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Capitol Comment 188 – The Clandestine Cost Analysis of the Kyoto Protocol

After months of waiting, Council of Economic Advisors member Janet Yellen has revealed the administration’s cost estimates of the Kyoto Protocol. She claims that the cost of the agreement to the average American family would be no more than $110 annually.1 This figure, however, remains controversial and differs greatly from the analyses of responsible economic forecasting firms, such as WEFA, Inc., that put the impact to American families at $2,700.2

Where’s the analysis? Although differences in such estimates are to be expected from the inexact science of economic modeling, the administration’s figures have no underlying documentation or analytical foundation. In fact, when asked where the underlying analysis was, Janet Yellen said her brief testimony was the underlying analysis.

However without more substantial analysis, the administration’s claims about the cost of the Kyoto Protocol are unbelievable. In addition, recent events suggest the Clinton administration is hiding something. One administration official has claimed that the actual analysis reveals that the president’s advisors were unable to agree on the impacts of the treaty.3 Such dissension among the president’s own economic advisors is reminiscent of the economic debate over the new air-quality standards. If history does in fact repeat itself, the administration’s cost analysis of the global warming treaty, once unearthed, will prove what critics have maintained all along: the Kyoto Protocol is a bad deal for America.

A trend of partial truths. Last July the Environmental Protection Agency (EPA) promulgated by bureaucratic fiat the most expensive and scientifically indefensible “air-quality” regulations in American history. Now that the standards are set in stone, the EPA quietly admits that the actual economic costs are vastly higher than initially claimed.

During the debate over the new particle and ozone standards, the EPA released only a partial annual cost estimate of $8.5 billion for both standards. This figure was widely misreported as an accurate estimate of the full cost of compliance. After enactment, however, the EPA admitted in one of its obscure regulatory impact analyses (RIAs) that the full cost was actually $46 billion.4 It also revealed that the new standards are so stringent that it is technologically impossible for 47 unnamed counties to comply.5

This expense might seem justified if the EPA’s assertion that 20,000 annual deaths occurred due to fine particle exposure were true. However, the discovery of a statistical error lowered that number to 15,000. According to the scientist who found the error, former Carter administration environmental advisor Dr. Kay Jones, less than 1,000, and more probably zero, deaths actually occur. The agency failed to respond to Dr. Jones. Even more disturbing was the EPA’s admission in the final rule, buried deep within a footnote in the Federal Register that, in fact, only one fine particle mortality study supports the new particulate matter standard, and not the 80 or so studies it had previously cited.

As for ozone, the congressionally appointed Clean Air Scientific Advisory Committee (CASAC) said there was no reason to make the ozone standard more stringent — the current standard was sufficiently protective of the public health. EPA economists seemed to agree with CASAC. In weighing the financial costs and monetized health benefits, they admitted in the final RIA (once again, after the standard became final) that the ozone standard would produce only negative annual social benefits in the range of $1.1 to $8.1 billion.6 Thus, the EPA knowingly moved forward with a standard that will do harm to the American people.

The cost of Kyoto. From what little we know about the Clinton administration’s economic estimates, it is probably keeping us in the dark about the real costs of the treaty. Although the president has proposed a so-called “free-market” solution to reducing greenhouse gases, his proposed international “cap and trade” program is no more than a stealth tax — one that would permanently limit economic growth in this country. Absent a major technological revolution in the energy sector, this cap could cost America trillions of dollars in the next century.

President Clinton would like us to believe that $6.3 billion in tax credits and subsidies for research and development will find a replacement for cheap fossil fuel energy. The facts show that $5 billion in government research since 1979 have failed, with solar electricity still costing three times as much as coal to produce. Regardless of cost, solar power can only produce a very small percentage of America’s electricity due to intermittence resulting from ever-present clouds. Even environmentalists now discount the future of solar energy. Christopher Flavin, an expert in renewable energy, recently admitted that one type of solar power, central-station generation, had little chance of penetrating the market.7

Conclusion. If the debate over the air quality standards is any indication, the Clinton administration is hiding the truth about the real costs of the Kyoto Protocol. If the administration continues to hide its analysis of the treaty’s economic impacts, we can only assume the worst.

1Joby Warrick, “White House Predicts Low Cost for Pact On Warming,” The Washington Post, March 4, 1998.

2Mary Novak, Testimony before the House Committee on Government Reform and Oversight, April 23, 1998.

3Patrice Hill, “White House not letting public see warming papers,” The Washington Times, May 14, 1998.

4The Environmental Protection Agency, Regulatory Impact Analyses for the Particulate Matter and Ozone National Ambient Air Quality Standards and Proposed Regional Haze Rule, July 16, 1997, p. ES-12, 13.

5Ibid., p. ES-11, 12.

6Ibid., p. ES-20.

7Comments by Worldwatch Institute economist Christopher Flavin at the Department of Energy’s annual National Energy Modeling System Conference, March 30, 1998.