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South Carolina

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 South Dakota

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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

South Dakota Would Lose 7,200 Jobs and $191

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 South Dakota would:
■ Lose 7,200 jobs, including 1,200 manufacturing jobs

■See an unemployment rate as high as 4.8%

■Lose $191 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

More than one-thousand manufacturing jobs would be lost by 2010 as South Dakota companies become less competitive in the international markets.

Industrial natural gas

prices would rise by 116% in 2010 versus the baseline.

Real gross state product would fall by 2.9% in 2010 relative to the baseline.

South Dakota would lose 7,200 jobs by 2010 relative to the baseline, with manufacturing bearing the brunt of losses.

Real wages and salaries in manufacturing would decline by 2.2% in 2010 versus the baseline

projection.

Business Impacts: South Dakota

South Dakota's manufacturing sector would be harmed slightly less severely than the US average. Manufacturing employment would decline by 2.5% (1,200 jobs) in South Dakota 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 125% by 2010 relative to the baseline (i.e., the price level without an emissions-reduction policy). South Dakota's economically important food processing industry would also be negatively impacted.

Energy Prices

Sharp increases in fuel and electricity prices would be felt across the nation. Industrial firms in South Dakota would be burdened in the global competition for markets with price increases of 116% for delivered natural gas and 125% for electricity by 2010 versus baseline levels.

Output

Imposition of a carbon permit fee would significantly impact the overall level of output as well as the composition of output in the state. Real gross state product would fall 2.9% below the baseline in 2010. Hardest hit among South Dakota's industries would be food processing, due to the importance of energy inputs. Electrical and non-electrical machinery production would be reduced in South Dakota, due to lower exports and weaker U.S. demand for capital goods. Real output in the manufacturing sector would fall by 3.6% in 2010. Manufacturing losses would cause producers to reduce their purchases of labor and purchased inputs of services. Sharply higher energy prices would shift South Dakota toward an even greater reliance on service industries. Employment

Total employment is projected to fall 7,200 jobs below the baseline in 2010. The percent decline is largest in the mining sector. Within manufacturing, the largest percentage declines would occur in industrial machinery and electrical machinery. Non-durable categories that are severely impacted include foods, paper, and chemicals. The largest percentage declines outside of manufacturing would occur in transportation, telecommunications, and utilities. The largest absolute decline in jobs is in services, where 1,600 jobs 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 South Dakota, real manufacturing wages would decline by 2.2% in 2010 relative to the baseline. Real private nonmanufacturing wages would fall 1.6% below the baseline forecast.

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL

Limiting greenhouse gas emissions would cost each state resident $292 of their real annual disposable income by 2010.

Real personal income would fall by 2.2% compared to the baseline in 2010.

Residential energy prices would increase by at least 78% in South Dakota relative to the baseline.

Housing prices would be 9.4% 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: South Dakota

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 abatement programs, real personal income in South Dakota 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 disposable income per capita would decline by $292, and real total personal income would decline by 2.2%.

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 (78%), electricity (81%) and home heating oil (80%). The price of motor gasoline would also increase 47% relative to the baseline.

Housing

Housing prices are also projected to increase faster under the carbon abatement scenario. Housing prices would increase by 9.4% more than they would in the baseline projection. In South Dakota, housing prices would escalate at a rate similar to the national average reflecting little change in migration patterns projected for the state due to the close to average 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

South Dakota tax revenues would be reduced by $191 million and the unemployment rate would approach 4.8% in 2010.

Real output in South Dakota would fall by $747 million relative to the baseline in 2010.

Tax revenues would fall by 10% in 2010.

The unemployment rate would rise to 4.8% in the carbon abatement scenario in 2010.

Government Impacts: South Dakota

South Dakota would face a possibly significant decline in tax revenue
associated with the imposition policies aimed at meeting the Kyoto Protocol
target. Tax revenues could decline 10% below baseline projections in 2010.
This has significant implications for public policy, which would be exacerbated
by the possibility of increased unemployment. Specifically, South Dakota's
unemployment rate is expected to approach 4.8% 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 South Dakota at risk of losing
$747 million real dollars of output in 2010 relative to the baseline projection.
In percentage terms, the state stands to lose approximately 2.9% of its potential
output. As economic growth slows, the manufacturing sector would suffer the
most severe decline in real output, but the agriculture sector also would lose
$225 million 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 South Dakota would fall 10% below the baseline projection in 2010. As a percentage of gross state product, baseline tax revenues would be 7.3%. This assumes no changes in tax policy in South Dakota. 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, South Dakota 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 close to the national average. This results in an increase in the number of unemployed workers. For South Dakota, the unemployment rate is expected to hold steady at the 1996 level of 3.2% in the baseline projection in 2010. If the Kyoto Protocol were fully implemented, the unemployment rate would reach 4.8% in 2010.

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL

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