TCS Daily

'Changing Our Behavior'

By Joel Bucher - August 14, 2003 12:00 AM

Europe has decided to go it alone and implement the Kyoto Protocol, but what price will its citizens pay? Unfortunately, economic modeling tells us very little about the level of personal pain one can expect when carbon emissions are forced so far below 1990 levels. The folks at the WEFA Group predicted a 6.2 percent loss in GDP by 2010. In the end, this number seems meaningless. 


To a large degree, any economic model relies on numerous assumptions that are biased in favor of the values of the economist doing the math. Ultimately, the choice about how to implement the treaty is a political one, because each country is given a budget of emissions to be allocated according to its government. Although the EU has little say in how Germany will implement Kyoto, it is likely that some sort of emissions trading among ratifying countries will result in order to reduce the economic pain.


The recent comments of EU Environment Commissioner Margot Wallström at the United Nations Environmental Program are telling. Wallström claimed that the "European Commission, along with actors at every level of civil society, is determined to translate words into action and meet the commitments on sustainable development that were made at the Johannesburg Summit last year by focusing on changing our behavior and emphasizing the important role that all stakeholders play in bringing about that change."


Translation: Every European will have to curtail his or her lifestyle to meet the Kyoto targets. How much will it hurt? Most Europeans, unlike their American counterparts, have already adapted their lives to deal with high levels of energy taxation and environmental regulation, so it's very hard to imagine how carbon emissions will be reduced without some leap in technology. Economic models are notoriously bad at predicting the rate of technological change, because they can't foretell what technologies will be subsidized by politicians in parliaments or worse yet at guessing what scientists will discover in the future. To make Kyoto implementation more concrete for Europeans, we must look for sources of energy and end-use efficiency measures that have not already been implemented. Unfortunately, there aren't many options.


So, Germany is the canary in the coal mine, so to speak, for the economic impact of Kyoto Protocol. It is the largest manufacturing economy in Europe and is required to make the deepest cuts in emissions, because it consumes so much energy in production. Gasoline and other energy sources are already taxed heavily in Germany while the nuclear no-no leaves the easiest solution out of reach.


If nuclear energy retirement continues in Germany, the economic engine of Europe will see industrial electricity prices increase by more than 100 percent, according to the WEFA Group. French nuclear power could come to the rescue, but France is unlikely to sell much juice to foreigners after the clock starts on Kyoto. Natural gas is the sole solution, but Germany should expect to pay about 26 percent more for it, assuming no international trading occurs.


Germany will have to rely on natural gas. There might not be enough natural gas to go around Europe, however, and until Russia starts pumping greater quantities westward there's no way of knowing what infrastructure limitations await. If Russia ratifies Kyoto, it's even more unlikely enough of the increasingly precious resource will exist to feed demand. It is also possible Russia will keep its gas for itself. Thus Russian natural resources may not help Germany at all, because they will be far too expensive to buy en masse.


That leaves emissions credits, which could come from Eastern Europe and Russia, whose economies plummeted around the 1990 emission targets of Kyoto. If these countries have any sort of economic revival, which seems possible given the recent performance of the Russian stock market, there is even less reason to believe relief from Kyoto will come from the east.


In this pessimistic scenario, Wallström's comments appear substantiated. Every level of civil society would have to make serious behavioral changes to meet the Kyoto targets. Individuals will simply have to find ways of using less energy. If you're a somewhat typical German who already owns a high-efficiency electric water heater, maintains an ice-cold bathroom, has a diesel car, rides a bike on occasion and walks to the Stadtmitte on a regular basis, where will you cut your energy use? Kyoto emissions targets could hit a crucial economic tipping point and severely restrict the lifestyle of every German who will face greater reductions in energy use than other Europeans. 


There's also wind power, but supplying energy to millions of Germans will mean too many 100-meter bird grinders for any nature-loving Teuton to stomach. Wind power isn't very reliable either, and can't be used for base load power, or be stored for future use, so it will only be useful on hot, windy nights during summer. Whether there is any regional climate in Germany that's hot and windy enough is up for debate, so cold, windy winters of northern Germany will help windmills heat homes. Nobody knows how many homes could benefit from wind power, but it probably won't be enough to meet Kyoto targets. Try to imagine a Germany where politicians are forced to subsidize thousands of these monstrosities.


So, what's left? This is where energy rationing gets really ugly. If all of the above energy "alternatives" fail, it's likely that Germany's highly efficient transportation system will have to take a hit, but trains are long-term investments and won't be replaced for decades. Should we expect "hot" new two-cylinder, zero-class Mercedes? Maybe. Will new cars meet the infamous "Elk test" of safe maneuverability that the A class failed so miserably? It's doubtful. 


Vacations might also take a price hit, because airline fuel will undoubtedly get more expensive. Say "tschuess" to €30 round-trips to the Balearic Islands and hello to a train ride to the up-and-coming former Yugoslavia.


Of course, there's no way to know for sure what will happen with carbon dioxide sequestration technology, which may make a leap forward in the next decade. If we don't find a way to save coal by pumping its emissions into the ground for next to no cost, moving to America might be the best way to beat Kyoto. With Germany spending down its wealth to fund future pensions and an increasingly uncompetitive work force with six-week vacations and relatively high wages, Kyoto may be the final straw for many businesses looking to move overseas. WEFA Group predicts 2.5 million jobs will be lost in Germany by 2010 from Kyoto.


So, come to America -- and bring those long vacations with you. We might just be able to afford them once our economy becomes more competitive from Kyoto. Here in the States, we'll still be able to fill up our V-8 Mustang convertibles for $30, and heat our bathrooms in winter. After Kyoto, the U.S.A. might just feel like paradise.


Joel Bucher is the editor of Laissez Faire, a publication of the Institute for Free Enterprise in Berlin, Germany.


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