TCS Daily


It'll Cost Ya'

By Duane D. Freese - May 17, 2002 12:00 AM

When serious people examine problems, they usually look at it from all angles.

Many leaders on the world scene probably figured they had all the angles covered when 100 nations agreed last fall to implement a program to reduce emissions of so-called greenhouse gases. But recent studies demonstrate they missed a big one -- economics.

The United States government had to explore the economics of climate change after Vice President Al Gore negotiated the Kyoto protocol in 1997 to cut greenhouse gas emissions below 1990 levels. Prior to Kyoto, the Clinton administration received a 95-0 injunction by the Senate not to send it a treaty that would substantially harm the U.S. economy. So the administration handed over to the Energy Department the job of figuring out what implementing Kyoto would cost.

The result didn't satisfy Kyoto backers within the administration. The study turned up a cost by 2010 -- at the midpoint of the 2008-12 period for meeting Kyoto's strictures -- of 2% to 4% of GDP. In other words, in the best of circumstances, it would cost about $200 billion and millions of jobs to cut U.S. emissions from the burning of fossil fuels 7% below 1990 levels. No astute political observer believed then or now that the Senate would ratify such a blow to the economy. And Clinton, despite some attempts by administration economists to brighten Kyoto's numbers, never submitted the protocol to the Senate for approval.

Despite this, when President Bush -- relying on the Clinton Energy Department and other studies indicating the deal provided plenty of economic pain for almost no environmental gain -- dumped the deal three months after taking office, howls emanated from Kyoto backers, both here and in Europe.

So the decision to go ahead with the protocol last fall despite the United States' withdrawal from the agreement prompted the Bush administration to come up with an alternative. Bush's Clear Skies proposal, calling for a voluntary emissions trading program as part of an effort to increase energy intensity by 18% over the next decade, didn't win the president any points in Europe.

Germany's Environment Minister Juergen Trittin called the proposal a major disappointment. His counterpart in France, Yves Cochet, called on the European Union to push Bush to ratify Kyoto "without delay." And a European Union spokesmen reiterated that the Kyoto protocol remained "the best framework for taking action."

Well, it's pretty easy to push for action in the abstract. Nothing needs to be done immediately; compliance, after all, begins six years hence. But since last fall, few governments have stepped forward to take concrete steps to reduce their nation's emissions.

The European Parliament -- not to be confused with the sovereign governments of each of the European Union members -- has "ratified" Kyoto. But it remains to be seen whether all the 15 members of the EU will ratify the protocol by June 1, as an unexpected development has cropped up that may force EU nations to actually make emissions cuts that many didn't intend.

On April 30, the European Environment Agency (EEA) reported that the downward trend in emissions that Europe enjoyed through most of the 1990s had reversed. In 1999, emissions for the EU as a whole had dropped by 3.8% from 1990 levels, nearly half the 8% target for the union. The success of the EU was built on three things - Germany cleaned up the inefficient, high polluting factories and utilities it inherited in reintegrating with former communist East Germany, Britain converted its utilities to North Sea natural gas, and European population generally stagnated.

Last year, though, emissions crept up 0.3%, with Britain, which submitted Kyoto to Parliament for ratification in March, seeing its emissions rise by 1.2%.

The point is that the easy cuts - those that sold the politicians in Europe on Kyoto in the first place - appear to be over. The next round of cuts will come at the expense of economic growth and employment.

A study by the DRI-WEFA for the American Council of Capital Formation (ACCF) presented at a roundtable in Brussels on April 25 - before the new EU numbers on emissions were delivered - provided an eye-opener about that reality for many political leaders there.

The report estimates that Germany, for example, will see home heating oil prices rise 14%, gasoline and diesel prices rise 14% and 20% respectively, and natural gas prices for industry rise by 40% by 2010 to meet its Kyoto target. Bottom line: GDP lower by 5.2% and unemployment up 1.8 million from what it otherwise would be. In a nation, suffering 10% unemployment, that can hardly be heartening news.

Britain faces a 4% GDP loss from the baseline, as industry faces a whopping 117% increase in natural gas costs. Job loss during the 2008-12 implementation phase of Kyoto would amount to 1 million annually.

Spain, which has seen its emissions increase 34% since 1990, faces similar difficulties bringing them down to merely 15% above 1990 levels, as the EU has ordered. The 5% loss in GDP will cost 4 million Spaniards employment by 2012.

Some environmental groups dispute such findings. But the fact is that most nations that signed onto the Kyoto protocol never have done a close examination of the issue. After finally doing so this year, Canada put off a decision on ratifying Kyoto from August until later this year. It wants to renegotiate the Kyoto deal with Europe to permit allowances for such things as natural gas sales to the United States as a contribution to emissions reductions for itself.

You can make a bet that similar deals will start to be offered once Kyoto strictures begin to pinch economies, if politicians let it get that far.

Many European business leaders don't think that their bureaucrats will actually go ahead with putting such an enormous drag on their economies. Unlike the United States, where passage of Kyoto would create an inflexible mandate for bureaucrats to enforce and private groups rights to sue, Europe's bureaucratic machinery bows to the will of the parliamentary winds. As economist Margo Thorning of ACCF has noted, they have the flexibility to let businesses off the hook if they don't live up to the goals.

That is probably why politicians there can sound so alarmed about global warming, because they know they can back away before it hurts too much. That also may explain why they embraced draconian to global warming solutions before looking carefully at the costs and benefits.

Environmentalists have demonstrated that they don't care much about the costs of their programs. One of the reasons that former Greenpeace member Bjorn Lomborg, author of "The Skeptical Environmentalist," has drawn such ire from environmental advocates is that he constantly raises questions about costs. Raising costs requires scientists and environmentalists who fear global warming to justify their positions. And who likes to do that?

The world's politicians, though, and their constituents may come to regret that they didn't study the costs earlier, as was done here. If they back away from their rhetoric, they'll deservedly be labeled hypocrites; if they push ahead to the point of scuttling their economies, they'll be fools. You got to check the angles.
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