Global Warming Policy: Some Economic Implications

Studies | Global Warming

No. 224
Saturday, May 01, 1999
by Stephen P. A. Brown


Aggregate Economic Consequences for the United States

Figure V - U.S. CO2 Abatement and GDP Losses

"The energy conservation required is equivalent to increasing the price of energy and potentially slowing economic growth."

In terms of forgone economic opportunities, the energy conservation associated with CO2 abatement is equivalent to increasing the price of energy and potentially slowing economic growth. Most economists agree that gross domestic product is a poor way to measure economic well-being, particularly when evaluating environmental policy. Nevertheless, slower economic growth would subject fiscal and monetary authorities to significant political pressure to offset the slowdown. Yielding to that pressure could lead to higher inflation.

As shown in Figure V, the effect on aggregate economic activity in the United States depends on the amount of CO2 abatement.18

  • The amount of energy conservation required to reduce 2010 CO2 emissions to the 1990 level (President Clinton's original proposed target) would imply that U.S. GDP would be 2.7 percent to 3.7 percent lower in 2010 than it would otherwise be, representing an aggregate loss of $247.6 billion to $339.4 billion (in 1992 dollars) or $829 to $1,135 per capita.
  • Without any offsets or credits, reducing emissions to 7 percent below 1990 levels in compliance with the Kyoto accord would imply that U.S. GDP would be 3.6 percent to 5.1 percent lower in 2010, representing a loss of $330.2 billion to $467.8 billion or $1,105 to $1,565 per capita.
  • Even assuming the United States could use offsets and credits, compliance with the Kyoto accord would imply a U.S. GDP 3 percent to 4.3 percent lower in 2010, representing a loss of $275.2 billion to $394.4 billion or $921 to $1,320 per capita.
  • These estimates imply that if the United States embarked on a 10-year program to achieve compliance with a Kyoto treaty, U.S. GDP growth would be 0.3 percent to 0.4 percent from $27.5 billion to $36.7 billion lower per year.

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