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Twelve-thousand five
hundred manufacturing
jobs would be lost by 2010,
as Arizona companies
become less competitive
in international markets.

Industrial natural gas

prices would rise by 106% in 2010 versus the baseline.

Real gross state product would fall by 3.5% in 2010 relative to the baseline.

Arizona would lose
102,300 jobs by 2010
relative to the baseline,
with many sectors bearing
significant losses.

| wages and salaries in nanufacturing would ecline by 2.4% in 2010 orsus the baseline projection.

Business Impacts: Arizona

Arizona's manufacturing sector would be harmed more than the US average.
Manufacturing employment would decline by 4.6% (12,500 jobs) in Arizona.
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 105% by 2010 relative to the
baseline (ie., the price level without as emissions-reduction policy). Capital
and
goods and export industries play an increasing role in Arizona's economy,
these sectors will suffer.

Energy Prices

Sharp increases in fuel and electricity prices would be felt across the nation. Industrial firms in Arizona would be burdened in the global competition for markets with price increases of 106% for delivered natural gas and 105% for electricity by 2010 versus baseline levels.

Output

Imposition of carbon permit fees would significantly impact the overall level of output as well as the composition of output in the state. Real gross state product would fall 3.5% below the baseline in 2010. The transportation, telecommunications, and utilities sector would experience the greatest declines in output, in percentage terms, under the alternative carbon fee scenario, lagging 4.7% behind the baseline. Slightly smaller declines would occur in construction, manufacturing, mining, trade, and FIRE (Finance, Insurance, and Real Estate). Real output in the manufacturing sector would fall by 3.9% in 2010. The largest absolute job drop-off in 2010 is in services, but the cumulative result of sharply higher energy prices would gear Arizona toward even greater reliance on service industries.

Employment

Total employment is projected to fall 102,300 jobs below the baseline in 2010. The percent decline is largest in the transportation, telecommunications, and utilities sector. The largest absolute decline in jobs is in trade followed by services, where 28,200 and 27,000 jobs, respectively, are lost in 2010.

Wages & Salaries

Wages and salaries would fall under the imposition of a carbon permit fee. Rising costs must be offset by lower real wages as economies attempt to retain their competitive position. In Arizona, real manufacturing wages would decline by 2.4% in 2010 relative to the baseline. Real private non-manufacturing wages would fall 2.2% below the baseline forecast.

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL

Limiting greenhouse gas emissions would cost each state resident $393 of their real annual disposable income by 2010.

Real personal income would fall by 2.7% compared to the baseline in 2010.

Residential energy prices would increase by at least 66% in Arizona relative to the baseline.

Housing prices would be 7.1% 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: Arizona

If the Kyoto Protocol were implemented, consumers would be 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 Arizona would decline. Meanwhile the cost of energy to consumers would increase dramatically. Prices of home heating oil, natural gas, and electricity would rise 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 income per capita would decline by $393, and total real income would decline by 2.7%.

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 (79%), electricity (66%) and home heating oil (75%). The price of motor gasoline would also increase 44% relative to the baseline.

Housing

Housing prices are also projected to increase faster under the carbon abatement
scenario. Housing prices would increase by 7.1% more than they would in the
baseline projection. In Arizona, housing prices would escalate at a slower rate
than the national average, thus reflecting the net out-migration projected for the
state due to the more 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

Arizona tax revenues

would be reduced by $1.7 billion and the

unemployment rate would approach 5.7% in 2010.

Real output in Arizona would fall by $5.7 billion relative to the baseline in 2010.

Tax revenues would fall by 9.4% in 2010.

The unemployment rate would rise to 5.7% in the carbon abatement scenario in 2010.

Government Impacts: Arizona

Arizona would face a possibly significant decline in tax revenue associated with the imposition of policies aimed at meeting the Kyoto Protocol target. Federal, state, and local tax revenues could decline 9% below baseline projections in 2010. This has significant implications for public policy, which would be exacerbated by the possibility of increased unemployment. Specifically, Arizona's unemployment rate is expected to approach 5.7% 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 Arizona at risk of losing $5.7 billion real dollars of output in 2010 relative to the baseline projection. In percentage terms, the state stands to lose approximately 3.5% of its potential output, as economic growth slows. The services sector would suffer a severe decline in real output in 2010: a loss of $1.4 billion or a 3.1% difference from the base. However, finance, insurance and real estate, trade, and manufacturing sector output, in that order, would also substantially diminish, by a combined $2.8 billion in 2010.

Tax Revenues

As a result of the imposition of a global agreement to limit carbon emissions, real tax revenues in Arizona would fall 9.4% below the baseline projection in 2010. As a percentage of gross state product, baseline tax revenues would be 11%. This assumes no changes in tax policy in Arizona. 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, Arizona is projected to lose significantly more jobs on a percentage basis as the US average. The steady loss of jobs would be partially accommodated through migration from the state, but would still result in an increase in the number of unemployed workers. For Arizona, the unemployment rate is expected to fall from the 1996 level of 5.5% to 3.0% in the baseline projection in 2010. If the Kyoto Protocol were fully implemented, the unemployment rate in Arizona would reach 5.7% in 2010.

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL

Arizona

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

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WEFA

Global Warming:

The High Cost of the Kyoto Protocol
Impact on Arkansas

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In December 1997, the Clinton Administration agreed to the Kyoto Protocol, an international treaty that would legally bind industrialized countries to reduce their greenhouse gas emissions. US emissions would be limited to 7% below 1990 levels by late next decade. Meeting this goal would be a daunting task, as carbon emissions from the energy sector are expected to exceed the Kyoto goal by more than 37% WEFA estimates that to achieve the Kyoto goal would require a carbon permit fee of $265 per metric ton added to energy prices, resulting in:

■ A hike in gasoline prices of nearly 65 cents a gallon

■ A doubling of electricity and energy prices for consumers and
businesses

The Kyoto Protocol Would Slow Economic Growth and Cost US Jobs

The Kyoto Protocol is supposed to be an international agreement, but 134 of 160 negotiating nations said that the US and other industrialized countries should bear the entire burden. China and India were particularly emphatic, saying that they will never participate in a global effort to reduce greenhouse gas emissions. If key developing nations continue to exempt themselves from the Kyoto Protocol, WEFA estimates that by 2010 the US would:

■ Lose 2.4 million jobs

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

■Lose $300 billion annually, or more than total expenditures on
elementary and secondary education

Arkansas Would Lose 20,600 Jobs and $513 Million
in Tax Revenue

While developing nations would get a free ride under the Kyoto Protocol, state and
local economies would not Implementing the agreement would raise energy costs
and slow economic growth. In 2010, WEFA estimates that Arkansas would:
■Lose 20,600 jobs, including 9,500 manufacturing jobs

■ See an unemployment rate as high as 6.1%

■Lose $513 million in tax revenue, reducing the state's ability to provide social services when the need for such services would be increasing

The Kyoto Protocol is Not the Only Option

WEFA's analysis shows severe economic consequences for US consumers if the Kyoto Protocol is implemented. Only near-term catastrophic global climate change would justify imposing these costs on US businesses and consumers. As global warming may be gradual and largely due to natural forces, a better strategy to alleviate this potential global threat may be the use of longer-term opportunities, such as:

■ Expanding voluntary efforts to limit greenhouse gas emissions

■ Supporting scientific research and educational programs on climate ■ Investing in the development and deployment of new technologies

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