tennessee. If taxes were raised to offset the projected loss of tax revenues, its competitiveness relative to other states would decline and further reduce economic activity in the state.

Unemployment and Net Migration

As a consequence of implementing the Kyoto Protocol, Tennessee is projected to lose nearly as many jobs on a percentage basis as the US average. Out migration would not increase because the state's loss of employment is less than the national average. This results in an increase in the number of unemployed workers. For Tennessee, the unemployment rate is expected to increase from the 1996 level of 5.2% to 5.4% in the baseline projection in 2010. If the Kyoto Protocol were fully implemented, the unemployment rate would reach 6.6% in 2010.

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL

Economic Impact - Baseline and Limiting Carbon Emissions at 93% of 1990 Levels by 2008 - 2012

WEFA

Global Warming:

The High Cost of the Kyoto Protocol
Impact on Texas

Ignoring the growing skepticism in the scientific community that global warming may be gradual and largely due to natural forces, the Administration has announced its intention to sign the Kyoto Protocol, legally binding the U.S. to a costly effort to reduce greenhouse gas emissions 7% below the 1990 level in little more than a decade.

WEFA estimates that a carbon permit fee of $265 per metric ton added to energy prices would be required to meet the Kyoto goal, resulting in:

■ Gasoline prices increasing nearly 65 cents a gallon,

■ Energy, electricity prices nearly doubling for consumers and
businesses.

The Kyoto Protocol Would Reduce US Prosperity Developing nations will not participate in reducing greenhouse gas emissions under the Kyoto Protocol. As a result, higher energy costs in the U.S. would give developing countries--such as Mexico, Korea, Indonesia, Brazil and Argentina--a competitive advantage. China and India have emphatically stated that they will never participate in a global effort to reduce greenhouse gas emissions, insisting the burden should be borne by the U.S. and other industrialized countries. This means that U.S. actions would not reduce the risk of global warming. Under the Kyoto Protocol, the U.S. would suffer by 2010:

■The loss of 2.5 million U.S. jobs.

■ A 3.2% drop in U.S. annual output (GDP).

■ An annual loss in GDP of $300 billion, more than total
expenditures on elementary and secondary education.

Texas Would Lose 124,600 Jobs

The Kyoto Protocol would substantially raise energy costs and reduce economic
performance by late next decade. The impact would be felt by all consumers and
businesses. In Texas, there would be significant job losses as energy price
increases borne here and in other industrialized nations are not matched by
developing economies. The losses for Texas in 2010 would be:

■ Loss of 124,600 jobs, including 60,400 manufacturing jobs.
■Leading to an unemployment rate as high as 6.3% by late next
decade.

■Loss of $6 billion of tax revenue, reducing the state's ability to
provide social services when there would be even greater need.

The Kyoto Protocol: Not the Only Option

U.S. policymakers could address potential risks and save money by avoiding costly near-term actions - if they expanded voluntary efforts to limit greenhouse gas emissions, supported more scientific research and encouraged investment in new energy-efficient technologies.

More than sixty-thousand manufacturing jobs would be lost by 2010, due to reduced international

competitiveness.

Industrial natural gas prices would rise by 162% in 2010 versus the baseline.

Real gross state product would fall by 3.1% in 2010 relative to the baseline.

Texas would lose 124,600 jobs by 2010 relative to the baseline, with

manufacturing bearing the brunt of losses.

Real wages and salaries in manufacturing would decline by 2.3% in 2010 versus the baseline projection.

Business Impacts: Texas

Texas's manufacturing sector would be harmed more than the US average. Manufacturing employment would decline by 5.3% (60,400 jobs) in Texas by 2010 relative to the baseline forecast, while the national average would fall 3.3%. The competitive position of manufacturers located in the state would be eroded due to rising costs, especially relative to non-participating developing countries. Industrial electricity prices would rise 119% by 2010 relative to the baseline (i.e., the price level without the emissions-reduction policy). Texas' refining industry and capital goods producers would see particularly large declines in activity.

Energy Prices

Sharp increases in fuel and electricity prices would be felt across the nation.
Industrial firms in Texas would be burdened in the global competition for
markets with price increases of 161.6% for delivered natural gas and 119.3%
for electricity by 2010 versus baseline levels.
Output

Imposition of carbon taxes would significantly impact the overall level of
output as well as the composition of output in the state. Real gross state
product would fall 3.1% below the baseline in 2010. In absolute terms,
manufacturing would be the hardest hit among the industries in the state, as
refiners and capital goods are hurt. Real output in the manufacturing sector
would fall by 3.5% in 2010. Manufacturing losses would cause producers to
reduce their purchases of labor and purchased inputs of services. Sharply
higher energy prices would shift Texas toward an even greater reliance on
service industries.

Employment

Total employment is projected to fall 124,600 jobs below the baseline in 2010. The decline would be largest in mining and manufacturing jobs, in percentage terms. Clearly oil and gas mining employment would suffer under carbon emissions limits. The largest decline in percentage terms outside of manufacturing would occur in finance, insurance, and real estate, while the largest absolute job loss would be 70,200 in the service sector.

Wages & Salaries

Wages and salaries would fall under the imposition of a carbon tax. Rising costs must be offset by lower real wages as economies attempt to retain their competitive position. In Texas, real manufacturing wages would decline by 2.3% in 2010 relative to the baseline. Real private non-manufacturing wages would fall 1.1% below the baseline forecast.

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL

Limiting greenhouse gas emissions would cost each state resident $207 of their real annual disposable income by 2010.

Real personal income would fall by 1.8% compared to the baseline in 2010.

Residential energy prices would increase by at least 68% in Texas relative to the baseline.

Housing prices would be 11% higher by 2010 relative to the baseline.

Medical costs would rise by 14% relative to the baseline in 2010.

Food costs would be 11% higher in 2010 than in the baseline.

Consumer Impacts: Texas

Consumers are squeezed by slower increases in income and the rising costs of basic necessities and other goods and services. Due to the severe loss of employment under the carbon stabilization programs, real personal income in Texas would decline. Meanwhile the cost of energy to consumers would increase dramatically. Prices of home heating oil, natural gas, and electricity would escalate along with the costs of non-energy goods and services such as medical care, food, and housing. The cumulative result would be a continued erosion of consumers' purchasing power.

Income

Real income growth would slow along with the loss of jobs. Wages in manufacturing are higher than in most nonmanufacturing industries and the accelerated shift of economic activity and jobs towards service industries would further reduce income growth. By 2010, relative to the baseline forecast real disposable income per capita would decline by $207, and real total personal income would decline by 1.8%.

Energy Prices

Residential consumers would face a substantially higher energy bill under the proposed measure. Residential prices for energy would rise significantly above baseline levels in 2010: natural gas (68.5%), electricity (71.0%) and home heating oil (82.9%). The price of motor gasoline would also increase 49.7% relative to the baseline.

Housing

Housing prices are also projected to increase faster under the carbon abatement scenario. Housing prices would increase by 11% more than they would in the baseline projection. In Texas, housing prices would escalate at a higher rate than the national average reflecting the in-migration projected for the state due to the less severe loss of employment opportunities.

Medical Expense

Under the carbon abatement scenario, a comparable set of medical services would cost 14% more relative to the baseline projection. Higher medical care prices would lower purchases and the health of the average consumer would suffer as a result.

Food

Under the carbon limit scenario, food prices would be 11% higher than the baseline in 2010. Because food is a necessity, there would be little decline in the amount purchased per household. Therefore, most households would bear the total increase in food costs.

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL