An Early Start Will Cost a Little Less
In 1998, the Energy Information Administration released a report that estimated that complying with the Kyoto Protocol would cost the United States $64 billion per year. The study assumed that the U.S. would begin to comply with the protocol in 2005 and reach its target of reducing greenhouse gas emissions by 7 percent below 1990 levels by 2008 to 2012.
The EIA has just completed a new report at the request of House Committee on Science that would change the starting date from 2005 to 2000 to see if that would have any effect on the cost of reducing greenhouse gas emissions. EIA looks at a range of scenarios from an increase of emissions of 24 percent over 1990 levels (1990+24%) to the minus 7 percent (1990-7%) as required under Kyoto. The study finds that an “early start date reduces the carbon price in 2010 for each of the carbon reduction cases.” The 1990-7% case, for example, would see a reduction of the carbon price from $349 per metric ton to $310 per metric ton.
“With an earlier start date,” says the study, “the economy experiences a loss in gross domestic product beginning in 2000 as higher prices increase the prices of goods and services throughout the economy; however, the early start date smooths the transition of the economy to a longer run target.” The study finds that the “projected cumulative impacts” on actual GDP between the years 2000 and 2020 is over $2.6 trillion if reductions begin in 2005 and just under $2.5 trillion under an early start scenario.
The report also indicates that using a net present value calculation (discounting) the cumulative discounted impacts are larger in the early start cases. Using a 7 percent discount rate the EIA finds that impacts by 2020 will be nearly $1.3 trillion for the 2005 start and over $1.4 trillion for the early start. The report concludes, “although the cumulative impacts on GDP are similar, the early start cases involve a tradeoff. The peak impacts are less severe in the early cases, but they occur earlier.” There is little difference in the overall costs of the two scenarios. The report can be downloaded from www.eia.doe.gov.
Technology as a Long Term Solution
The Clinton Administration claims that the development of energy efficient technologies is the solution to the global warming problem. It also claims that the technologies necessary to meet the targets set under the Kyoto Protocol are already available and just need to be put into use.
A new report by the Business Roundtable (BRT) agrees that technology is the key, but only in the long run. The report reaffirms BRTs opposition to the Kyoto Protocol. The protocol, says the report, “does not include developing countries, it would have a negative impact on the U.S. economy and it would bring no significant global environmental benefit.”
Although new technology “constitutes the most effective response to concerns about possible changes in our climate,” says the report, “in the short term, there are no technologies that make plausible the goals sought by the Kyoto Protocol.”
The BRT also recognizes a role for government in developing new technologies, albeit a small one. “A central policy tenet is that governments cannot foster private sector technology advancement by picking winners and losers,” says the report. “Instead, a central role for government is to ensure its policies are coordinated and consistent, and that unintended regulatory, policy and tax impediments to innovation are remedied.”
The report also points out that a necessary prerequisite to innovation is robust economic growth. Without the financial means to invest in R&D, there is no technological progress. Moreover, developing countries will not be able to benefit from new technologies unless they become wealthier. The report can be downloaded from www.brtable.org.