NCPA - National Center for Policy Analysis

More On The Economic Effects Of The Kyoto Protocol

May 21, 1999

The 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change calls for industrial economies such as the United States, Canada, Europe and Japan to reduce their collective emissions of six greenhouse gases by an average of 5.2 percent from 1990 levels by 2008 to 2012. The U.S. target is a 7 percent reduction from 1990 levels.

Economist Margo Thorning testified to the Senate Committee on Energy and Natural Resources that a wide range of economic models show reducing emissions to that level would:

  • Reduce U.S. gross domestic product by 1 percent to 4 percent annually, or $100 billion to $400 billion, from what it otherwise would be.
  • Cut productivity growth from around 2 percent annually to 1.1 percent --translating into a 17 percent increase in living standards over the period instead of a 32 percent increase.
  • Slow wage growth significantly to only 5 to 10 percent over the period.
  • And worsen the distribution of income -- since carbon taxes to discourage consumption would cause relatively large income losses to the poorest one-fifth of the population, modest losses for the middle class and gains for the wealthiest one-fifth.

Finally, Thorning notes that near-term emissions would reduce U.S. competitiveness in energy-intensive manufacturing industries and in agriculture, because of declining demand and higher operating costs.

Source: Margo Thorning, "The Impact of the Kyoto Protocol on U.S. Economic Growth and Projected Budget Surpluses," Congressional Testimony, March 25, 1999, American Council for Capital Formation, 1750 K Street, N.W., Suite 400, Washington, D.C. 20006, (202)293-5811.


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