The Washington Post Comes Clean
Commenting on the climate change agreement penned in Kyoto, the Washington Post (December 12, 1997) warns that the U.S. could see significant cost increases. The Clinton administration is counting on “modest tools, including fuel-efficient technology, such as hybrid gas and electric cars, and business incentives, such as tax breaks, to do the job [of cutting greenhouse gases].” But, argues the Post, significant cuts in emissions “may require a wide array of tools designed to reduce emissions caused by houses, factories, cars and consumption.”
Robert Stavins, an economist of the John F. Kennedy School of Government at Harvard University, claims that the “lowest-cost method” of reducing carbon emissions would be a carbon tax. “It would probably take a tax of $150 per ton of carbon content on fossil fuels,” Stavins said. “That would mean an increase in coal prices of about 350 percent, and about 100 percent on petroleum and natural gas.” For consumers this translates into an average increase in gasoline and residential electricity prices of about 40 percent nationwide, or 3 percent of GDP. “That’s approximately the cost of complying with all other environmental regulations combined,” says Stavins.
This contrasts significantly from statements by President Clinton who said, “I see already the papers are full of people saying, ‘The sky is falling, the sky is falling, it’s a terrible thing.'” The treaty skeptics are not to be believed, according to the President, since the economy remains healthy despite past environmental initiatives. This statement, however, hides the fact that the economy, though growing at a normal rate, is on a lower trajectory than it otherwise would be. Environmental regulations probably do not affect long-term growth rates but they do irrevocably affect long-term wealth. The massive increase in environmental compliance costs that will result from the climate change agreement will have immediate affects on GDP growth and a permanent loss of wealth.
Big Business Looks Out for Themselves
In November, five leaders of major U.S. companies met, at the behest of Fortune magazine (December 8, 1997) to discuss the “corporate, national, and international implications of global warming.” The result was somewhat discouraging. Typical of many corporate CEOs, they were not averse to regulation as long as it doesn’t hurt them relative to others. This attitude was expressed by Paul O’Neill of Alcoa: “The cost implications for Alcoa are enormous. But there’s comfort in the fact that we’re not greatly different from the others in the industry. To maintain a good position in the world, we need to stay ahead of the competition, which I am sure we can do. We’ll be all right.”
Michael Bonsignore who runs Honeywell called for a compromise at least to establish objectives, “including a mechanism to transfer technology from the developed world to the developing world.” Of course, taxpayers would pay for the transfers and Honeywell would reap all the benefits of corporate welfare.
Though the discussion as a whole was disappointing there were a couple of encouraging remarks. Alex Trotman, CEO of Ford Motor, seems to understand the reality of the situation. “One of the things we fear most is that we would have to address stringent targets with today’s technology. We’re a long-lead-time, capital-intensive industry. If we were to change over a number of engine lines, for example, [it would cost] billions of dollars using today’s technology. By the time we’re just about to start making those engines, we will have discovered, I guarantee you, some major leap that we will have negated by investing early.”
Bill Ruckelshaus, former head of the Environmental Protection Agency under Nixon and Reagan, and current chairman of Browning-Ferris Industries said, “What I think the Vice President really needs to do . . . is don’t take science at face value, as though there is no debate. A scientist often will make political pronouncements in the name of science, when what he’s really talking about are policy choices that a cabdriver has the credentials to make as much as him.”
New Carbon Emission Forecast
The Energy Information Administration (EIA) has revised its projections for United States carbon emissions, making it more difficult to reduce emissions than previously thought. Faster economic growth and lower energy prices have prompted the EIA to raise its projections by 5 percent, claiming that carbon emissions in the U.S. will increase by 34 percent by the year 2010 and by 45 percent by the year 2020 (Nature, November 20, 1997).
The Kyoto agreement to cut emission by 7 percent below 1990 levels by 2012 will require the U.S. to cut emission by more than 40 percent below the levels that would have been otherwise achieved.