February 28, 2007
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FROM VOLUME 11, NUMBER 6, JUNE 1998
COSTS OF KYOTO
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
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,
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
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.
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