Missouri 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 Montana Would Lose 41,500 Jobs and $288 Million in While developing nations would get a free ride under the Kyoto Protocol, state and ■ Lose 41,500 jobs, including 2,800 manufacturing jobs ■ See an unemployment rate as high as 9.9% ■Lose $288 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 Twenty-eight-hundred manufacturing jobs would be lost by 2010, as Montana companies become less competitive in the international markets. Industrial natural gas prices would rise by 106% in 2010 versus the baseline. Real gross state product would fall by 6.2% in 2010 relative to the baseline. Montana would lose 41,500 jobs by 2010 relative to the baseline, with mining and manufacturing bearing the brunt of losses. Real wages and salaries in manufacturing would decline by 4.6% in 2010 versus the baseline projection. Business Impacts: Montana Montana's manufacturing sector would be harmed much more than the US average. Manufacturing employment would decline by 9.6% (2,800 jobs) in Montana 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 an emissions-reduction policy). Energy Prices Sharp increases in fuel and electricity prices would be felt across the nation. Industrial firms in Montana 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 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 6.2% below the baseline in 2010. Hardest hit among the industries in the state would be transportation, telecommunications, and utilities. Real output in the manufacturing sector would fall by 9.6% in 2010. Manufacturing losses would cause producers to reduce their purchases of labor and purchased inputs of services. Sharply higher energy prices would shift Montana toward an even greater reliance on service industries. Employment Total employment is projected to fall 41,500 jobs below the baseline in 2010. The decline would be largest in mining jobs, in terms of percentages. Manufacturing also suffers a large percentage decline in durable categories such as wood products. The largest decline in percentage terms outside of manufacturing or mining would occur in transportation, telecommunications, and utilities. 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 Montana, real manufacturing wages would decline by 4.6% in 2010 relative to the baseline. Real private nonmanufacturing wages would fall 3.2% below the baseline forecast. GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL Limiting greenhouse gas Real personal income would fall by 4.3% compared to the baseline in 2010. Residential energy prices would increase by at least 66% in Montana relative to the baseline. Housing prices would be 5.5% 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: Montana 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 Montana 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 non-manufacturing 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 $685, and real total personal income would decline by 4.3%. 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 46% relative to the baseline. Housing Housing prices are also projected to increase faster under the carbon abatement scenario. Housing prices would increase by 5.5% more than they would in the baseline projection. In Montana, housing prices would escalate at a lower rate than the national average reflecting the in-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 Montana tax revenues would be reduced by $288 million and the unemployment rate would approach 9.9% in 2010. Real output in Montana would fall by $1.7 billion relative to the baseline in 2010. Tax revenues would fall by 11% in 2010. The unemployment rate would rise to 9.9% in the carbon abatement scenario in 2010. Government Impacts: Montana Montana would face a possibly significant decline in tax revenue associated with policies aimed at meeting the Kyoto Protocol target. Tax revenues could decline 11% below baseline projections in 2010. This has significant implications for public policy, which would be exacerbated by the possibility of increased unemployment. Specifically, Montana's unemployment rate is expected to approach 9.9% 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 Montana at risk of losing $1.74 billion real dollars of output in 2010 relative to the baseline projection. In percentage terms, the state stands to lose approximately 6.2% of its potential output. As economic growth slows, the manufacturing sector would suffer a severe decline in real output, but the non-manufacturing sector would also lose $1.5 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 Montana would fall 11% below the baseline projection in 2010. As a percentage of gross state product, baseline tax revenues would be 9.8%. This assumes no changes in tax policy in Montana. 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, Montana is projected to lose nearly as many jobs on a percentage basis as the US average. Out migration would increase because the state's loss of employment is more than the national average. This results in an increase in the number of unemployed workers. For Montana, the unemployment rate is expected to increase from the 1996 level of 5.3% to 6.0% in the baseline projection in 2010. If the Kyoto Protocol were fully implemented, the unemployment rate would reach 9.9% in 2010. GLOBAL WARMING: THE HIGH COST OF THE KYOTO PROTOCOL |