Kyoto's costs

The Clinton administration clearly has tried to focus on the environmental benefits, and not the costs, of the Kyoto Protocol on global warming. So the American Petroleum Institute hired Charles River Associates, a Washington, D.C., consulting firm, to examine the administration's claim that the pact would cost the economy $7-10 billion in 2010. Charles River's David Montgomery applied what was jokingly called "forensic economics." He used known details to replicate the

June 15, 1998

3 min read

Patrick Crow
Washington, D.C.
[email protected]

The Clinton administration clearly has tried to focus on the environmental benefits, and not the costs, of the Kyoto Protocol on global warming.

So the American Petroleum Institute hired Charles River Associates, a Washington, D.C., consulting firm, to examine the administration's claim that the pact would cost the economy $7-10 billion in 2010.

Charles River's David Montgomery applied what was jokingly called "forensic economics." He used known details to replicate the administration's undisclosed analysis and thus explain its low cost estimates.

Montgomery concluded the pact could cost the U.S. ten times more than the administration estimates.

He said it used overly optimistic predictions for the global trading of greenhouse gas credits and rosy forecasts for replacing coal with natural gas at U.S. electric power plants.

And he said it failed to consider how price increases in gasoline and other energy products reverberate through the economy.

Other findings

The Kyoto Protocol requires the U.S. to reduce its greenhouse emissions by 7% compared to 1990 levels, but economic growth could require cuts in energy use by as much as 30% by 2010, when the protocol takes effect.

Montgomery said that, in order to comply, the U.S. would have to purchase billions of dollars worth of emissions credits from other countries.

If they are unavailable, the U.S. will have to pay more than $170/ton to cut its own emissions, vs. the $14-23/ton estimated.

He said it could cost the U.S. more than $100 billion/year to meet the Kyoto goals if emission trading is more restricted than the administration assumes.

Montgomery said the administration also assumes it can convince other nations to accept an unrestricted trading system that they now oppose, and that it will work efficiently.

Separately, the economic consulting firm WEFA Inc., Burlington, Mass., released a study claiming the protocol would cost 2.4 million jobs in the U.S. Houston would lose 45,000 jobs, Phoenix 68,000, and Chicago 94,000.

Hearing

The administration's global warming plan was hammered at a Senate energy committee hearing.

The congressional General Accounting Office examined the first stage (1999-2003) of the plan, consisting of ten voluntary actions to cut emissions.

Victor Rezendes, GAO energy director, said the plan lacks a firm goal for reducing emissions, and it is unclear how the $6.3 billion program ($3.6 billion in tax credits and $2.7 billion for alternative fuels and energy efficiency) would even work.

He said details are so sketchy, "It is uncertain whether Stage 1 will effectively lay the foundation for the 31% emissions reduction required by the protocol."

Chairman Frank Murkowski (R-Alas.) said the administration must do better if it expects Congress to approve funding.

Sen. Jeff Bingaman (D-N.M.) defended the program: "Making the most effective use of the energy we do consume, and substituting domestic renewable energy sources for imported petroleum, is just common sense. It also happens to reduce greenhouse gas emissions."