Footing the Bill

Global Warming: Part II

By David W. Riggs, Ph.D., Senior Fellow, Economic and Environmental Studies, Center of the American Experiment

Introduction

A rationale for government intervention into market-processes is to prevent real and dangerous hazards from affecting the general population. When looking at the recent media-hype on global warming, one is inclined to believe that real dangers of temperature increases are looming and immediate action is warranted. The Clinton Administration, for example, has proposed a policy to reduce greenhouse gas emissions to 1990 levels.

However, there is no substantive scientific basis for the warming threats currently being sketched in the popular media.¹ As Part I of this series described, environmental benefits from emission reductions are doubtful because the facts do not support human-caused temperature changes, and proposed policies would not likely reduce greenhouse gas concentrations. Even if we assume a future increase in mean temperature, substantial benefits may, in fact, result. Nonetheless, proponents of global warming theory trudge forward with proposals for costly restrictions on America’s energy use.

This report is the second part in a three-part series addressing the global warming issue. This installment contains a summary of studies that quantify the costs of proposed policies being discussed at the Kyoto conference, with emphasis on their impact on Minnesota and consumers.

Costs of a Kyoto Treaty

In attempting to address potential global climate change, proposed policies advocate a reduction in greenhouse gas emissions that would, ultimately, impose controls on energy use and production.² Under such policies, participating nations likely would be assigned emission quotas. For example, each nation might be required to reduce carbon dioxide emissions to 1990 levels, and would be assigned an emission limit based on current energy consumption or some projected future consumption level. Put simply, emission limits would ration or tax carbon-based energy.

No matter how the emission reductions get packaged ( e.g., a system of emission quotas or energy taxes combined with alternative-energy subsidies ( they would make energy less abundant, and such restrictions would have substantial adverse economic impacts. Many studies have quantified the potential impact of emission reductions on economic output and employment. The studies, unsurprisingly, produce various results, but a common assumption for all is a $100 per ton or more carbon tax that would be necessary to achieve emission reductions.³ The carbon tax would lead to corresponding increases in energy prices. A summary of findings is provided below.

Impacts on Output

• U.S. gross domestic product would be reduced between 0.2 and 0.7 percent.⁴
• By 2010, gross state output would decrease an average of 2.5 percent per state, or about $230 billion collectively. The U.S. economy would permanently lose $3.3 trillion between 2001 and 2020.⁵

Impacts on Employment

• By 2005, total non-farm employment would decline by more than 900,000.⁶
• The U.S. economy would suffer total employment declines of 0.7 percent by 2005, 1.3 percent by 2010, and 0.9 percent by 2020. By 2010, average employment would decrease 1.35 percent per state, or 2.17 million jobs nationally.⁷
• Another study finds job losses could rise beyond 1.6 million. Moreover, this estimate does not include workers who could experience reductions in wages and hours worked, increased frequency and duration of layoffs, and diminished prospects for job growth.⁸
• Although the science and engineering professions would experience relatively small job gains, substantial job losses would occur in the “blue collar” manufacturing sector.⁹

Impacts by Industrial Sector

• By 2010, manufacturing wages would decrease by about 2.9 percent, or $900 per $30,000 salary; and non-manufacturing wages would decrease by about 1.8 percent, or $540 per $30,000 salary.¹⁰
• By 2010, estimates of job losses in key industrial sectors include 32,000 in mining, oil and gas extraction, 162,000 in manufacturing, and 288,000 in service industries.¹¹
• The agricultural, metal mining, service, and trade sectors all would experience billions of dollars of losses in output.¹²

In brief, greenhouse gas emission-reduction policies would lower America’s standard of living due to the sizable energy restrictions they seek to impose. The proposed policies would create substantial job losses, diminish job quality, and cause wealth redistribution across industrial sectors.

Minnesota and Consumers

In a study by the Heritage Foundation, the costs of committing each state, including Minnesota, to a lower standard of living, fewer jobs, and higher prices are quantified.¹³ Based on assumptions closely resembling the President’s proposal, the reported results for Minnesota by 2010 show a decline of:

• 2.35 percent in total output ( about $4.2 billion;
• 1 percent in total employment ( about 30,000 jobs;
• 3.16 percent in wages and salaries in manufacturing ( about $518 million;
• 1.8 percent in wages and salaries in non-manufacturing ( about $1.3 billion;
• about 2.3 percent in agricultural output;
• about 2 percent and 1 percent, respectively, in the service sector’s output and employment;
• and about 2 percent and 1.5 percent, respectively, in trade sector’s output and employment.

The impact of greenhouse gas emission reductions on Minnesotans is similar to that of the rest of the nation: a decrease in output, fewer jobs, and higher prices. However, this impact would be felt beyond a mere reduction in the “statistics” of output and employment; through a reduction in the standard of living, real people, consumers, and workers would be affected.

Restrictions on energy use and production would mean higher costs for most every major aspect in a household’s monthly budget, including housing, heating, air conditioning, lighting, transportation, food, and consumer products.¹⁴ For example, electricity costs and household fuel prices have been estimated to increase by about 50 percent and gasoline prices could rise 26 to 60 cents per gallon.¹⁵ Although all consumers would bear the costs of energy restrictions, low-income individuals ( including many seniors ( who spend a high portion of their income on these staples, would be disproportionately affected.¹⁶

Conclusion

Keeping in mind that some greenhouse gases in our atmosphere are very beneficial, we simply do not know if emissions should be higher or lower. Because scientists are not in agreement about the effects of greenhouse gases on the entire global ecosystem, the benefits of any emission-reduction policy are difficult to estimate. The costs, on the other hand, are much more definitive.

Make no mistakes about it: Reducing emissions to 1990 levels would affect the life of every American. A governmental reorganization of

energy use and production would not be a painless or costless process. In fact, it likely would damage the economy and cost millions of jobs. As Fred Smith of the Competitive Enterprise Institute writes: “while global warming itself may or may not pose a threat, global warming policies pose very real threats to our civilization.”¹⁷

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Footnotes

1 Singer, S. Fred. Hot Talk, Cold Science: Global Warming’s Unfinished Debate. Oakland, CA: The Independent Institute, 1997.

² Note that emission reduction is not the sole policy for mitigating potential global climate change; others include carbon sequestration (e.g., replanting forests) and cooling the climate (e.g., launching light-reflecting or absorbing surfaces into space). Ibid., Singer. .

³ Interagency Analytical Team (IAT). “Economic Effects of Global Climate Change Policies.” draft report, Washington, D.C.: U.S. Department of Energy and U.S. Environmental Protection Agency, June 1997. .

⁴ Intergovernmental Panel on Climate Change (IPCC). “Economic and Social Dimensions of Climate Change.” Climate Change 1995. Vol. 3, Cambridge, England: Cambridge University Press, 1996. .

⁵ Schaefer, Brett D. “How the Global Warming Treaty Will Harm the Economic Health of the States.” Washington, D.C.: The Heritage Foundation, November 1997. .

⁶ IAT, supra note 3. .

⁷ Schaefer, supra note 5. .

⁸ Steger, Wilbur and Frederick Rueter. “Transitional Economic Impacts on Climate Change Policies.” The Costs of Kyoto: Climate Change Policy and Its Implications. Washington, D.C.: Competitive Enterprise Institute, 1997. .

⁹ Ibid. .

¹⁰ Schaefer, supra note 5. .

¹¹ IAT, supra note 3. ¹² Schaefer, supra note 5. .

¹³ Schaefer, supra note 5. .

¹⁴ Smith, Frances B. “The Human Costs of Global Warming Policy.” The Costs of Kyoto: Climate Change Policy and Its Implications. Washington, D.C.: Competitive Enterprise Institute, 1997. .

¹⁵ Ibid. .

¹⁶ Schleede, Glenn R. “Impact of Potential Greenhouse Gas Emissions on the People and Economy of Texas.” National Consumer Coalition, September 1997. .

¹⁷ Smith, Fred L. “Conclusion: The Role of Opportunity Costs in the Global Warming Debate.” The Costs of Kyoto: Climate Change Policy and Its Implications. Washington, D.C.: Competitive Enterprise Institute, 1997, p. 151.