The Kyoto Protocol and the U.S. Economy

In 1992, representatives of the U.S. and 160 other nations met in Rio de Janeiro to negotiate and eventually endorse the United Nations Framework Convention on Global Climate Change, more popularly known as the Rio Treaty. That treaty endorsed voluntary, nonbinding measures to stabilize greenhouse gas concentrations that could raise average surface temperatures and change the global climate and pledged to reduce emissions of greenhouse gases to 1990 levels by the year 2000.

On December 1, 1997, the Parties to the Rio Treaty met in Kyoto, Japan, to complete negotiations for a protocol, or amendment, to the treaty.

The Protocol:

The Kyoto Protocol states the following:

Developed countries are required to reduce their overall greenhouse gas emissions "by at least 5 percent below 1990 levels" by 2012.
Developing nations that are major sources of greenhouse gases, such as China, India, and Mexico, are excused from having to comply with any emission requirements.
A permanent international body, the Framework Convention on Climate Change Secretariat, is created.

U.S. Economic Concerns:

Agriculture

Consumer food prices would rise. A 2 percent decline in gross domestic product would result in a 0.7 percent decline in domestic demand for food. This would create a mild, short-term downward pressure on food prices, counterbalanced by the inflationary pressures of higher energy costs.

Public assistance costs would rise. The U.S. Department of Agriculture spends more than $39 billion annually on six food assistance programs, most notably the Child Nutrition Programs and Food Stamps. The emission-control regime, by reducing employment, could add 500,000 people to the food stamp rolls and increase program costs by 5 percent, or $2 billion annually.

Agricultural exports would fall. By increasing the energy costs of farm production in America while leaving them unchanged in many countries that are emerging agricultural producers, the Kyoto Protocol would cause U.S. food exports to decline and U.S. food imports to increase.

Energy

The carbon price required to reduce U.S. energy-related carbon emissions ranges from $67 to $348 per metric ton in 2010 (1996 dollars). Due to the carbon price, the average price of gasoline could be between $0.14 and $0.66 per gallon higher in 2010 than it would be otherwise, and electricity prices could increase by 20 to 86 percent.

Because coal is the most carbon-intensive of the fossil fuels, the price of coal will rise dramatically -- between 153 and 800 percent in 2010 relative to baseline projections, and coal use will be reduced by between 18 and 77 percent, particularly for electricity generation. Electricity generation from coal may be reduced to between 2 percent and 74 percent of today's level by 2020.

Nuclear generation's decline will slow as it becomes economic under higher carbon prices to extend the operating life of existing plants rather than retire them, raising nuclear generation between 8 and 20 percent in 2010, compared to the baseline.

Overall Impact of the Kyoto Protocol on the U.S. Economy

Consumers would see price increases in excess of 55 percent for electricity and 70 percent for home heating oil by 2010.
Commercial establishments would see electricity price increases of 60 percent.
Gross Domestic Product (GDP) would fall by $300 billion annually (in 1992 dollars), over 3 percent of baseline GDP projections.
The number of jobs in the U.S. in 2010 would be 2,400,000 below baseline projections.
Average annual household income would fall nearly $2,700.
Real wages in the manufacturing sector would fall 2.1 percent below baseline in 2010