December 11, 1997 in Nation/World

Effects Of Kyoto Protocol On Economy Depend On Details

Art Pine And Faye Fiore Los Angeles Times
 

The global warming agreement reached in Kyoto, Japan, is likely to cast a pall of uncertainty over the U.S. and world economies for the next several months - and possibly even for years - economists on both sides say.

The accord’s specific impact will depend on a variety of key factors that are still not decided, including how the new limits will be administered and how widely the burden will be spread.

At worst, the 160-nation pact could shave U.S. economic growth by several percentage points between now and 2012, cost between 2 million and 3 million jobs and send energy prices soaring.

At best, it could have a far milder effect, restraining economic growth only slightly and - environmentalists contend - saving consumers and businesses millions of dollars in pollution cleanup costs.

The participating governments agreed to put off until next year the key question of whether high-pollution countries will be able to buy pollution “credits” from lower-pollution countries.

So at least in the short run, businesses will be unable to start adjusting to the new order, concedes Robert Repetto, an analyst at the World Resources Institute, an environmental group. “The worst thing for business is uncertainty,” he said.

Nor does the accord appear to spell disaster for the national economy. Even the gloomiest forecast calls for a slowdown rather than a full-fledged slump.

“It’s not enough to cause a real recession, but it’s enough to take a healthy whack out of the economy,” said David Montgomery, an economist at Charles River Associates, an economic analysis group.

Still, if the United States takes its commitment seriously and agrees to cut greenhouse gas emissions by 7 percent from 1990 levels, the impact on certain industries and regions could be severe.

The coal industry would be the big loser as the value of coal declined sharply, hundreds of mines were shut and thousands of miners were thrown out of work. “Coal mining is headed for the graveyard,” said William D. Nordhaus, a former presidential economic advisor now at Yale University.

Energy prices - including gasoline, natural gas and electricity - could rise perhaps as much as 25 percent to 50 percent at retail, with gasoline prices jumping by as much as 45 cents a gallon, if the nation choses to use higher prices to force reduction in fossil fuel consumption.

Energy-intensive industries such as automobile manufacturing, steel, aluminum, chemicals, transportation, agriculture and some utilities would be especially hard-hit.

Analysts say the actual impact of the agreement depends substantially on a variety of issues that governments are going to have to resolve over the next several months:

Will participating governments agree to set up a global trading system that would allow polluting countries to buy pollution permits from countries that exceeded their targets for reducing greenhouse gases?

If the United States could purchase some of these credits from other countries, it would help ease the burden on U.S. businesses and consumers.

Rejection of that proposal, by contrast, would convert the global warming problem into a domestic problem for the United States, said Mary Novak, an economist at the WEFA economic forecasting group. “The United States essentially will be bearing its burden alone,” she said.

How quickly will the administration set the ground rules and put industry on notice about what it has to do so that the United States will comply with the accord?

The adjustment will grow more painful with every month the government delays, WEFA’s Novak asserts. Putting the changes off until just before the 2012 deadline, she said, could make the impact intolerable.


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