Now that the Administration has sentenced the economy to hard times, the White House maintains, sententiously, that if everything goes right, if we all run as fast as we can, and if the Mad hatter bestows his blessings on the Republic, the masses will feel only slight pain.

On what does the Administration base its euphoria? More than a year after Congress requested an economic analysis of the cost of reducing greenhouse gases, the President’s minions have at last assembled estimates on the cost of Kyoto. Well sort of; kind of, in any case, just the conclusions, not the facts. The economic analysis is conspicuously absent.

Putting her best food forward, the Chair of the Council of Economic Advisers testified on March 4 on the economics of the Kyoto protocol. Janet Yellen made a valiant attempt to depict the burden of meeting the December agreement as a minor fluctuation in energy prices. After asserting the need to be conservative, she described the rosiest possible scenario on every issue. She testified that the costs of meeting the Kyoto targets might amount only to $7 to $12 billion per year! Without any of the backup analysis, it is difficult to know the source for her miraculous numbers. Yellen contended that the measure of the impact "is not entirely dependent upon, but is fully consistent with, formal model results." If it is not dependent upon the model, which we are not shown, what does it depend on?

Yellen dismissed the views, put forward last year by Clinton’s own Department of Energy that Kyoto might adversely affect the competitive position of American industry. She maintained that evaluating these effects "is complex." She argued that energy constitutes only 2.2 percent of total costs of U.S. industry but failed to note that many industries spend much more on fuel and electricity than such trivial percentages would suggest. Her comparison of gas prices in various countries, which vary from 8 cents a gallon in Venezuela to $4.41 in France, was totally irrelevant for such industries as aluminum. Venezuela subsidizes its gas, but not necessarily electric power, while Paris taxes gasoline extraordinarily heavily. Aluminum plants require ample supplies of low-cost electricity. In the United States production of that metal has been mainly located in the Northwest where cheap Bonneville power is available. Without cheap electricity, aluminum producers and other power-intensive industries will decamp to more hospitable shores.

Her estimates of the low cost of meeting Kyoto targets are highly dependent on trading and what is called joint implementation. In Kyoto both these ideas were strongly resisted. The compromise eventually struck by tired delegates included approving the concepts while leaving the details to be worked out in Buenos Aires this coming fall. The trading scheme envisioned would allow companies to purchase the right to emit CO2 from other entities that have reduced their emissions below their limits. Joint implementation, referred to in the Kyoto protocol as the Clean Development Mechanism (CDM), provides that companies may build facilities in developing countries more fuel efficient than the locals would normally have erected. The difference can be banked, sold, or used to offset emissions in the United States.

The trading regime is patterned after the sulfur dioxide provisions of the Clean Air Act. Under that legislation, companies are assigned SO2 quotas. If the utility reduces its emissions by more than its quota, that firm can sell the savings to another entity. If a producer finds it cheaper to buy emission rights than to restrict its output, it can do so. The EPA supervises all of this carefully to insure that real reductions are being sold and that all participants are living within their limits.

In theory the concept would reduce costs, as it has in the U.S.; but it would require an international body to oversee and verify any reductions. Since Russia and the former East Bloc countries have witnessed the collapse of their heavy, energy intensive industries and would therefore be able to claim credits, it is usually predicted that American companies will buy their credits from those former Warsaw pact nations. No numbers currently exist, however, on how much each of these states has cut its emissions; it is assumed that the governments will come up with some estimate of CO2 reductions and sell those savings. As a result, U.S. companies will be buying certificates, giving them the right to emit carbon dioxide, from producers who have already lowered emissions; consequently greenhouse gases will not be cut further. But American firms will be paying handsomely for those certificates.

Australia, Canada, New Zealand, the United States and Russia, dubbed the "umbrella group," have expressed interest in trading among themselves. The first four would purchase from Russia, which has the target of reducing emissions only to 1990 levels — a level no one knows. Given the collapse of Russia’s industry and its moderate target, it will have lots to sell. Depending on the price Moscow sets for their putative greenhouse gas reductions, Americans will have to shell out more or less for fictitious savings. Other former East Bloc countries should quickly see the profit and move in under the umbrella. According to Yellen, this could reduce costs by 60 to 75 percent, but from what level she fails to specify.

The White House is also expecting significant gains from the Clean Development Mechanism. Many Third World countries, however, view this process as economic imperialism and refuse to allow Americans or Europeans to own their power facilities. Ignoring this obstacle, the Chair testified that the CDM might produce a further saving of 20 to 25 percent on top of that from trading. Those two types of savings, trading and CDM, would therefore reduce total costs by 18.5 % to 32 % from the unknown original figure.

In addition, if the US succeeded in persuading all developing countries to commit to targets — and we all know how adamant China was in Kyoto about not restricting its emissions — and if those countries were to allow us to buy emissions, she claimed that the cost might go down roughly 55 percent on top of the gain from trading envisioned from the umbrella group. At this point, we would have reduced costs by 90 to 95 percent from whatever may be the base. In other words, since achieving these gains is highly unlikely, the costs to the American public from Kyoto would probably be about 10 to 20 times the number given by the White House.

This White House spokeswoman also emphasized the potential for gain from including sinks in the calculus. Sinks, as defined in Kyoto, are reductions in CO2 from afforestation and reforestation, minus additions from deforestation. Although Bert Bolin, the former head of the IPCC, asserted that no one knew how to measure such sinks, Yellen claimed that they could decrease costs by more than 10 percent. We have now cut costs to below zero!

But she was not through. Energy use per dollar of GDP has been falling for some decades. She predicted that, given investment in research on energy efficiency, the ratio would continue to decline and would do so even more rapidly than the DOE’s Energy Information Administration forecast. Taking what appears to be a wild guess, she saw "the permit price" declining by 40 percent. I assume that she was referring to the market price of CO2 certificates. Costs have now been cut by up to 150 percent! Meeting Kyoto’s strictures will boost our GDP! As the White Queen said, "Why sometimes I’ve believed as many as six impossible things before breakfast."

Finally Yellen testified that relative price shifts would produce non-climatic benefits in three areas, traffic congestion, highway accidents, and air pollution unrelated to climate change. Higher gasoline prices would, in fact, reduce driving and produce those gains, but the Administration has ruled out such taxes. Consequently the policy-makers must be envisioning some system of certificates that will restrict emissions and drive up costs to consumers indirectly. If it looks like a tax, if it smells like a tax, if it feels like a tax, the American public will not be pleased. Yellen does predict that gasoline prices may rise by a modest 3 to 4 percent. If so, that will have no noticeable effect on traffic congestion, highway accidents, or air pollution. However, if the Administration forces higher gas mileage on new cars, driving will become cheaper and congestion and accidents will rise.

The Council of Economic Advisers’ report concluded, without explaining how this number was calculated, that the cost of meeting Kyoto might fall between $7 billion and $12 billion annually. Assuming that those numbers were estimated after costs were reduced from trading, CDM, and from the participation of developing countries, the total costs of meeting Kyoto, if none of those savings materializes, would be somewhere between $70 billion and $240 billion annually. In the absence of these questionable gains, the cost of removing carbon would lie between $140 and $460 per ton and would push up the average household’s costs by $700 to $2200 per year, not a trivial sum.

This testimony is the rosiest scenario that any Administration has tried to foist on the public. The Congress should demand that this Administration furnish the backup material on the analysis underlying these estimates, provide the methodology behind the numbers, and a rationale for the belief that Mexico, Brazil, China, and India will refrain from luring our industry to their lands of cheap labor and low-cost energy. "Curiouser and curiouser!" cried Alice.