Cost-Free Treaty
The Clinton Administration has finally released its official economic analysis of the Kyoto Protocol. Testifying before the House Commerce Committee on March 4, 1998, Janet Yellen, chairman of the Presidents Council on Economic Advisors, stated that “our overall assessment is that the economic cost to the United States in aggregate and to typical households of attaining the targets and timetables specified in the Kyoto Protocol, will be modest.”
The administration estimates that the cost of achieving the Kyoto targets will range from $7 to $12 billion per year in 2008 to 2012, assuming that the administration is successful in including the developing nations in an emissions trading scheme.
The administration also estimates that the price of emissions will range from $14 to 23 per ton of carbon equivalent. This will lead to an increase in household energy prices of between 3 and 5 percent, fuel oil prices of about 5 to 9 percent, natural gas prices of 3 to 5 percent, gasoline prices of 3 to 4 percent and electricity prices of 3 to 4 percent.
The administration is claiming that electricity deregulation will save electricity consumers about $20 billion per year, offsetting the cost of reducing greenhouse gas emissions. The administration has not as of yet proposed an electricity restructuring bill. “It is becoming clear to me that the administration support for restructuring [is] a way to mask the costs of complying with this treaty,” responded Subcommittee Chairman Dan Schaefer (R-Colo). “I would like the benefits of restructuring to flow to the consumers.”
These price increases would raise the typical households yearly energy bill by between $70 and $110, according to the administrations numbers. Electricity restructuring, however, will save the average household about $90 per year.
The administration also argues that the protocol will not hurt the competitiveness of U.S. industry. Energy, according to Yellen, only constitutes 2.2 percent of the overall costs of U.S. industry. She also argues that there are already substantial energy price differences across countries and this has not cause U.S. firms to go over seas.
Finally, Yellen says that there will be no “significant aggregate employment effect” resulting from compliance with the protocol. Some jobs from energy intensive industries will be lost, but “a large number of jobs will be created in other sectors many of them high-tech jobs paying high wages.” She also claimed that, “The President is firmly committed to assisting any workers who are adversely affected during the transition to a climate-friendly economy.”
Can Federal R&D Do the Job?
President Clintons $6.3 billion plan to create technology to reduce greenhouse gas emissions has started a debate on the merits of federal research and development funding. Joseph Romm, deputy assistant secretary with the U.S. Energy Department argues that federal funding has led to improvements in energy conservation.
He points to better halogen lights and more-fuel-efficient cars as evidence. It is difficult though to “tease out what gains stem from government efforts, and what might have been done anyway.”
The Environmental Protection Agency (EPA), for example, reviewed its Green Lights Program at the behest of the General Accounting Office (GAO). The GAO found that the voluntary program (2,300 companies pledged to upgrade lighting for 90 percent of their floor space over 5 years) fell far short of its goal replacing only 34 percent of lighting.
More importantly, EPA failed to account for other factors that may account for the changes. Electric utilities, for example, were already offering financial incentives to customers who upgraded lighting when Green Lights was instituted. Also, one-quarter of the firms in the program were makers and sellers of lighting, those most likely to already use state-of-the-art lighting.
The Clinton administration wants to approval for an additional $277 million for the Partnership for a New Generation of Vehicles, a joint venture between the Department of Energy and the Big Three auto makers to develop a car that gets 80 miles per gallon. Many are skeptical that it will be successful given the prevalence of low, stable energy prices.
“In the 1970s, energy-efficiency improvements were almost all driven by higher prices,” said William OKeefe, executive vice president of the American Petroleum Institute. “People had incentives to substitute new technology for energy use,” he said. “Improvements have been slower in the 90s because the price of energy, particularly crude oil, has been very low” (Investors Business Daily, February 23, 1998).