Less costly views of climate pact

The Kyoto treaty may boost - not hurt - economies. New studies counter Bush's view.

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Keep your eye on the climate, but your hand on your wallet.

That's the attitude the Bush administration takes in rejecting the Kyoto climate treaty: It will cost American jobs, causing as much as a 2 percent drop in US economic output over the next decade.

But a series of studies in the US, Europe, and Japan released in recent days suggests that if the Kyoto guidelines are implemented, the US and other industrial nations are likely to see only a slight decline of as little as 0.15 percent, or a modest economic boost of as much as 1 percent.

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The studies may breathe new life into a global-emissions reduction plan that is in trouble without US participation. The US alone accounts for 25 percent of the world's carbon emissions.

How could such divergent conclusions be reached about Kyoto's impact?

Until now, "the economic debate has not been conducted with a full deck of cards," says Florentin Krause, director of the International Project for Sustainable Energy Paths and a participant in the Intergovernmental Panel on Climate Change (IPCC), a UN working group looking at the economics of climate change.

Dr. Krause, along with Stephen DeCanio, a senior staff economist on the President's Council of Economic Advisers under President Reagan, have tried to gauge the impact of the Kyoto accord on the US economy and on its international trade position.

They find that while some sectors, such as the coal industry, would be seriously affected, the US economy as a whole stands to gain from ratifying the protocol. They arrived at this conclusion by altering five widely cited federal and university economic simulations so that the models take advantage of the full range of approaches the IPCC recommended to soften Kyoto's potential economic blow.

Until now, Krause says, each study analyzed the impact of Kyoto and assumed the US adopts some of IPCC recommendations, but no study shows the effect of adopting all of the approaches. These include a carbon-trading scheme within the US, continued voluntary energy conservation, efficiency, and technology R&D programs, using the revenue from domestic carbon trading to offset cuts in taxes, and participating in international carbon-trading markets.

When these approaches are fully used to offset the cost of implementation in the five economic models, the US economy shows a 0.5 percent to 1 percent gain in gross domestic product, instead of ranging from 0.09 percent growth to a 4 percent drop. President Bush's Cabinet-level task force cited a projected 1 percent to 2 percent drop in GDP in its criticism of the protocol's effect on the US economy.

The new results land in the same ballpark as those the Clinton administration derived when it analyzed the effect of implementing Kyoto, says Ian Bowles, a research fellow at Harvard University's Kennedy School of Government and a top member of Mr. Clinton's negotiating team sent to The Hague last November.

"Our models were pretty brittle," he concedes. "They couldn't factor in technological innovation over time." Overall, the Clinton administration came up with an implementation price tag of about $20 billion a year, about one-third smaller than the annual cost of implementing the Clean Air Act, he says.

A separate study by the Dutch consulting group ECOFYS Energy and Environment in Utrecht, Netherlands, projects that the European Union could meet its targets at a cost no greater than 0.15 percent of GDP by 2010, while a post-Kyoto Japanese GDP grew about 0.9 percent faster than otherwise - if companies continue to develop more energy-efficient technologies. If not, the picture was more gloomy. Both studies were commissioned by the World Wildlife Fund, an environmental organization.

The importance of dollars, yen, and Deutschemarks in the debate over proposed ground rules was underscored yesterday, when the Japanese delegation here outlined its position on the use of forests to soak up carbon emissions - so-called sinks - to help the country meet its emissions targets as cheaply as possible.

Faced with the prospect of having to cut carbon-dioxide emissions by 28 percent to reach its assigned benchmark of 6 percent below 1990 levels, Japan's ambassador for global environment issues, Kazuo Asakai, said, "To achieve that, we must have domestic sinks" - and under more generous conditions than those proposed by Jan Pronk, the Netherlands' environment minister and chairman of this round of talks.

But the not-so-bad economic studies don't leave Glen Kelly sanguine. Mr. Kelly, director of the Washington-based Global Climate Coalition, which supports Bush's position, cites yet other government and private studies that suggest Kyoto could cost the US economy as much as $210 billion by 2010 and 2.4 million jobs.

"The only way to meet Kyoto targets is to cut energy usage and raise taxes," Kelly contends. "Both sap productivity and impose costs on consumers, businesses, and communities."

If contentious results from economic models sounds a bit like contentious results form climate models, it's because the challenges the two face are similar, notes Henry Jacoby, co-director for the Joint Program in the Science and Policy of Global Change at the Massachusetts Institute of Technology in Cambridge, Mass.

Both are called on to yield results governments can use to help make decisions. Yet both yield results based on assumptions fed into them. Both are subject to uncertainties. And different models have different biases in how they treat certain features of the economy.

"The debate over economics reflects the uncertainties that policymakers face," Dr. Jacoby says. "Nobody knows what economic growth will be 10 years from now. In 1990, could you have foreseen the Clinton growth years?"

Michael Grubb, professor of climate-change and energy policy at Imperial College in London, whose work suggests that implementing Kyoto would impose a cost on industrial countries of no more than 0.1 percent GDP growth a year through 2010, notes that when economic models project changes in GDP of less than 1 percent, that means the effects are likely to be so small as to get lost in the "noise" of an economy's natural variations.

(c) Copyright 2001. The Christian Science Monitor

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