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

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

Seattle-Bellevue-Everett MSA, Washington

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

Global Warming:

The High Cost of the Kyoto Protocol
National and State Impacts - Executive Summary

The Kyoto Protocol is an international treaty that would commit the U.S. and other
industrialized countries to reduce greenhouse gas emissions by late next decade.
Developing countries would not commit to reduce their greenhouse gas emissions.
Without the participation of the developing countries, the impact on global greenhouse
gas emissions from implementing the Kyoto Protocol would be small.

The Kyoto Protocol Would Have Little Impact on Global
Carbon Emissions from Man-Made Sources

refuse to commit to emission

targets

Energy Prices Would

Double for Businesses

(Percent Increase from Baseline)

1990

1995

2000

2005

2010

2015

Source: Energy Information Administration, International Energy Outlook 1997

The US faces a daunting task: reducing greenhouse gas emissions to 93% of the 1990 level. Today, carbon emissions exceed the target by 16%; by 2010-37% or more.

The Kyoto Protocol's Call for Near-Term Action Costs US Jobs Economists at academic institutions and independent firms, including WEFA, have helped define climate policy options and their likely costs for more than a decade. All of their studies estimated high costs at both the national and individual state levels without carbon limits, the economy and energy-use are expected to grow steadily. Reducing energy-use to achieve carbon emission reductions to or below 1990 levels within 10-12 years requires sending very powerful price signals through the economy. However, these powerful price signals, implemented by adding permit fees or taxes to energy prices, result in: premature retirement of capital stock, a decline in GDP, a rise in unemployment, less capital for business investments, and less disposable household income. The result is a picture of a less prosperous America.

A Better Strategy:

Promote Technological Progress and Global Participation WEFA believes the better climate strategy would be to match policy actions to an evolving understanding of climate science, as global warming is likely to be gradual and limited to only a small change in average global temperature. Measures consistent with this approach would be:

■increase investments in technology and gradually replace existing capital stock ■ encourage voluntary actions to reduce greenhouse gas emissions

■ insist that developing countries meaningfully participate

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL
NATIONAL AND STATE IMPACTS-EXECUTIVE SUMMARY

Overview

In Washington, DC and throughout the nation, elected officials and key leaders are debating whether the Kyoto Protocol, an international treaty negotiated by the Clinton Administration that would legally bind developed countries to reduce their greenhouse gas emissions, should be signed and ultimately ratified by the US Senate. By the terms of the Protocol, the US would have to reduce its emissions 7% below 1990 levels by late next decade. And, unless developing countries agree to binding emissions targets, a competitive imbalance would be created between industrial and developing nations.

Meeting the goal of the Kyoto Protocol would be a daunting task. In 1997, carbon emissions from the energy sector, the majority of greenhouse gas emissions, exceed the goal established at Kyoto by 16%. By late next decade, WEFA projects that carbon emissions would exceed the goal by at least 37%. Due to population increases, on a per capita basis, the required reduction would exceed 50%.

WEFA has analyzed the economic consequences to the U.S. of achieving the Kyoto target through domestic actions. These consequences would be severe, a result that others analyzing even less onerous targets also have reported. These include the U.S. Department of Energy, leading academic institutions, and other independent consulting firms. Meeting the Kyoto target would:

■Nearly double energy and electricity prices, and raise gasoline prices an additional 65 cents per gallon.

■ Cost 2.4 million US jobs and reduce US total output $300 billion (1992$)
annually, 3.2% below baseline GDP projections, an amount greater than the
total expenditure on primary and secondary education.

■ Harm U.S. competitiveness, as developing countries will not need to raise
energy prices (or product prices) to meet mandatory greenhouse gas targets.
■Reduce the average annual household income nearly $2700, at a time when
the cost of all goods, particularly food and basic necessities, would rise sharply.

■ State tax revenues would be reduced by $93.1 billion due to job and output
loses attributable to lost US competitiveness in the global market and higher
energy costs.

The sharp rise in energy prices would reduce economic growth opportunities. Compounding this effect is the loss of competitiveness the industrialized countries would suffer, as developing countries would not raise energy prices to meet greenhouse gas reduction targets. Although developing countries argue that full responsibility for mitigating the risk of global warming rests with industrialized countries, developing countries exempted themselves from emission limits because they recognize the role energy plays in their economic development.

The Administration has argued that new technology can drastically reduce the costs of implementing the Kyoto Protocol, and that international permit trading, sinks and other market-based mechanisms mentioned in the Protocol also will lower costs. WEFA has carefully assessed the ability of technology to reduce costs over the time period in question. Without very powerful price incentives, such rapid technology improvement is extremely unlikely. Hence, technology implementation does not invalidate the estimates determined through this analysis. As for permit-trading and other

GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL
NATIONAL AND STATE IMPACTS – DECUTIVE SUMMARY