Dispelling the Myth of a Cost-Free Global Warming Treaty

Commentary by Pete du Pont

Bear in mind that all human activity combined contributes something like 3 to 5 percent of all greenhouse gas emissions into the atmosphere. If then, global warming is in fact occurring, is it likely that humans can do much about it?

Those who think the answer to that question is yes - the Clinton/Gore administration among them - have negotiated what is known as the Kyoto accord. The United States has signed the accord, but has not ratified it, so it isn't a binding treaty yet. Neither has any other industrial nation. It's easy to see why. The accord would commit the United States to reduce its greenhouse gas emissions - primarily carbon dioxide (CO2) from the burning of fossil fuels - to 7 percent below their 1990 levels, between 2008 and 2012.

In supporting the commitment, the administration cited an analysis by five research laboratories at the Department of Energy (DOE) that claimed the economic benefits of reducing emissions to 1990 levels by 2010 would roughly equal the costs of the required energy cuts. But the administration got no support for its position from subsequent impartial studies.

Furthermore, the U.S. General Accounting Office declared the five-lab study flawed. The five-lab study, the GAO said, relied on unsubstantiated assumptions concerning the future competitiveness of solar power and wind power, did not consider the full costs to the economy of proposed energy taxes, and relied on implausible scenarios concerning the timeline for replacing power plants and other capital. In short, all of the major assumptions were either unrealistic or overly optimistic.

Then the Energy Information Administration (EIA), the official forecasting arm of the DOE, issued two studies critical of the administration's economic claims. The first found that meeting the Kyoto accord's greenhouse gas limits would mean:


A 52 percent increase in gasoline prices.

An 86 percent increase in electricity prices.

A 4.2 percent decrease in GDP.

A 2.5 percent decline in personal disposable income.
Even with significant renewable energy technology breakthroughs and a tax rebate to offset some of the impact of increased energy costs on individuals, the EIA's analysis indicates that a Kyoto treaty would impose substantial economic hardships upon citizens.

The second EIA study examined the administration's $3.6 billion five-year plan to reduce greenhouse gas emissions. This proposal would grant tax credits to encourage citizens to purchase energy-efficient homes, solar panels and fuel-efficient cars, and would increase spending on the research and development of technologies to reduce CO2 emissions. That study found that the proposed tax credits would reduce carbon emissions by a mere .5 percent of the amount that the U.S. would be required to cut under the terms of the Kyoto accord. Though the investment tax credits would reduce the initial cost of purchasing more fuel-efficient equipment, these technologies would still be more expensive than other commonly available energy-using products - and consumers are usually loath to purchase consumer items that have cost savings reaped only over many years.

Now we have yet another study, a cost-benefit analysis of the accord by Stephen Brown of the Dallas Federal Reserve Bank, just recently published by the National Center for Policy Analysis. Brown's findings: the benefits of the accord would be nowhere near the costs. Brown's analysis found that only about 14 percent of the emissions reductions required by the treaty could be cost-justified. Cost-benefit analysis also found similar results for other developed nations - which helps explain why none have ratified the treaty.

Brown found that the U.S. would have to cut its energy consumption by about 25 percent to meet the terms of the accord. To put this into even more understandable terms, about one-fourth of all U.S. energy consumption in 1996 was for transportation. Thus, as Brown's study says, one way to meet the Kyoto treaty's requirements "would be to stop nearly all highway, rail, sea and air traffic permanently."

In addition, Brown determined that even if the United States could use a series of offsets and credits through transactions with other treaty signees, U.S. GDP would be 3 percent to 4.3 percent lower in 2010 than it would be otherwise, representing a loss of $275.2 billion to $394.4 billion, or $921 to $1,320 per capita.

Consider: the link between human activity and possible global warming is highly uncertain, some scientists think the net effect of global warming could be beneficial, and it would require draconian measures to comply with the requirements of the Kyoto accord. The most vocal proponent of signing the accord is Vice President Al Gore. He may feel comfortable running for president as a champion of Kyoto, but does it sound like most Americans would?


####
The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues.