The results paint a picture of a less prosperous 21st century America. Economic consequences would be severe: These powerful price signals result in premature retirement of capital stock, less capital Some workers would lose their jobs through a weaker economic environment. All workers would face a slowing in their real wage growth as more workers compete for fewer jobs. Job losses would exceed 2.4 million; wages would be lower Implementing the Kyoto Protocol would have a devastating impact on workers. Some Families would suffer as the loss in aggregate On a per household basis, the cost of signing the Kyoto Protocol results in an average real GDP loss in 2010 of $2,728 per household. Low and moderate income families would be hardest hit. Low and moderate income families would be squeezed: higher costs, lower wages, fewer jobs. Commodities such as food, medical care, and housing would be nearly 10% more expensive by 2020. Low and moderate income families would be hurt Low and moderate income families would be the ultimate losers under a carbon limits regime. Energy use is pervasive: all commercial activities require the use of energy, and energy is a necessity for households. Low and moderate income families spend a significant share of their income on basic necessities including energy. Raising energy prices would present an enormous hardship to these families. In combination with a weaker economy where workers are competing for less-well-paying jobs, families are projected to see a large rise in costs and a reduction in income. The cost of all necessities would rise substantially Throughout the forecast period, food, medical care, and housing continue to become more expensive under the carbon stabilization case. By 2020, food is nearly 9% more expensive, medical care is roughly 11% higher, and housing is nearly 21% higher than the base case. Inflation in the Prices of Food, Medical Care, and Housing: The most severely impacted industries would be energy producing industries, industries that produce energy-intensive products, and industries that depend on export sales or face strong import competition. As the imposition of carbon limits is not borne equally by all countries, U.S. exports would be relatively more expensive on world markets. Every state would suffer output and job losses The most severely affected industries would be energy producing industries, industries that produce energy-intensive products, and industries that depend on export sales or face strong import competition. Because the imposition of the carbon target and permit system is not borne equally by all countries (the developed economies of the OECD face comparable energy price increases, but the developing countries do not) U.S. exports are relatively more expensive on the world market. As a consequence, real exports are lowered dramatically, while imports are increased substantially, affecting: ■the chemicals and paper industries, which are both energy-intensive and already subject to stiff price competition from new producers in developing countries, ■the textile and apparel industries, which have difficulty competing on price due to higher U.S. labor rates, and GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL NATIONAL AND STATE IMPACTS ■the computer and electronic products industries, particularly from imports. (It is worth noting that the trade deficit in this area would escalate dramatically under the carbon emission limitation case.) As a result, all states would suffer output and job losses that would persist as long as developing nations exempt themselves from the similar constraints on carbon emissions. GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL Implementing the Protocol would require significant reductions in energy use. Any carbon permit fee Historically, the only period that experienced a rate of energy improvement similar to the one needed to meet the Kyoto target was the late Proponents of ratifying the Kyoto Protocol offer a rejoinder to WEFA's analysis: 1) technology can greatly reduce the cost to the US economy; and 2) several conceptual mechanisms in the Protocol-such as sinks and international emission trading-can reduce the economic impact on the US. In response: The Kyoto Protocol's Call for Early Action Reduces the Role Technology Could Play in Mitigating the Risk of Global Warming The Administration has argued that the economic cost estimates from WEFA, the Energy Information Administration, and other independent firms and academics are overstated. Relying on its own technology assessments, the Administration concludes that substantial technological progress is available with little or no price incentives. WEFA, through its on-going assessments of energy technology and analysis of the aggregate performance of the economy in improving energy use, comes to a different conclusion. Substantial improvements in energy-efficiency, particularly in newly restructured electric power markets, are included in WEFA's baseline. Further efficiency gains would be increasingly expensive. The extraordinary efficiency gains required for achieving the Kyoto target would only occur in response to extraordinary price incentives. The carbon fee has to bring about a large reduction in the demand for energy services, major improvements in energy efficiency, as well as improve the opportunity for substitution of low carbon and non-carbon emitting fuels. The required change in energy efficiency to meet the goal is unprecedented. As shown in the chart, energy use per dollar of real GDP would need to improve at a rate in excess of 2.0% per year. Historically, the only period that experienced a similar rate of energy improvement was the late 1970s and early 1980s - and nearly half of that improvement is attributable to structural changes in the economy (the loss of energy intensive well-paying manufacturing jobs overseas.) Without price incentives, the goal would not be reached. Compound Annual Growth Rates in the Energy to GDP Ratio Кусь 95-15 1970s and early 1980s. Nearly half of that improvement is -1.00% Measures not included in WEFA's analysis are international emission trading, sinks, the inclusion of an additional three gases, and mechanisms for promoting technology transfer. WEFA believes that a better climate strategy would be to match policy actions to an evolving understanding of climate science. The developing economies The principal contributors to GHG emission growth are the emerging economies. Reducing carbon emissions from participating industrialized Trading, Sinks And Other Mechanisms While the Kyoto Protocol includes provisions that have been touted by its proponents as a means for alleviating the cost of complying with the Protocol's goals, these measures have not been tested and have been heavily discounted in WEFA's analysis. These provisions are currently only conceptual or have very uncertain implications for meeting the target. Measures not included in WEFA's analysis are international emission trading, sinks, the inclusion of an additional three gases, and mechanisms for promoting technology transfer (Joint Implementation and the Clean Development Fund). However, these "market based” mechanisms are undefined in the Protocol and hence have to be negotiated by a large number of UN nations, many of whom have expressed open hostility toward such ideas. Further, the Protocol itself indicates these may only be supplemental to a country's internal programs. And finally, most are limited in scopeemissions trading, for example, won't involve the developing nations-, have no history in international relations, will be costly and difficult to administer, and may conflict with existing GATT or other agreements. For these reasons, it is premature at best to assume costs can be significantly reduced by these measures. The Kyoto Protocol is Not the Only Option As the present study and the work of others make clear, the Kyoto Protocol forces policymakers to decide whether they are willing to risk the economic well being of their nation. From both economic and risk-assessment viewpoints, WEFA believes that there is a better climate strategy, namely to match policy actions to an evolving understanding of climate science; to increase investments in technology (should it prove necessary to substantially reduce fossil fuel use); and to gradually retire existing capital stock. Further support for investing in a technologically based solution is evident from the chart below. It is the developing countries that are the principal contributors to annual global emission increases. Driven by their expanding economies and their rising populations, the less developed economies of the world will emit more emissions than the industrialized economies by 2015. The reduction in carbon emissions that would result from the developed economies fully meeting their targets under the Kyoto Protocol would not significantly affect the annual global emissions. The developing economies of the world will not meaningfully participate in a greenhouse gas emission reduction or limitation program until there are technological alternatives that provide equal or better opportunities for economic growth than is offered by fossil fuels today. Global Carbon Emissions from Energy Use (Million Metric Tons) countries by 5% would not substantially impact global emissions. Source: Energy Information Administration, International Energy Outlook 1997 GLOBAL WARMING THE HIGH COST OF THE KYOTO PROTOCOL |