Thomas Gale Moore
Senior Fellow
Hoover Institution
Last month we discussed the drive to negotiate a protocol to meet the Berlin Mandate of reducing carbon dioxide below 1990 levels. As we reported, the outgoing president of the Intergovernmental Panel on Climate Change, Bert Bolin, had informed an international meeting earlier this year that none of the plans under consideration to satisfy the Mandate would have a measurable effect on temperature or climate. Now the Clinton Administration's own Department of Energy reports that attempting to comply with any of these scenarios would be disastrous for American industry.
Under the Berlin Mandate, the major industrial countries of the world agreed to negotiate new, mandatory restrictions on greenhouse gas emissions for the post-2000 era. Only the OECD countries have committed themselves fully to abide by this agreement; the Third World states remain free to develop their economies in any way they see fit. Supposedly those countries that had been part of the Soviet Empire -- Eastern and Central Europe -- will also have to limit their production of CO2, but they face less stringent requirements. As a consequence, our industry and our economy will bear the brunt of this agreement.
To study the potential impact of these restrictions on energy intensive industries, the Department of Energy commissioned a study by the Argonne National Laboratory. The resulting paper, yet to be released, focused on six sectors: chemicals, petroleum refining, paper and allied products, iron and steel, aluminum, and cement. To model the effect of policies designed to reduce greenhouse gas emissions, the researchers added a premium to the prices of fossil fuels based on their carbon content. Carried out before the last election, when tax increases were not considered "politically correct," the study assumed that the price of the fuels are uplifted magically without hiking taxes. These non-tax add-ons to fuel costs, dubbed "price adders," had the effect of boosting electricity rates by slightly more than 50 percent from the year 2000 to 2010, tripling coal prices, inflating natural gas charges by about 80 percent, and pushing up fuel oil costs between 70 and 90 percent.
The Department of Energy research found that "the policy constraints placed on these six large industries in developed countries, but not on their less developed trading partners, would result in significant adverse impacts on the affected industries." The study went on to emphasize that "Furthermore, GHG [GreenHouse Gas] emissions would not be reduced significantly. ... price increases based on carbon content, [are] neither effective, nor cost-effective in encouraging a reduction in GHG emissions. Some substitutions encouraged by fuel price increases could actually increase GHG emissions."
To conduct the study, the Argonne National Laboratory established six working groups, one for each of the six industrial sectors, consisting of eight or nine experts, including representatives from the industry, trade associations, environmental groups, academe, the financial community, labor unions, and the government. The conclusions of all six groups were surprisingly consonant and gloomy about the fate of their industries. The working group on Iron and Steel, for example, stated categorically:
The imposition of increased energy costs will devastate the US steel industry without a significant decrease in worldwide energy related emissions from steel making. Production will simply be shifted to developing countries and may possibly lead to higher levels of overall pollution due to lower standards in those countries.
The Petroleum Refining Industry working group emphasized that:
[The] application of add-factors [taxes or imposed costs] on OECD refiner production (or crude input) would devastate and probably eliminate the OECD refining sectors. Moreover, the resulting re-alignment of supply into non-OECD regions ... would probably not cut and would probably raise net GHG emissions from the global petroleum supply industry.
Each of the working groups found that higher energy outlays would boost the cost of production, lead to increased imports, slash employment and domestic output, and in some cases might eliminate all US production. The groups also agreed that the "policy scenarios would not produce a reduction in global emissions and these emissions could actually increase." The study concluded that employment in the steel industry would fall by about 65 percent, meaning that about 80,000 high-paid workers would lose their jobs. Employment in cement would be slashed by one-third. The United States would have to sacrifice its entire primary aluminum industry, abolishing all 21,000 jobs, and liquidating an industry essential for American security .
The conclusion of the DOE report is worth quoting at length:
Higher fuel costs imposed on domestic energy intensive industries would result in an increase in production costs in these industries. The consensus of the six working groups ... is that imports from non-participating countries would displace a significant amount of U.S. industrial output and employment. A substantial amount of existing capacity in several of these industries would become non-competitive. Future investment in plant and equipment would be redirected from the U.S. ... towards non-participating countries. THIS CONCLUSION IS MORE GENERAL: ALL PARTICIPATING COUNTRIES THAT AGREE TO BINDING CONSTRAINTS WILL EXPERIENCE AN ECONOMIC DECLINE RELATIVE TO NON-PARTICIPATING COUNTRIES (emphasis added).
Although the DOE study concentrated only on major industries, the public should be aware of the effect on daily life of mandatory restrictions on greenhouse gas emissions. The price increases necessitated by the agreement would boost their utility bills significantly and add to the cost of every item in the supermarket. If fuel oil goes up by 70 to 90 percent, the price of gasoline at the pump will rise -- before taxes --a comparable amount, roughly about 50 to 60 cents per gallon. Trucking costs would go up roughly 12 percent, making everything the consumer buys more costly.
The State Department and the White House should listen to the Department of Energy. The Berlin Mandate is folly.
% Increase
Electricity 52%
Natural Gas 79%
Distillate 51%
Residual Fuel Oil 91%
Steam Coal 323%
References:
"The Impact of Potential Climate Change Commitments on Energy Intensive Industries: A Delphi Analysis," Ronald J. Sutherland, Argonne National Laboratory, February 5, 1997.