Kyoto Protocol Would Bring U.S. Economic Growth to a Standstill

Published January 1, 1999

Given the uncertainties surrounding the effects of carbon dioxide emissions on global warming, the Kyoto Protocol is seen by many as an excessive insurance policy whose premium will be paid for in large part by developed nations like the United States.

“Cost-benefit analysis suggests that reducing U.S. emissions of CO2 to comply with the Kyoto accord or to reach the more modest target proposed by President Clinton represents too much insurance,” argues Stephen P. A. Brown, senior economist and assistant vice president of the Federal Reserve Bank of Dallas.

Brown’s report, “Global Warming Policy: Some Economic Implications,” is included in the bank’s fourth-quarter economic review.

Using a series of models, Brown notes that economic activity in this country, as well as others, would suffer in the wake of reduced energy consumption (burning of fossil fuels) that would be necessary in order to reach the lower levels of CO2 emissions mandated by the Kyoto agreement.

“Some worry that compliance with the Kyoto accord would impose drastic costs on the industrialized countries with little proven benefit,” while others worry that “the Kyoto targets are too modest to prevent costly environmental problems,” Brown noted.

The accord, signed by the Clinton administration last month but not yet ratified by the U.S. Senate, requires the United States to lower its greenhouse gas emissions by 7 percent below 1990 levels.

Brown does not take issue with the theory of global warming, noting that despite inconclusive evidence, many scientists agree that global warming is occurring to some degree. The rub is that no one is certain as to what, if any, effect CO2 is having on the environment.

Nature contributes its own share of the gas to the atmosphere, Brown noted, but official policy is more easily directed to the share produced by the increasing use of carbon-based fuels: petroleum products, natural gas, coal, and wood.

Deforestation is another way people contribute to increased levels of atmospheric CO2. It is estimated that forests remove about one-third of the gas from the atmosphere.

However, according to Brown, “recent changes in the Earth’s forests have had little effect on atmospheric CO2 , in comparison with the effects from fossil fuel consumption.”

Rather than adopt a government policy with a blanket approach to solving the problem, Brown urges using cost-benefit analysis.

“Under this approach, a reduction in environmental harm is the benefit of CO2 emissions. The foregone economic opportunities from using less fossil fuel are the cost.”

On the positive side, the environment would be spared such environmental harms, attributed by some to global warming, as rising temperatures, crop damage, more severe weather, and increased disease.

The price of meeting Kyoto’s 2010 deadline, on the other hand, would mean a slower growth of this country’s gross domestic product (GDP).

“The amount of energy conservation required to reduce 2010 CO2 emissions to the 1990 level would imply that U.S. GDP would be 2.7 percent to 3.7 percent lower in 2010 than it would otherwise be,” Brown said. “Assuming the United States could use offsets and (emission) credits, compliance with Kyoto would imply that the U.S. GDP would be 3 percent to 4.3 percent lower in 2010.”

During a 10-year period, Brown concludes, such compliance would result in an annual GDP growth of only 0.3 percent to 0.4 percent.

Other industrialized countries would also see their economies weakened by compliance with the Kyoto targets. “It is not surprising, therefore,” writes Brown, “that little headway has been made in ratifying the accord.”