Kyoto Protocol and Beyond: The High Economic Cost to the United States

In December 1997, the Kyoto Protocol was agreed to by the Conference of the Parties to the Framework Convention on Climate Change. Under this Protocol, the 38 Annex B countries agreed to reduce their greenhouse gas emissions in aggregate to about 5% below 1990 levels for the period 2008–2012. Specific targets were set for individual countries.

Although political support in the United States for signing the Kyoto Protocol is currently insufficient, the international plan to reduce greenhouse gas emissions remains a major subject of policy debate. U.S. emissions of carbon dioxide would have to be reduced below the projected business-as-usual baseline by 31% by 2010 and 38% by 2020 just to meet the current Kyoto target of 7% below 1990 levels. Assuming further reductions, as included in the two proposals, emissions in 2020 would have to fall 44-51% below business as usual.

The purpose of this study is to analyze potential impacts in the United States from attaining the Kyoto target as well as the two proposed targets for subsequent years. The study period extends to 2020, which essentially covers a transition period between business as usual today and a very low-carbon or no-carbon world—depending on target—envisioned for 2050 in the two proposals. The key to this study is to assess the marginal cost of carbon dioxide abatement, which would be embodied in a per-ton tradable emissions permit. Because the permits could only be traded within the United States—the analysis excludes intercountry trading permitted by the Kyoto Protocol—they are similar to carbon fees or taxes. The resulting higher effective end-use energy prices are then analyzed for impacts on the economy.

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