The Kyoto Protocol Threatens European Economies

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Date(s) - 9/25/200212:00 pm - 1:30 pm

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WASHINGTON, D.C. – On September 24, 2002, the George C. Marshall Institute hosted a discussion of climate change policy featuring Dr. Margo Thorning, Senior Vice President and Chief Economist of the American Council for Capital Formation (ACCF).

Implementing the Kyoto Protocol target in Europe will result in significant costs for the economies of those countries, Dr. Thorning concluded. In spite of this, European officials are considering even more substantial reductions. “It is important for the world to know that what the European Union is driving toward is not just a Kyoto target but . . . additional cuts that would require zero carbon emissions in developed countries by 2050.”

In the four countries studied (Germany, the United Kingdom, the Netherlands, and Spain), both GDP and employment will fall by 2020 as a consequence of meeting the targets projected under Kyoto. And the impacts on GDPs become more severe, Dr. Thorning observed, as more stringent targets are put in place: a 60% reduction in carbon emissions – the E.U. goal – produces annual losses of 1.5-3% of GDP for the four countries by 2050, and the most extreme case, a 100% reduction, results in an annual 3-4% decline in GDP by the same year.

In addressing obstacles to investment in new technology which could speed the pace of economic growth as well as reduce emission intensity, Dr. Thorning summarized the results of an international comparison of depreciation allowances for combined heat and power facilities, as well as about eight other assets. For investments in combined heat and power, the United States ranks third from last of a list of fourteen countries in terms of how quickly the cost of the investment is recovered and in the bottom third for electricity generation and transmission assets..

“After five years, a U.S. investor is only getting 29 cents back on the dollar, for every dollar invested, whereas in China, you?re getting $1.05 back; in the Netherlands, you?re getting 100% back,” Dr. Thorning said. “Many other countries, including Germany, are substantially more attractive in terms of the speed of capital cost recovery. The lower the cost of capital, the more investment will take place. .”

Dr. Thorning concluded her remarks by observing that the U.S. approach to climate change is different and may take some changes in tax policy. “We think a much more fruitful way to go is by encouraging technology development to reduce energy intensity.”

In addition to her position at ACCF, Dr. Thorning serves as Senior Vice President and Director of Research for the ACCF Center for Policy Research, which focuses on tax and environmental policies. Previously she served at the U.S. Department of Energy, the Department of Commerce and the Federal Trade Commission. Dr. Thorning is co-editor of numerous books on environmental policy including The Kyoto Commitments: Can Nations Meet Them with the Help of Technology? and Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality.

The George Marshall Institute (GMI) is a 501(c)(3) non-profit organization founded in 1984 to encourage the use of sound science in making public policy. Decisions and conclusions about many public policy matters are shaped by advances in science and technology. For that reason, unbiased and scientifically accurate assessments of the significance of these advances for policy are critical.

 

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