For well over a year, Congress has been requesting that the Administration spell out the costs of reducing greenhouse gases. The White House accepted the Kyoto agreement seven months ago.

Yet so far, the Clinton folk have been willing only to send President’s Council of Economic Advisers Janet Yellen, a good economist and a loyal sacrifice, to testify about the "low burden" for Americans. Thrice Dr. Yellen has appeared, and thrice she has given exactly the same testimony: she has claimed that costs would be low because, among other factors, trading in carbon dioxide certificates among countries would produce great savings. During each appearance she also informed the committees that "no model … has yet been set up to analyze the implications of the Kyoto Protocol, since this agreement is only a few months old and remains unfinished (author’s emphasis)."

Back in March, Yellen may have been correct that no study had been published on the costs of Kyoto. But when she repeated that testimony in the middle of May and again in June, she failed to take into account WEFA, Inc.’s report, "Global Warming: The High Cost of the Kyoto Protocol, National and State Impacts." She also ignored DRI’s study, which had been reported to a House subcommittee in April, as well as a Charles Rivers report (discussed in the June 29 WCR).

Moreover, Yellen’s assertion that the Kyoto Protocol remains unfinished is simply wrong! The Protocol, agreed upon by the parties at Kyoto, can be changed only by formal amendment. This cumbersome process would require that the text of any changes be submitted six months prior to a session of the Conference of Parties and that at least three-quarters of all the signatories agree to the new provisions. Perhaps she meant that, in Buenos Aires, countries could "elaborate guidelines for implementation" of international trading. Adding China to the agreement at that point would require amending the treaty, not an easy or quick task.

But back to the overlooked studies. On April 23, Joyce Brinner, a principal of Standard & Poor’s DRI, reported on its study of Kyoto’s "Economic and Employment Impacts" to a House subcommittee. The analysis shows the United States would have to cut its CO2 emissions by nearly 500 million tons from the projected business-as-usual levels in the 2008-2012 period. That represents a 30 percent reduction, equal to the combined reductions required of Western Europe, Japan and Canada.

The Administration, according to Yellen, is depending heavily on its projected ability to purchase emission rights from other countries that are subject to numerical quotas, principally from states once part of the former Soviet Union or were subject to its control. DRI estimates that those states will have reduced their emissions some 160 million tons in the same period, not nearly enough to cover the cutback mandated for the US.

As DRI points out, greenhouse emissions per capita are much lower in Western Europe and Japan than in the United States. The greater efficiency enjoyed by those countries results from the much higher energy taxes levied by their governments. Under the pressure of the higher levies, energy users and producers in the EU and Japan have already adopted the cheapest methods of reducing fossil fuel consumption. Consequently the cost of reducing emissions further is likely to be higher in those countries than in the United States. According to DRI, Canada may also face greater costs than the United States in reducing emissions. Competition among European, Canada, Japan and the US for emission rights from the East Bloc will push their costs up sharply. American industry, as a result, may have to pay top dollar to purchase emissions certificates and in many cases will find it more economical — not that it will be cheap — actually to reduce carbon dioxide than to buy the rights to emit. If Europeans and Japanese found the cost to them of meeting their Kyoto targets excessive, they might try to buy carbon reductions from US firms, resulting in even greater cutbacks in US energy use and even higher electricity and gas costs. The point is that trading may actually increase the burden on American consumers.

DRI considered three cases, all of which assume that the US will be a net purchaser of emissions. Their base case assumes that Americans buy nearly half of their required savings from the former Communist countries whose industry has collapsed. Under that assumption, 78 percent of our reduction in carbon would have to come from domestic fossil fuel use. In other words, Americans would be obliged to slash the amount of their emissions by some 20 percent while sending billions of dollars to Russia and its former colonies. Under this scenario, the study projects that 1.6 million jobs would be lost during the 5-year period while GDP would fall by 1.6 percent. Wholesale energy prices would soar 77 percent; the cost of electricity to the consumer would rise by 36 percent; and the permit price for carbon would reach $180 per ton.

The two other cases explored by DRI assume more generous imports from abroad, with reduced costs to the US economy. Their most benign case would boost energy prices by a mere 18 percent and electricity prices by 9 percent while cutting jobs by half a million. This optimistic scenario would require the US to import 270 million tons from abroad, a virtually impossible task, given that the former Soviet Union and Eastern Europe are expected to cut their emissions by much less in that period.

WEFA, an international economic consulting firm, is even more skeptical about international trading, noting that the EC and other countries, which assert that the polluter-must-pay, have resisted the idea. WEFA notes as well that the rules for and the administration of trading have yet to be agreed upon and that at best it will take some time for such an ambitious program to be implemented. All in all, they doubt that international trading can be established in time to help reduce the costs to the US economy of meeting the target.

Even though a number of technologies are on the horizon that could reduce the costs of meeting the Kyoto agreement, WEFA’s analysis emphasizes that they would be insufficient to bring about the large reduction in emissions required. Additional cuts in emissions could only come at rapidly increasing costs. Whether the EPA imposes a cap on emissions coupled with domestic trading in carbon reductions, as exists for sulfur oxide emissions, or the government levies a tax on carbon, the effect will be to increase the costs of burning fossil fuels. WEFA concludes that meeting the Kyoto goal in the short time required would be a "daunting task," requiring the near doubling of energy and electricity prices. At the pump, gasoline prices would rise by 65 cents per gallon. The loss of 2.4 million jobs would be even more horrendous than that forecast by DRI. If WEFA is right and no trading can be implemented, total US output would drop by $300 billion annually, reducing GDP by 3.2 percent. Kyoto would cost the average American household $2,700 annually.

No matter which analysis comes closer to the truth, the cost of meeting Kyoto vastly exceeds the unsubstantiated numbers projected by the Administration. International trading, on which government officials rely for much of their cost reductions, seems unlikely. Not only are other countries reluctant to countenance trading but ensuring that real reductions are traded for money requires an impartial monitoring group, that is, a UN bureaucracy – a super EPA – with the authority to enter other countries freely, to go into privately owned factories and power plants, and to measure carbon emissions on a round-the-clock basis. This reallocation of power would require a major ceding of sovereignty to the United Nations, a step that many countries, including the United States, will be reluctant to accept.

No wonder the Administration hasn’t been willing to submit the Kyoto Protocol to the Senate. Its irrelevance, its high cost, and the loss of sovereignty doom this whole international charade.

Reference:

Testimony of Dr.Joyce Brinner, Principal, Standard & Poor’s DRI, before the House Subcommittee on National Economic Growth, Natural Resources, and Regulatory Affairs.

Testimony of Dr. Janet Yellen, Chair, Council of Economic Advisers before the House Commerce Committee on the Economics of the Kyoto Protocol, March 4, 1998 and the same testimony before the House Committee on International Relations, May 13, 1998.

WEFA, Inc. Global Warming: The High Cost of the Kyoto Protocol, National and State Impacts, 1998; 800 Baldwin Tower, Eddystone, PA 19022.