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Cold Facts About Global Warming U.S. Must Reduce Its Energy Consumption, But Does That Mean Slowing Down Economy?

Sat., Dec. 13, 1997

By Robert A. Rankin Knight-Ridder You have probably heard the scare stories about how much it will cost Americans to curb global warming if the agreement reached by some 160 nations this week at Kyoto, Japan, becomes law.

The average U.S. household could pay $2,000 or more in extra costs per year, opponents of the Kyoto accord say, citing reputable economic studies. Gasoline prices could rise by 50 cents a gallon. Home heat and electricity bills could soar 50 percent.

That all could happen, independent experts say, but it doesn’t have to.

Instead, if the Clinton administration’s approach is adopted in full - a big if, facing lots of obstacles - then the United States could meet the ambitious goals set at Kyoto with far less economic pain.

“The economic costs of this treaty can be reduced by 80 percent” if the Clinton plan is approved at home and globally, said Bruce Humphrey of Cambridge Energy Research Associates, a Boston consulting firm. Other leading energy economists agree.

The Kyoto global-warming accord presents Americans with several painful truths. We are the biggest single source of the problem, causing almost 25 percent of greenhouse-gas emissions today. We must change the way we use energy dramatically over the next 10 to 15 years to meet the accord’s aims. And that will raise the price we pay for energy, experts agree; the question is, by how much?

The agreement’s goal is to cut emissions of gases that trap the sun’s heat in the lower atmosphere like a greenhouse. Scientists warn that this process is slowly warming and changing Earth’s climate with potentially disastrous results in the next century.

The gases come primarily from burning carbonbased fuels such as oil and coal, the lifeblood of modern industrial civilization. The challenge is to wean economies off carbon-based fuels with minimal disruption.

To meet Kyoto’s goal would require a 41 percentage point swing from current U.S. emission trends.

What would make people shift their energy habits that much?

The simplest way, economists say, would be to tax the carbon content of fossil fuels. A tax of about $150 per ton of carbon would do the trick, estimates Robert N. Stavins, a noted energy economist at Harvard University. That would raise retail energy costs to consumers by about 40 percent on average and cost the economy about $200 billion a year, Stavins estimates - roughly as much as all other environmental regulations combined.

A tax shock of that size, if imposed all at once, would force wrenching changes in U.S. energy use comparable to the oil-price shocks of the 1970s that toppled the economy into a series of deep recessions, warns Yale economist William Nordhaus.

To avoid such calamitous results, the Clinton plan would not impose a direct tax. Instead it would phase in a series of complex substitutes over the next 15 years aimed at the same result - sharply reduced use of fossil fuels.

First, in early 1998 Clinton will propose $5 billion worth of tax incentives to encourage private business to invest in energy-efficiency improvements. That’s less than three-tenths of one percent of the $1.6 trillion federal budget and will have minuscule impact on the $8 trillion U.S. economy. Still, White House aides say it sends an important symbolic signal to encourage technological innovation.

Second, Congress plans major legislation to restructure the electric-utility industry next year, and White House aides say Clinton will push hard for terms that encourage power plants to burn less coal and more clean fuels, such as natural gas. Utility power plants are one of the biggest single sources of greenhouse gases.

Clinton’s most important global-warming idea by far, however, calls for development of market-based trading schemes of emission rights, both at home and around the world.

Emission limits will be defined for each domestic source over the next few years, but will not become mandatory until 2008.

Firms that find ways to become more energy efficient and thus cut emissions would gain credits. Those that produce fewer emissions than their limit allows could sell their remaining pollution rights to firms that fall short, saving the second firm perhaps prohibitive costs of adjustment.

The idea is to spur private-sector innovation in search of the lowestcost methods of cutting emissions; a similar scheme already works well in reducing sulfur dioxide emissions, which cause acid rain.

A related effort under Clinton’s global-warming plan, called “Joint Implementation,” would allow U.S. firms, and those from other developed countries, to win credit by cutting emissions overseas.

Together, these schemes aim to spur energy efficiency, technological innovation and early action. By signaling that U.S. emission caps are coming but waiting a full decade until they become mandatory, Clinton will give people time to plan ahead and schedule investments in ways that should minimize disruption, said Gene Sperling, director of the White House National Economic Council.

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