White House Predicts Kyoto’s Price Will Be Modest

Published April 1, 1998

After much delay and considerable prodding by Congress, the Clinton administration released on March 4 its long-anticipated analysis of the projected economic costs of the Kyoto global warming treaty.

According to White House estimates, the climate change pact could add between $70 and $110 to the average American household’s annual energy bill over the next 15 years. The nation’s annual energy costs are projected to rise from their current level of $7 billion to $12 billion by 2012, the year by which the U.S. has pledged to cut its greenhouse gas emission in accordance with the Kyoto Protocol.

American consumers could see gasoline prices rise by only 2 to 4 cents per gallon, the analysis says. The administration predicts that Americans will pay from 3 to 5 percent more for electricity, fuel oil, and natural gas.

The administration’s predictions are much lower than those previously issued by independent research organizations, trade associations, research institutes, and even the administration itself. For example, a 1995 DRI/McGraw-Hill study projected an increase in gasoline prices of 60 cents per gallon and electricity prices up 52 percent.

A 1997 study by WEFA Inc. calculated that stabilizing emissions at 1990 levels in the year 2010 and beyond–a more modest goal than that agreed to by the administration in Kyoto–would require raising gasoline prices by 22 cents a gallon by 2002 and 65 cents a gallon by 2020. Electricity prices would rise by 28 percent in 2005 and 71 percent in 2020.

In 1997, the Department of Energy projected increases in gasoline prices of between 26 and 52 cents per gallon, and electric bills raised 24 to 48 percent. The administration delayed release of that report, and finally released it with as little fanfare as possible.

The consequences of higher energy prices would be severe. The DRI/McGraw-Hill report projects the loss of $262 billion a year in goods and services in the U.S. alone. One million workers, most of them blue-collar, would be forced to join the rolls of the unemployed.

The White House’s modest estimates are based on several highly questionable assumptions. The administration’s analysis assumes, for example, that the U.S. will be able to persuade other industrialized nations to go along with an international emissions-trading plan designed to have industries find the cheapest ways possible to cut their burning of fossil fuels. But despite efforts that ranged from pleading to arm-twisting, the U.S. delegation at Kyoto found no takers for its emissions-trading scheme.

The White House also argues that the cost of implementing the Kyoto agreement can be kept in check by the participation of “key” developing countries–notably China, India, and Brazil–in the emissions-trading plan. But those countries, predicted to be substantial emitters of greenhouse gases in the decades to come, have made it clear they want nothing to do with the restrictions on their use of energy that Kyoto-style arrangements entail. Developing countries were exempted from the climate change agreement adopted in Kyoto in December.

Administration officials are quick to point out that deregulation of the U.S. electric utility industry will lead to lower energy prices for consumers, thus offsetting some of the costs of Kyoto. That may be true, but, as a recent Department of Energy study points out, lower electricity prices will lead to higher consumption which, in turn, will result in increased emissions of greenhouse gases–the very thing the treaty is supposed to discourage.

Finally, there’s the problem with models. The administration’s economic analysis was originally supposed to be turned over to Congress in October 1996. But in hearing after hearing on Capitol Hill, administration officials found themselves having to explain to increasingly impatient lawmakers that the delays were the result of difficulties they were having with economic forecasting models. With so many variables to work with, they said, the models were not making reliable predictions.

Yet the administration’s predictions on global warming are the product of computer modeling that is far more complex and uncertain than the economic models in question. Climate models have yet to be validated by actual temperature records over the past two decades, in large part due to the many poorly understood climatological variables they have trouble digesting.

The administration’s motives for underestimating the likely impact of the Kyoto agreement are readily apparent. Proposals to raise energy taxes are extremely unpopular with voters, and the administration remembers well the political capital it lost when it proposed a BTU tax early in its first term. Achieving the goals set in Kyoto would require energy taxes many times higher than the BTU tax proposal.

The administration is also attempting to mollify organized labor and business groups, which have sharply criticized the White House for making too many concessions in Kyoto. Cecil Roberts, president of the United Mine Workers of America, has charged that “the Administration sold every American worker down the river, and it’s time for our nation and the industry to begin looking at supporting candidates who will stand up, not only for coal miners, but for every worker in the country.”

Immediate reaction to the administration’s report has been skeptical at best. If the administration really wants to make peace with important constituencies, it will need to do more than cook numbers showing the negative effects of its policies.