Michigan 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 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 The Kyoto Protocol Would Slow Economic Growth and The Kyoto Protocol is supposed to be an international agreement, but 134 of 160 ■ 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 Minnesota Would Lose 46,900 Jobs and $1.8 Billion in While developing nations would get a free ride under the Kyoto Protocol, state and ■ See an unemployment rate as high as 4.9% ■ Lose $1.8 billion 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 ■ Expanding voluntary efforts to limit greenhouse gas emissions Eighteen-thousand manufacturing jobs would be lost by 2010, as Minnesota companies become less competitive in international markets. Natural gas prices would rise by 116% in 2010 versus the baseline. Real gross state product would fall by 3.1% in 2010 relative to the baseline. Minnesota would lose 46,900 jobs by 2010 relative to the baseline, with manufacturing bearing the brunt of losses. Real wages and salaries in manufacturing would decline by 2.8% in 2010 versus the baseline projection. Business Impacts: Minnesota Minnesota's manufacturing sector would be harmed more than the US average. Manufacturing employment would decline by 3.7% (18,200 jobs) in Minnesota 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 (ie., the price level without an emissions-reduction policy). Minnesota has a high concentration of capital goods producers, which would see large declines in exports. Energy Prices Sharp increases in fuel and electricity prices would be felt across the nation. Industrial firms in Minnesota 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 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 3.1% below the baseline in 2010. Hardest hit among the industries in the state would be manufacturing, where real output 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 Minnesota toward an even greater reliance on service industries. Employment Total employment is projected to fall 46,900 jobs below the baseline in 2010. The decline would be largest in manufacturing jobs. Within this classification, the largest percentage declines in durable categories include transportation equipment, and capital goods. The largest decline in percentage terms outside of manufacturing would occur in services. 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 Minnesota, real manufacturing wages would decline by 2.5% in 2010 relative to the baseline. Real private nonmanufacturing wages would fall 1.8% below the baseline forecast. GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL Limiting greenhouse gas emissions would cost each state resident $344 of their real annual disposable income by 2010. Real personal income would fall by 2.4% compared to the baseline in 2010. Residential energy prices would increase by at least 78% in Minnesota relative to the baseline. Housing prices would be 9.7% 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: Minnesota 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 Kyoto Protocol, real personal income in Minnesota 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 $344, and real total personal income would decline by 2.4%. 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 9.7% more than they would in the baseline projection. In Minnesota, housing prices would escalate at a slightly higher rate than the national average reflecting the small increase in inmigration projected for the state due to the slightly 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 Minnesota tax revenues would be reduced by $1.8 billion and the unemployment rate would approach 4.9% in 2010. Real output in Minnesota would fall by $5.6 billion relative to the baseline in 2010. Tax revenues would fall by 8.4% in 2010. The unemployment rate would rise to 4.9% in the carbon abatement scenario in 2010. Government Impacts: Minnesota Minnesota 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 8.4% below baseline projections in 2010. This has significant implications for public policy, would be exacerbated by the possibility of increased unemployment. Specifically, Minnesota's unemployment rate is expected to approach 4.9% 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 Minnesota at risk of losing $5.6 billion real dollars of output in 2010 relative to the baseline projection. In percentage terms, the state stands to lose approximately 3.1% of its potential output, as economic growth slows. The mining and manufacturing sectors would suffer the most severe declines in real output, but the various service sectors 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 Minnesota would fall 8.4% below the baseline projection in 2010. As a percentage of gross state product, baseline tax revenues would be 11.9%. This assumes no changes in tax policy in Minnesota. 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, Minnesota is projected to lose nearly as many jobs on a percentage basis as the US average, Migration from the state 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 Minnesota, the unemployment rate is expected to edge down from the 1996 level of 4.0% to 3.5% in the baseline projection in 2010. If the Kyoto Protocol were fully implemented, the unemployment rate in Minnesota would reach 4.9% in 2010. GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL |