Costs of Kyoto will be High Regardless of Flexible Mechanisms

Costs of Kyoto will be High Regardless of Flexible Mechanisms

One of the most hotly debated issues of global warming is the cost of complying with the Kyoto Protocol. Some private sector estimates put the cost as high as $300 billion per year, while the Clinton Administrations Council of Economic Advisors claims it will cost no more than $12 billion per year. The administration argues that the large difference between the two estimates is the assumption of flexible mechanisms such as emission trading and joint implementation.

A new study, sponsored by the National Center for Policy Analysis, a member of the Cooler Heads Coalition, concludes that the cost of complying with Kyoto will be high regardless of the use of flexible mechanisms. The study, authored by Stephen P. A. Brown, Senior Economist and Assistant Vice President of the Federal Reserve Bank of Dallas, notes that the Kyoto Protocol, “would not actually reduce global CO₂ emissions. Instead, it would merely slow their growth.”

The DOE estimates that worldwide CO₂ emissions will rise by 45 percent for the period 1990 to 2010. If Kyoto is implemented there will be a 30 percent increase in CO₂ emissions. For the U.S. to comply it will have to reduce emissions by 25 percent below its projected 2010 emissions.

The NCPA study, “compares the worldwide benefits of U.S. reduction of CO₂ emissions with the worldwide costs.” The benefits are “the economic value of the avoided environmental damage that might arise from global warming,” and the costs are the “economic opportunities lost as a result of using less fossil fuel.” According to the study, the benefits of reducing energy use only justifies a reduction of CO₂ emissions equal to 14 percent of that required by the Kyoto Protocol. That is, Kyoto requires seven times more CO₂ reduction than can be justified.

Without the use of flexible mechanisms, compliance with Kyoto would lower GDP by 3.6 to 5.1 percent by 2010, or between $330 billion to $467 billion. With flexible mechanisms those costs are only reduced slightly, from 3 to 4.3 percent of GDP. Brown concludes, “if reducing CO₂ emissions is similar to purchasing insurance against the possible consequences of global warming, these figures suggest that U.S. compliance with the Kyoto accord represents a costly and excessive insurance.” The study can be found at www.ncpa.org/studies/s224.html.