Evaluating the Costs, Benefits, and Flaws of the Kyoto Protocol

Eddie Papalia

Geology 206

March 2005

ABSTRACT

The Kyoto Protocol, designed to reduce developed countries’ emissions of six greenhouse gases, has been subject to much debate over the years. In March of 2001, for example, the United States pulled out of the treaty, and today, some European Union countries who ratified and promised to reduce their emissions are complaining that the treaty’s limitations are too harsh. At the same time, environmentalists are arguing that we must control greenhouse gas emissions today, or else we will gravely pay later. This paper strives to examine, in an impartial manner, the costs and benefits of the treaty’s enactment through review of current literature regarding the agreement. Moreover, it looks to tackle the question of whether the Kyoto Protocol is the best way of achieving emissions reductions. It finds that there is a significant amount of difficulty involved in predicting the costs and benefits of the treaty, and, consequently, that there exist many varied estimates regarding these values. Predicting the benefits of the treaty, which derive from avoiding global warming, was found to be challenging as well. Most of the literature agreed that developing countries will benefit more from the treaty than developed countries. Finally, the paper concludes that sufficient evidence exists which points to the need to do something about greenhouse gas emissions, but that flaws inherent within the Kyoto Protocol will significantly limit this treaty’s ability to do so.

INTRODUCTION

When the Kyoto Protocol went into effect on February 16, 2005, a total of 141 countries had ratified the pledge to reduce the emissions of greenhouse gases, most notably carbon dioxide, that are said to cause global warming. As this day drew closer, the media devoted more and more attention to the Protocol, but, unfortunately, their coverage was not impartial, and tended overwhelmingly to focus on one of the following three issues: the sky-high costs of the agreement that would prove too harsh economically for certain industries; the flaws of the agreement; or, whether the emission of greenhouse gases as a result of human activity is actually causing a significant warming of the earth and therefore whether it is even necessary to concern ourselves with reducing such emissions. Not enough attention was given to the possible benefits of the

Protocol – namely, the benefits derived from avoiding the potential damages due to climate change (the rising of sea level, for example). The goal of this paper, by presenting and exploring some of the different arguments that are both for and against the Protocol, is to offer a much more impartial look at the Kyoto Protocol. It shows that there are many disparate cost and benefit forecasts regarding the treaty. Moreover, by addressing some of the treaty’s flaws, it shows that the Kyoto Protocol might not be the best way of addressing greenhouse gas emissions.

DISCUSSION

The relation between the concentration of carbon dioxide in the atmosphere and average global temperature has been known of a long time. When the concentration of carbon dioxide is high, average global temperatures increase. On the other hand, lower concentrations mean lower temperatures. Since the Industrial Revolution, humans have been releasing increasing amounts of carbon dioxide through their use of fossil fuels. Until relatively recently, however, no one was certain as to where this carbon dioxide went. Through 1958, it appears that most scientists contended that the oceans absorbed this gas. In 1958, data from Mauna Loa, Hawaii, began to seriously challenge this contention, and it was soon evident that “the amount of carbon dioxide in the atmosphere was steadily increasing” (Toman, 2001). The increase in carbon dioxide concentration is not trivial, either. One recent study, for example, indicates that atmospheric carbon dioxide concentrations are 30% higher today than they were at the start of the Industrial Revolution (McKibbin & Wilcoxen, 2002).

Given the relation between atmospheric carbon dioxide concentration and temperature, as well as the knowledge that this concentration was increasing, likely because of human activity, it seemed appropriate for the world to address its emissions of carbon dioxide and other greenhouse gases. The Rio Earth Summit of 1992 was one such attempt. The Summit eventuated in the creation of a treaty, the United Nations Framework Convention on Climate Change, or UNFCCC. This treaty sought to reduce global emissions of greenhouse gases to 1990 levels by 2000. McKibbin & Wilcoxen indicate that these reductions were to be made through “voluntary measures taken by individual countries” (2002). Unfortunately, global greenhouse gas emissions actually increased over this time period.

More meetings were held over the following years, including one in Kyoto in December 1997. This meeting resulted in the Kyoto Protocol. The goal of the Protocol is to limit emissions of six greenhouse gases. These gases include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorcarbons, and sulfur hexafluoride (Shogren, 1999). The treaty specifies how much of an aggregate emissions reduction each of 39 industrialized countries is to make by 2008-2012. For the United States, the treaty requires that greenhouse gas emissions be 7% below 1990 levels. For most of the European Union, the Protocol specifies an 8% reduction below 1990 levels. For Canada and Japan, a 6% reduction from 1990 levels is required. Emissions reductions by all 39 of the industrialized countries that the treaty specifies would result in a 5.2% reduction in aggregate greenhouse gas emissions from 1990 levels by 2008-2012 (McKibbin & Wilcoxen, 2002). For some of these countries, the emissions restrictions the treaty imposes are significant. In 1990 in the United States, for example, total carbon emissions were 1,650 million metric tons of carbon; in 1998, this value was already up to 1,835 million metric tons (McKibbin & Wilcoxen, 2002). As may already be evident by now, the Kyoto Protocol does not specify any emissions reductions for developing countries. Such a fact is significant, because in the next 50 years or so, developing countries as a whole are expected to be the largest emitter of carbon dioxide (Shogren, 1999). In early 2001, the United States pulled out of the treaty, citing three main reasons: first, emissions reductions would be too costly; second, some of the science on which the treaty is based is too controversial; and third, the treaty unfairly excludes developing nations, like China and India.

Much of the literature regarding the Kyoto Protocol is in agreement over at least one thing: that it is hard to predict the costs of the treaty. In order to come up with a cost estimate in the first place, it is necessary to predict the level of emissions that would exist without the treaty, or baseline emissions. From this total, the level of emissions allowed under the treaty is subtracted, leaving us with an idea of the reduction in emissions that will need to be made once the treaty goes into effect. The challenge here is predicting baseline emissions. These emissions are hard to calculate because they are dependent on many variables (McKibbin & Wilcoxen, for example, list approximately 20 such variables). Some of these variables include economic growth (both on a national and global level), population growth, and technological change (McKibbin & Wilcoxen, 2002). As is probably apparent, there exists considerable uncertainty in calculating these variables. Therefore, when confronted with cost estimates regarding the Kyoto Protocol, it is important to remember the difficulties and uncertainties inherent in making such cost predictions.

The range of cost estimates for the treaty is enormous. Shogren cites two examples to give us an idea of this range (1999). The Clinton administration estimated the cost of the treaty to the Unites States, per year, would only be ten billion dollars, or approximately .5% of US GDP. This estimate also found effects on employment, gasoline prices, electricity prices, and the trade deficit to be minimal or even nonexistent. On the other hand, other estimates suggest the cost will be over 250 billion dollars annually, or 3% of US GDP, with adverse effects on the trade deficit, gasoline prices, employment, and electricity prices (Shogren, 1999). These findings illustrate the enormous differences in estimated costs of the treaty. One should note that these estimates are two extremes, with the former being on the low side, and the latter being on the very high side. Taking the many different estimates proposed over the years into account, the median GDP loss in 2010 for the US was found to be 1.5%; for Europe and Japan, this number was found to be about 1% and .75%, respectively (McKibben & Wilcoxen, 2002).

The increased temperatures which may occur as a result of greenhouse gas emissions would have numerous effects. Although it is important to note that different countries will be affected in different ways by this climate change, one must be cognizant of the fact that the effects of climate change are numerous and global in scope. For example, global warming will alter global weather patterns and will ultimately prove detrimental to agriculture. Interestingly, Shogren points out that increased temperatures and climate change might benefit some regions agriculturally (1999). However, most of the other literature, particularly Stewart & Wiener, indicates that these benefits will accrue only to a limited number of regions and only in the short term (2003). Global warming may also lead to the spread of tropical diseases to temperate regions. Finally, higher global temperatures will damage ecosystems, leading to a loss of biodiversity, and will cause sea level to rise, which will flood many regions (Steward & Wiener, 2003). The benefits of an agreement like the Kyoto Protocol derive from avoiding these, as well as other, detrimental effects of climate change.

As one might expect, assigning a monetary value to these benefits is not an easy task, for several reasons. First, there is much debate regarding how much and how fast temperatures will increase due to increased emissions of greenhouse gases. For example, in models that predict very slight increases in temperature, the damage caused by rising sea levels should be lower, since sea level and temperature are positively related. Therefore, an important step in calculating the benefits of avoiding the effects of climate change involves specifying both how much and the rate at which temperatures are expected to increase. Both the Intergovernmental Panel on Climate Change (IPCC) and the National Academy of Sciences have come to similar conclusions regarding climate change caused by greenhouse gas emissions. First, they indicate that global temperatures have already begun to rise as a result of our emissions. Second, they indicate that temperatures will continue to increase at a significantly faster rate over the twenty-first century if emissions are not limited. More specifically, the National Academy of Science posits that global temperatures will increase by 3 degrees Celsius from 1990 levels by 2100. The estimate from the IPCC is somewhat comparable in magnitude, as it predicts increases by 1.4 to 5.4 degrees Celsius over the same time period. Finally, at least two other studies predict temperature increases of 2.7 to 4.4 degrees Celsius by 2100 as a result of our emissions of greenhouse gases (Stewart & Weiner, 2003).

According to Toman, there exist few estimates, in terms of monetary value, of the benefits of the Protocol (2001). A study by Richard Tol, however, provides two predictions, with the value of his estimates depending on how much temperatures increase. He found that an increase of only 1 degree Celsius, although damaging to some countries, would actually prove beneficial to others in terms of agriculture (We should note here, that this increase is definitely on the low side in comparison to the IPCC and National Academy of Science’s predictions.) Still, an increase of only 1 degree would result in a 1 to 4 percent decrease in GDP in Africa and Southeast Asia – definitely not a negligible amount. Tol also explores the effects of increases in temperature over 1 degree Celsius; as expected, these effects are more pronounced. He contends that “wealthy countries” will lose about 1 to 2 percent of their GDP, but that developing countries will lose from 4 to 9 percent of their GDP (Stewart & Wiener, 2003). Finally, it is important to realize that Tol’s study only considered some of the potential damages that global warming could cause. He, for example, did not consider the effects of “fundamental changes in polar ice systems, ocean currents, or other critical earth systems” that could result due to global warming (Stewart & Wiener, 2003). As a result, his estimates may be understated significantly, as many believe. The IPCC, however, reported similar findings (Toman, 2001).

There is another challenge in predicting the value of the benefits derived from avoiding the costs of climate change. One of the detrimental effects of climate change is damage to various ecosystems and the consequent loss of biodiversity. This effect of global warming creates a major complication, since assessment, as should be evident by now, is often done in terms of monetary values. How does one go about assigning a monetary value to something like biodiversity? It is not an easy, or necessarily objective task. Many feel that studies often understate the monetary damages of global warming in part because not enough value has been assigned to biodiversity and the other resources with which a monetary value typically is not associated (Stewart & Wiener, 2003).

Although many scientists would agree that something needs to be done about greenhouse gas emissions, many individuals feel that the Kyoto Protocol is not the best way of dealing with the problem. These critics are quick to cite numerous flaws with the agreement. For example, the treaty gives the developed countries who ratified the Protocol a good amount of flexibility in achieving their specified emissions reductions. If a country is unable to meet its required reduction, then it will have to buy emissions permit from a country who will have extra. In economic theory, such a system should minimize the aggregate costs of reducing greenhouse gas emissions; for countries who can reduce emissions relatively cheaply, there exists incentive to do so and sell their extra permits. On the other hand, for countries that might face higher reduction costs, it might make more sense to buy another’s extra permits. Systems of tradable permits have been implemented before. What differentiates the Kyoto Protocol from previous emissions trading programs is that past programs have only been done within nations; never before, in other words, have emissions permits been traded internationally. Victor expresses concern over whether such a system of international permit trading will work (2001). Victor’s main concern is legal in nature. Since these permits are a form of property right, and, moreover, since “it is extremely difficult to secure property rights under international law,” Victor has major concerns with whether international permit trading will work as it has in national programs (Victor, 2001).

Perhaps the most publicized aspect of the treaty is its exclusion of developing countries, even big polluters like China and India. Moreover, the emissions of many developing nations are rising very quickly and in approximately 50 years, it is expected that aggregate carbon dioxide emissions from developing countries will be greater than emissions from any of the developed countries (Shogren, 1999). As it exists now, with the developing countries and the United States excluded from the agreement, the Kyoto Protocol limits less than half of global greenhouse gas emissions (Stewart & Wiener, 2003). Since the Protocol limits less than half of these emissions, its enactment, according to some, will yield some unimpressive results. One estimate, for example, suggests that the Kyoto Protocol would only cause global temperature “reductions of .04 to .10 degrees Celsius by 2005 and .08 to .28 degrees Celsius by 2100” (Shogren, 1999). Would these temperature reductions be enough to prevent the forecasted climate changes discussed earlier?

CONCLUSION

The predicted costs and benefits of the Kyoto Protocol are varied. Some studies, for example, indicate that it will cost the United States only 10 billion per year, or .5% of US GDP, while other studies suggest the agreement will cost the United States over 250 billon dollars. It is so difficult to predict the treaty’s cost because so many independent variables go into doing so. Such variables include global economic growth, population growth, and technological change, to name just a few. When researchers try to predict the costs of the agreement, they must make assumptions about these variables; obviously their assumptions will affect their cost estimates. In predicting the benefits of the treaty, the challenge lies in predicting how much and how quickly emissions of greenhouse gases will warm the earth. It makes sense that those researchers who believe emissions will dramatically warm the earth will assign more value to a treaty like Kyoto, designed to avoid this warming. On the other hand, researchers who believe the earth will warm only slightly as a result of emissions are likely to attach less value to the agreement. Most findings suggest the value of the treaty could be as low as 1 to 2 percent of GDP for wealthy countries, but as high as 9 percent of GDP for developing countries. One should also keep in mind the difficulty of assigning monetary value to things like ecosystems and biodiversity, a necessary task when trying to compute benefits of the treaty. Some researchers, furthermore, express doubt that the Kyoto Protocol will have a significant effect on preventing climate change, citing concern with the fact the agreement excludes developing countries, who will soon account for over 50% of world greenhouse gas emissions.

BIBLIOGRAPHY

McKibbin, Warwick J. and Wilcoxen, Peter J., 2002, Climate Change Policy after Kyoto: Washington, DC, Brookings Institution Press.

Shogren, Jason, 1999, The Benefits and Costs of the Kyoto Protocol: Washington, DC, AEI Press.

Stewart, Richard B., and Wiener, Jonathan B, 2003, Reconstructing Climate Policy: Washington, DC, AEI Press

Toman, Michael A., 2001, Climate Change Economics and Policy: Washington, DC, Resources for the Future

Victor, David G., 2001, The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming: Princton, NJ, Princeton University Press.