Out of Thin Air

Out of Thin Air

June 01, 1998

"If we do it dumb, it will cost a lot; if we do it smart, it won’t cost much." Thus sayeth theKyoto apologists in the Clinton-Gore Administration, who apparently don’t realize how dumb it sounds to talk about smart central planning.

The Kyoto Protocol would require America to reduce its greenhouse gas emissions 31 percent below the level projected for 2010. In sheer physical terms, we would have to wring 552 million metric tons of carbon dioxide out of our economy per year during 2008-2012. As a recent Business Roundtable analysis points out, cutting that much CO2 would be equivalent to eliminating all current emissions from either the transportation sector, the utilities sector, or the industrial sector. Such massive de-carbonization would cost the average family $2,700 in 2010, according to WEFA, the respected economic forecasting firm.

The Administration claims Kyoto will cost the average family only $70 to $110. That’s because, under the Administration’s "do it smart" scenario, we won’t actually have to squeeze 552 million metric tons of carbon out of the economy. Through emissions trading with "key" developing countries, and other so-called flexible market mechanisms, America will be able to pay others to reduce their emissions for a fraction of what we’d have to pay to reduce our own. Let us see.

Emissions trading has the potential to lower compliance costs, but by how much is anybody’s guess. The Kyoto Protocol excludes developing countries – the richest potential source of inexpensive emissions credits – from binding commitments and, thus, from trading.

Kyoto may not even allow much trading between the U.S. and other industrial countries. Article 17 states that emissions trading "shall be supplemental to domestic actions" undertaken to control emissions. How much of our target we would be allowed to meet through "supplemental" trading remains to be negotiated. The European Union, for example, asserts that no party should be allowed to meet more than 10-50 percent of its emissions reduction goal through trading.

A bigger problem: the Administration’s cost estimates must partly be based on some prediction of the price of emissions permits in 2008-2012. But how can anyone today know the price of a tradable commodity 10-14 years hence – a commodity that does not yet exist? Even Hillary "cattle futures" Clinton is not privy to such information!

Finally, consider the incoherent testimony of Dr. Janet Yellen, the Administration’s top economic advisor. At a recent hearing, Rep. James Talent (R-MO.) asked Dr. Yellen how much the Kyoto Protocol would cost the U.S. if emissions trading with developing countries and the other "smart" features fail to materialize. Her reply: the Administration has not modeled that, has no "considered judgment" about that. Talent then asked, If you have no idea what Kyoto would cost without the cost-reducing elements, how can you know what it would cost with the cost-reducing elements? Isn’t that a logical impossibility?

And indeed, it is. Unless the Administration knows whether the costs to be reduced by emissions trading and so on are $500 million, $50 billion, or $5 trillion, it has no basis for calculating a final price tag. The Administration’s cost estimates are numbers pulled out of thin air.