Are the US Economic Arguments in Refusing the Kyoto Protocol Reasonable?[1]

Kunaifi

The Kyoto Protocol that was embodied in 1997 as the world’s mutual action in abating the global warming has been being one of the greatest debates of present and previous centuries. The facts that the global temperature gradually increasing and the world’s need to live under a comfortable and safe atmosphere have encouraged all parts of the world to get involved in this issue. Indeed, current focus of the debate in the global warming abatement is mainly about costs. This reason later breaks the world into two opposite groups – one accepts the Kyoto Protocol and another refuses it.

George Bush’s Administration emerged the United State to be a leading country that took opposition to the Kyoto Protocol. In general, there were two main reasons raised by the Bush Administration to withdraw from it. Firstly, the Bush Administration believes that the implication of the Kyoto Protocol will harm the US economic growth, which could worse the world’s economy, consequently (US Embassy at Vienna, 2001) as Bush said, ”We will not do anything that harms our economy” (Horner and Murray, 2004). Secondly, “The United State believes, however, that the Kyoto Protocol is fundamentally flawed, and is not the correct vehicle with which to produce real environmental solution” (US Embassy at Vienna, 2001). In this article the question “are the economic arguments used by the United States against the Kyoto Protocol reasonable?” is attempted to be answered.

In order to meet the Kyoto mandates, the United States must cut its greenhouse gases emission by 7 percent below the 1990 levels (UNFCCC, 1997). This percentage corresponds to reducing energy-related carbon emissions from 1,346 million metric tons in 1990 to an average of 1,250 million metric tons during the period between 2008 and 2012 (US Department of Energy, 1998). However, the best predictions say the US energy-related carbon emissions will not less than 1,803 million metric tons in 2010 (US Energy Information Agency 1999; cited by Edwards 2001). Therefore, there is a 553 million metric tons gap between the 2010 predicted emission and the level of emission allowed by the Kyoto Protocol at the same year.

As a country which strongest economy in the world, the United States heavily relies on its industrial strength. Consequently, most world fossil-fuels consumptions are occurred in the United States. According to the World Resource Institute (2006), the US fossil-fuels consumption in 2004, for example, was the biggest in the world (around 2,000 million Tones of Oil Equivalent). When connected to the level of greenhouse gases emission, a vast amount of fossil-fuels utilization causes the United States to be the largest emission producer at 36 percent of the world total that correspond to about 19 tons per capita Carbon Dioxide emission (Angelini, 2006).

Furthermore, with a slight difference in proportion, President Bush assented this data by saying that the United States contributes to the largest proportion at 20 percent to the human-made greenhouse gases emission. Then, the Department of Energy (DOE) of the United States presented a more surprisingly data. According to DOE (1998), energy sector in the United States is the largest contributor that responsible to more than 80 percent of greenhouse gases emission that is originated by human actions. Undoubtedly, these data show the reduction of Carbon Dioxide emissions will effect directly to electricity generation as well as transportation sector as the main users of fossil-fuels. The Energy Information Administration (1998) counted this effect and found that to meet the Kyoto mandates the US must use in between 18 and 77 percent less coal and between 2 and 13 percent less petroleum that directly affecting electricity generation and transportation, respectively.

Based on this insight, the Bush Administration points the reducing a 553 million metric tons of greenhouse gases emission will not only very costly but also, in long-term, will deter the US economy. On the other hand, this is considered to sacrifice of the US economy.

If it is seen from the macroeconomic point of view, the US opinions about attaining the Kyoto mandates is this: the Kyoto compliance would reduce the US total income for $300 billion per year. This is equivalent to the 3.2 percent less then forecasted 2010 GDP projection (WEFA, 1998).

Further, this article will attempt to show how experts in this field rectify the exaggerating disquiet about the negative impacts used by the United States to withdraw from the Kyoto Protocol. Edward (2001) demonstrates that the United States has made a neglected assumption in counting the cost needed to meet the Kyoto Protocol. According to him, the claim was made by the US that Kyoto compliance would cost $300 billion per annum or 3.5% of 2010 predicted GDP based on unfitted assumption. The Energy Information Administration forecasted that during 2008-20012 the carbon permit price would at $350 per ton. This estimation, according to Edward is “vastly out of line with general equilibrium studies.” Edward (2001) then shows the Rutherford and Parry et al (1998) finding suggests a lower cost range between $100 and $160 per ton of carbon permit price. Using these estimations, the 2010 GDP predicted cost would only 0.25 % to 0.5 %. This study brings Edward to a convincing statement that the real cost would much lower. Another study conducted by the US Council of Economic Adviser (1998) as cited by Cooper (2001) suggests that the price of per ton of carbon under the Kyoto target would about $200 in 2012. This price would decline to $56 if all Annex B1 countries were included, and to $23 if China, India and other key developing countries were taken into account. Furthermore, Ellerman and Decaux's (1998) as cited by Chander et al (1999) estimates the world emissions trading in 2010 would only at US$24.75 per ton of emission. The US Department of Energy, actually has the same data show that in most cases, the carbon price in 2010 reaching between $67 and $348 per ton (US Department of Energy, 1998). However, in its arguments when counting the effect to the national economy, the US Government use the peak cost only. Regarding to GDP, Golub et al (2006) show that the fear of bad effect of climate change mitigation to the economic growth is flawed. They present clearly an experience of two European main industrial countries that had applied some parts of the Kyoto Protocol’s mandates. These countries experiences, in fact, had proved that there is no significant bad influence of the Kyoto Protocol implementation to their national economy as the United States is worried about. They finding is below:

“…, two countries, Germany and the United Kingdom, reduced emission over the period 1990 - 2000 by 11% and 13%, respectively. At the same time, they have achieved real Gross Domestic Product growth over that decade of 20% and 29%, respectively.” (p. 525).

In order to attempt to assuage fears on overwhelming costs, the Kyoto Protocol, actually accomplished with several mechanisms enable the signatory countries to suit their domestic budget to meet the Kyoto mandates. One of the most effective mechanisms named Carbon Trading. The reason to use the carbon trading in reducing costs is clear - with emission trading, countries with high reduction obligation can buy the emission permit from the countries with lower reduction or even without any reduction obligation. This mechanism is acceptable, because the average emission of two countries that are doing carbon trading is balance. Golub et al (2006) stated:

“… the cost fall considerably when the target can be met with emission trading – for the United States, for example, the average estimated cost across eight studies of the 2010 target were 1.3% of GDP with no trade in emission, but they fell by more than half when trade was permitted…” (p. 522).

There are two important aspects were not taken into account in the US Government argument related to the indirect ancillary benefits of the Kyoto Protocol application. Firstly, as suggested by Krause et al (2002) as cited by Golub et al (2006), the United States should allow for the fact that reducing the greenhouse gases emission would not only imply the reducing of carbon dioxide emission but also other pollutants such as sulfates, nitrates and particles. These pollutants are very harmful for humans and most animals. Secondly, Golub et al (2006) suggested that the introduction of energy efficiency should also be taken into account. These two ancillary unseen benefits, actually carry along an uncountable amount of monetary equivalent for a long time period.

In conclusion, it is clear that the Kyoto Protocol requires much money to meet to. However, the Kyoto protocol is the only extant large-scale program in climate protection initiative. As the world largest greenhouse gases emitter, the United States’ reluctance to ratify the Kyoto Protocol highly possible to influence the global actions in abating the climate changes significantly. It is necessary to say that cost, in many ways, is a function of perception. Merely using the money point of view to look at the Kyoto Protocol or other policies cannot be considered as a comprehensive consideration. Many researches have been conducted by many experts demonstrate that the economic arguments used by the United States against the Kyoto Protocol is flawed. Many other countries that still believe in the effectiveness of the Kyoto Protocol has been moving ahead steadily and staying on the track, particularly to ensure that the Earth we bequeath to our descendants is a sustainable legacy.

References

Angelini, D. (2006). The Kyoto Protocol between USA and Japan. Bolletino della Comunita Scientifica. August 2006. Canberra. Available: www.scientificambitalia.org/bulletin/assets/f448.pdf. (March 22, 2007)

Chander, P., Tulkens, H., Ypersele, J. P. V., Willems, S. (1999). The Kyoto Protocol: An economic and game theoretic interpretation. The Fondazione Eni Enrico Mattei Note. Lavoro. Available: www.econ.kuleuven.ac.be/ew/academic/energmil/climneg/pdf/CLIMNEG_WP12.pdf. (March 27, 2007)

Cooper, R. N. (2001). The Kyoto Protocol: a flawed concept. Harvard University. Cambidge. p. 17. Available: www.economics.harvard.edu/faculty/cooper/papers/Kyotoprotocol.pdf (April 2, 2007)

Edward, T. H. (2001). Costs for the USA of compliance with the Kyoto Protocol: a critical assessment of official US estimates. Available: www2.warwick.ac.uk/fac/soc/csgr/research/keytopic/environmental/usakyoto.pdf. (March 27, 2007)

Energy Information Administration. (1998). Economic effects of a complex Agreement depend on many assumptions. Washington. Available: http://www.eia.doe.gov/oiaf/kyoto/kyotobtxt.html. (April 2, 2007)

Golub, A., Markandya, A., Marcellino, D. (2006). Does the Kyoto Protocol cost too much and create unbreakable barriers for economic growth? Contemporary Economic Policy. Oct 2006, 24-4, 520-535. Available: http://cep.oxfordjournals.org/cgi/reprint/byl012v1.pdf. (March 21, 2007)

Horner, C., Murray, I. (2004). Why the United States should remove its signature from the Kyoto Protocol. Monthly Planet. Available: www.cei.org/pdf/4254.pdf. (March 27, 2007)

The United Nations Framework Convention on Climate Change. (1997). Countries included in Annex B to the Kyoto Protocol and their emissions targets. The UNFCCC. New York. Available: http://unfccc.int/kyoto_protocol/background/items/3145.php. (March 28, 2007)

The White House. (2001). President Bush discusses global climate change. The White House. Washington. Available: http://www.whitehouse.gov/news/releases/2001/06/20010611-2.html. (April 2, 2007)

U. S. Department of Energy. (1998). Impact of the Kyoto Protocol on U. S. energy market and economic activity. U. S. Department of Energy. Washington. Available: http:// tonto.eia.doe.gov/FTPROOT/service/oiaf9803.pdf. (March 27, 2007)

Unites States Embassy at Vienna. Fact sheet: United States policy on the Kyoto Protocol. Vienna. Available: http://vienna.usembassy.gov/en/download/pdf/kyoto.pdf. (March 22, 2007)

US Department of Energy. (1998). A briefing paper on the energy information administration’s analysis and report. US Department of Energy. Washington. Available: http://www.eia.doe.gov/oiaf/kyoto/kyotobtxt.html. (March 30, 2007)

WEFA. (1998). Global warming: The high cost of the Kyoto Protocol national and state impacts. WEVA. Available: www.heartland.org/pdf/11399.pdf. (March 21, 2007)

World Resource Institute. (2006). Fossil fuels consumption and its implications. Washington. Available: http://earthtrends.wri.org/updates/node/100. (March 30, 2007)

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[1] This article was my final assignment of EAP Training at IALF Jakarta, Feb-April 2007

1 Annex B countries included EU-15*, Bulgaria, Czech Republic, Estonia, Latvia,Liechtenstein, Lithuania, Monaco, Romania,Slovakia,Slovenia, Switzerland, USA, Canada, Hungary, Japan, Poland, Croatia, New Zealand, Russian Federation, Ukraine, Norway, Australia, Iceland.