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Capital Formation Newsletter
April-May 1999, Vol. 24, No. 3
Economic Impact of Kyoto Protocol
Discussed at Center Briefing
Top Ways and Means Committee Democrat
Addresses ACCF Forum
ACCF Congratulates Treasury Secretary-Designate
Lawrence H. Summers
Economic Impact of Kyoto Protocol
Discussed at Center Briefing
"The Kyoto Protocol is fatally flawed," Senator
Pat Roberts (R-KS), a leader on agriculture issues in the
U.S. Senate, told participants at the May 18 policy briefing on
the economic impact of the Kyoto Protocol on U.S. farmers and federal
budget surpluses sponsored by the ACCF Center for Policy Research.
Senator Roberts explained that the Protocol, which calls for industrialized
economies such as the United States, Europe, and Japan to reduce
substantially their collective emissions of six greenhouse gases,
has actually been ratified by only a few countries. "While
I don't think the Administration will submit the treaty to the Senate,"
Senator Roberts said, "climate policy issues could well play
a big role in the 2000 elections."
The Center briefing also featured remarks on current issues in climate
change policy by Representative Jo Ann Emerson (R-MO);
Mr. Terry Francl, senior economist, American Farm
Bureau Federation; and Dr. Margo Thorning, senior
vice president and director of research, ACCF Center for Policy
Research.
Impact of the Kyoto Protocol on U.S. Farmers
In addition to his observations on the Kyoto Protocol, Senator Roberts
discussed S. 1066, a bill he introduced the day of the briefing
authorizing the U.S. Department of Agriculture to conduct basic
research on the mechanics of carbon being stored in soil and examine
voluntary agricultural practices to increase the carbon content
in soil.
"This bill will give producers and policymakers a better understanding
of the link between the carbon cycle and voluntary best practices-research
that will help in finding out if agriculture can be a tool in efforts
to reduce carbon emissions," said Senator Roberts.
Representative Emerson, addressing the constraints farmers will
face if forced to cut fossil fuel use, said, "It appears to
me that the Administration has come to its own conclusions on climate
change without paying attention to well-documented research showing
that the U.S. farm economy would be severely affected by the Kyoto
Protocol. I do not want to see the farmers in my district and elsewhere
in the United States disadvantaged by this treaty." Representative
Emerson, a member of the House Appropriations Committee, was an
observer at the 1998 Buenos Aires climate negotiations.
USDA Report on U.S. Agriculture and the Kyoto Protocol
Mr. Francl reviewed a recently released report by the U.S. Department
of Agriculture, "Economic Analysis of U.S. Agriculture and
the Kyoto Protocol," noting that he has serious concerns about
both the assumptions and some of the methodology used in the USDA
analysis.
"First, the report makes estimates or assumptions regarding
energy prices that are far outside the realm of anything except
Administration estimates regarding energy prices. It appears that
the USDA report used, or was required to use, the Administration's
economic analysis as a basis for its cost estimates. Second, the
report makes the rather heroic assumption that U.S. agriculture
will have unrestricted access to carbon credit trading. Neither
of these views is consistent with reality," Mr. Francl stressed.
In addition, he noted that the USDA report does not acknowledge
that developing countries are exempt from the Kyoto Protocol, and
thus U.S. agriculture will be forced to operate at a relative cost
disadvantage. Because U.S. agricultural export sales account for
a significant portion of annual production, the loss of a substantial
amount of exports is assured if U.S. farmers are forced to deal
with the higher energy prices that would result from U.S. participation
in the Protocol.
"It should be emphasized that the only way to reduce carbon
energy output is to raise the price of fuel and electricity. That
means higher costs for all consumers, not just farmers," Mr.
Francl concluded.
Impact of Kyoto Protocol on U.S. Budget Surplus
"Even though the U.S. economy is doing very well, down the
road we face important problems. We need strong investment now to
prepare for the retirement of the baby boom generation, as well
as other key public policy needs," Dr. Thorning said.
"We must focus on the fact that whatever we do on the environmental
front will have an impact on our ability to deal with other pressing
public policy concerns. The average range of most public and private
economic estimates suggests that the Kyoto Protocol would reduce
U.S. GDP levels by 2 to 3 percent. This slowdown would have a serious
impact on the federal budget surplus."
"If economic growth slows and GDP falls by as much as 3 percent,
for example, the federal budget surplus drops from the current estimate
of $164 billion to $44 billion," Dr. Thorning said.
"The Administration's estimate of the economic impact of the
Kyoto Protocol is substantially lower than mainstream economic estimates
because of a number of critical flaws in the underlying assumptions.
The Administration assumes that there will be a fully implemented
system of global emissions trading and that there will be instantaneous
adjustment to higher fuel costs. In addition, even if industrialized
countries cut their emissions to zero, it won't have much of an
impact because less developed countries, which are the biggest greenhouse
gas emitters, are not bound by the Protocol."
"We need a thoughtful, timed approach to climate policy rather
than drastic, near-term action that could impose a heavy burden
on our economy," Dr. Thorning stressed.
ACCF Congratulates Treasury
Secretary-Designate Lawrence H. Summers
The American Council for Capital Formation and the ACCF Center for
Policy Research congratulate Lawrence H. Summers on his nomination
as Secretary of the U.S. Department of the Treasury.
Dr. Summers served on the board of scholars of the Center from 1984-89
while a professor at Harvard. He joins other ACCF and Center directors,
including current ACCF board members Lloyd M. Bentsen and George
P. Shultz, who have served as Secretary of the Treasury in both
Democratic and Republican administrations.
In addition, Dr. Summers was a frequent participant in ACCF and
Center forums. He contributed articles to several Center publications,
including "The Impact of Tax Policy on Savings" in The
Consumption Tax: A Better Alternative? (Westview Press,
1987) and "Stimulating U.S. Personal Saving" in The
U.S. Savings Challenge: Policy Options for Productivity & Growth
(Ballinger Publishing Co., 1990), as well as commentaries on
other studies.
We are grateful to Secretary Summers for his long involvement with
ACCF and its think tank and look forward to working with him as
he assumes his new responsibilities.
Top Ways and Means Committee
Democrat Addresses ACCF Forum
"President Clinton proposed that 'while the sun shines, we should
fix the roof,'" Representative Charles B. Rangel (D-NY),
the ranking Democratic member of the House Ways and Means Committee,
told ACCF supporters at the April 27 Capital Formation Forum. "By
that the President means we must address Social Security and Medicare
reform now, while the economy is strong and there is a surplus in
the federal budget. He has ideas for cutting taxes but his first commitment
is to Social Security and Medicare reform," Representative Rangel
said, adding that the American people agree with this view.
"The Clinton Administration put forward its Social Security overhaul
proposal at the first of the year and we are waiting for the President's
recommendations on Medicare reform. Once the President proposes his
initiatives, Congress has an obligation to act as it thinks best,"
he said.
"The Republican majority has been discussing Social Security
reform proposals and several overhaul plans have been proposed, but
during these rough political days we need to talk in a bipartisan
manner to come up with meaningful reform that will secure the future
of our seniors. I am afraid, however, that the closer we get to the
election the more partisan polarization we will have," Congressman
Rangel stressed.
Reflecting on the prospects for tax legislation, the New York Democrat
observed, "Everyone wants to enjoy tax cuts and if we begin to
have budget surpluses and take care of our other needs, then we can
move forward with a tax bill. We should have hearings and really talk
about what taxes we can reduce or eliminate. For example, I would
like to reduce the payroll tax burden. But if you never discuss these
matters with the minority, then it just won't work." He also
stressed that instead of talking about "pulling the tax system
out by the roots," the American people need to be educated. In
particular, Representative Rangel said, "Let's start talking
about tax simplification, especially for capital gains taxes and the
alternative minimum tax. We've really made our tax system far too
complicated."
Representative Rangel noted that he is reaching out to his Ways and
Means Committee colleague Representative Nancy Johnson (R-CT), who
is putting together a tax cut proposal. He added that he likes some
of the tax cuts she is proposing and thinks her approach stands a
better chance than the broad-based, across-the-board cuts offered
by several other Republicans.
"I want to find a positive approach but I am not optimistic
about anything coming out of this Congress," Representative
Rangel concluded.
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