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A Guide to Information on Greenhouse Gases and Ozone Depletion
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FROM VOLUME 11, NUMBER 6, JUNE 1998

NEWS...
COSTS OF KYOTO

Item #d98jun94

Concern and debate over the economic impacts of climate mitigation policy has heightened over the past 18 months, as specific commitments were discussed and then spelled out at the Kyoto conference last December. The exchange has been particularly strong in the U.S. Outlined here are some of the major developments on this topic including recent studies, some of which (marked *) are listed in Reports/Economic Impacts of Policy, this Global Climate Change Digest issue--JUNE 1998.

In the summer of 1997, two studies reaching opposite conclusions came to the forefront. In hearings before the U.S. Congress, Janet Yellen, chair of the White House Council of Economic Advisors, presented draft findings of the Administration's economic analyses. She emphasized that economic models can only estimate a range of possible impacts, but impacts would be minimal if emission reductions are done wisely. Around the same time, Argonne National Laboratory released a study* showing that energy-intensive industries would suffer heavily. However, this study was criticized by the Administration because it does not reflect the efficient policies it advocates. (See Chem. Eng. News, pp. 11-12, July 21, 1997.)

Subsequent studies are summarized in a comprehensive overview by B. Hileman in Chem. Eng. News (pp. 28-31, Mar. 2, 1998). Those that suggest limited economic impacts include one completed in October 1997 by James Edmunds et al. of the Pacific Northwest National Laboratory, which estimates that emission trading permit prices needed to reduce CO₂ emissions 10% by 2010 could be as low as $38 per ton. Another study, by five Department of Energy laboratories, focused on the potential of technological innovation and arrived at a comparably low estimate. (See Global Climate Change Digest, Reports/Of General Interest, Oct. 1997.) In a similar vein, a November 1997 report from the Rocky Mountain Institute* emphasizes the great potential for cost-effective emission reductions through energy efficiency.

Other studies estimate costs to be as high as $200 per ton, and consequently project serious harm to the U.S. economy. They include a project done by Charles River Associates for the American Automobile Manufacturers Association, and one by WEFA, Inc. for the American Petroleum Institute (updated June 1998*). However, neither study attempted to include the potential savings from international emission trading. A study* of impacts on Britain also projects serious harm there.

A study by Sparks Companies, Inc., released in November 1997 by the American Corn Growers Association, found that economic damage would be so high that taxpayers would once again be subsidizing commodity price support programs.

Yellen summarized revised cost estimates at Congressional hearings in March and May of this year, but the Administration initially chose not to reveal detailed results. At a March hearing, Representative Dan Schaefer, chair of the House Energy and Power Subcommittee, requested that the White House reveal this information, which it finally did in early June.

An updated study released by WEFA, Inc., in June 1998 estimates that achieving the Kyoto target will require a carbon tax of $265 per ton, with serious impacts on the economy.

For detailed information on recent hearings see the Weathervane (http://www.weathervane.rff.org) and Global Change (http://www.globalchange.org) Web sites; see also the "Jobs and Climate" feature in the Global Change recent listings.