Thomas Gale Moore
Hoover Institution
Stanford University
About the time this appears, Timothy Wirth, Undersecretary of the Department of State for Global Affairs, will be in Bonn, Germany, negotiating a lower standard of living for Americans. At this special session of the U.N. Convention on Climate Change, representatives from 152 states will attempt to draw up a plan to meet the aims of the United Nations Framework Convention on Climate Change. The objective is to negotiate a formula to reduce emissions of greenhouse gases to 1990 levels. The March talks are preparatory to the December, 1997, meeting in Kyoto, Japan, at which the industrial nations of the world intend to agree on a program to meet this goal.
Last summer, the Honorable Tim Wirth proposed that the nations of the world make a legally binding commitment to trim greenhouse gas emissions. In January, the State Department recommended that each industrialized country create an "emissions budget" which would set a level of allowable carbon dioxide emissions. An international regulator would fix the level of emissions permitted after the year 2005. The U.S. advocated that each member of the OECD "ensure that its net anthropogenic emissions of greenhouse gases do not exceed its emissions budget for any applicable budget period." In other words, the Administration, which opposes a constitutional amendment to balance the fiscal budget, proposes that the developed world adopt a treaty to balance an emissions budget.
In that paper, dubbed the US Draft Protocol Framework, the government put forward a singularly opaque proposal that requires all parties to the treaty to adopt by 2005 "binding provisions so that all Parties have quantitative greenhouse gas emissions obligations and that there is a mechanism for automatic application of progressive greenhouse gas emissions to Parties, based on agreed criteria." Perhaps the State Department bureaucrats understand this, but our guess is that they want to ratchet down emissions progressively after the year 2005, only eight years away. International regulators would control our most important sector -- the energy industry.
The U.S. suggested that those countries at a middle level of development, such as South Korea and Mexico, be included in a "volunteer category" which would allow them to experiment with methods of reducing greenhouse gas emissions and perhaps to trade savings in CO2 output for cash. Fast growing states would be required to take "no regrets" actions, such as making changes in building codes and switching to fluorescent light bulbs, and to price their energy to reduce the use of fossil fuels. Rapidly growing mega-states like China and India pose the major obstacle. The Chinese believe that economic growth is more important than slowing climate change. Moreover, they have vast amounts of coal, which they intend to exploit.
The United States is supporting a program to allow trading in the rights to emit carbon dioxide. If a company or country that was required to reduce its emissions could find another country or company that would cut its emissions by the specified amount in exchange for cash, the trade would be authorized. If emissions are going to be cut, such a program would reduce world costs of meeting the standard compared to a program of rigid standards. Unfortunately, many poor countries suspect that this proposal is a scheme for the rich to buy their way out of any pain and consequently oppose the concept.
The OECD has also floated a proposal to tax aviation fuel used on international flights, hitherto untaxed. The report recommended that the tax be boosted gradually over time. Needless to say, the airline industry strongly opposes this proposal. As they point out, CO2 emissions from commercial aircraft account for only 2 percent of all such output. Such a tax would affect all international air travelers, depress tourism, and discourage trade. It would boost unemployment, slow growth, and encourage isolationism.
But this tax is only the first small step. Early in its first term, the Clinton Administration proposed a BTU tax. Such a tax would be the liberals dream -- almost unlimited additional government revenues to spend on new projects -- and the economy's nightmare of rising unemployment and slower economic progress. The plan being floated now by the State Department would be even worse; it looks to a regulatory body to restrict emissions. Any scheme subject to bureaucratic control would foster inefficiencies that would make the cost much higher than a tax, not that a tax would be good.
The numbers indicate that the cost would be staggering. Willaim Nordhaus, a respected Yale economist, concluded that the net discounted cost of meeting the Rio agreements goal of 1990 levels would be $7 trillion dollars -- about one-year's GDP. It would also add about one million to the unemployment rolls. A DRI/McGraw Hill study predicts that the cost would be only a loss of 600,000 jobs a year annually through 2020. An economist at Wesleyan University estimated that it would cost $260 per ton on carbon to reduce CO2 to 1990 levels by 2010 and would lower the growth rate of GDP by one percentage point annually. Income and wages would drop by 5 to 10 percent per year. Gas prices would be boosted by about 75 cents a gallon and heating oil prices would more than double. Low income families might have to choose between cold cuts and a cold house.
This proposed program to curtail CO2 emissions would be devastating. Fortunately it is unnecessary. A Columbia University study demontrates that the American farm sector would actually profit from global warming. Low lying regions in the United States might require up to a few billion annually to protect against rising sea levels, but the rest of the economy would either remain largely unaffected or would benefit.
Moreover, unless India and China agree to cut their future emissions, any U.S. reduction in greenhouse gases would be largely fruitless. By 2050, the best estimates show that Third World countries, exempt from controls under current agreements, would emit three-quarters of all CO2 emissions. Reducing employment and incomes in the United States would do little to stave off any climate change but would give a significant economic advantage to the emerging economies of Asia.
References:
Yohe, Gary W. "Climate Change Policies, the Distribution of Income, and U.S. Living Standards," Special Report, American Council for Capital Formation, Center for Policy Research, November 1996.
Williams, Larry, Daigee Shaw, and Robert Mendelsohn. "Evaluating GCM Output with Impact Models," draft report, EPRI, Palo Alto, CA, October 1996.
Nordhaus, William Managing the Global Commons, Boston: MIT Press, 1994.
Horwitz, Lawrence M. "The impact of Carbon Dioxide Emission Reductions on Living Standards and Lifestyles." Special Report, American Council for Capital Formation, Center for Policy Research, October 1995.