Kyoto May Cost You Your Job

Compliance with the Kyoto Protocol will cost Germany and Britain about 5% of their GDP and increase unemployment by 1.8 million and one million respectively, according to evidence being presented in Berlin and London today. These economic projections, combined with climate scientists' recent admissions that even such costly compliance will have little or no effect on climate change, provide yet another reason to question the European Union's determination to press ahead with Kyoto.

Germany, already laboring under double-digit unemployment, will not be alone in continental Europe in suffering a significant economic burden. Research conducted by the economic and energy consultancy DRI-WEFA finds that the Netherlands is set to lose 3.8% of its GDP and 240,000 jobs and Spain 5% and one million jobs. Even Britain, Europe's most successful economy at the moment, will suffer badly, smashing the economic gains of the Blair administration.

The Kyoto Protocol, named after the Japanese city that hosted the negotiations in late 1997, set targets for countries to reduce carbon dioxide emissions by 2010 to below those of 1990 levels. While all major developed nations signed the protocol, India and China--and the rest of the "developing" world--are not required to control emissions under Kyoto, emphasizing the political rather than scientific nature of the process.

Throughout the negotiations over the Kyoto Protocol, supporters of emissions reductions claimed that the costs would be minimal. But recent reports from the United States, and now this report on Europe, show that Kyoto stands to inflict devastating damage to European business and the European economy.

What's more, the DRI-WEFA findings may even be optimistic; they assume that efficient and widespread carbon dioxide trading will take place, and so reduce the burden imposed by the emissions reductions. All European nations will see rising heating fuel, gasoline, diesel and electricity prices. In addition to the direct economic drag from the rising cost of these inputs, the price increases will lower output because energy-using equipment and vehicles would become prematurely obsolete.

Gasoline prices in Europe are largely dictated by energy tax levels, with raw material costing only about 30% of the total price. This means that energy taxes dampen volatility in energy prices, but even so the report shows that by 2010 prices will have risen by between 10% and 20%, which will cut into profits for many transport companies. Spain has a large trucking fleet, which will be seriously harmed by a 25% increase in the price of diesel.

More staggeringly, electricity prices will more than double for Germany, Britain and the Netherlands over the same period, causing widespread economic harm. Such a dramatic price run-up will undermine the competitiveness of exports and hence cut into profits for energy-intensive industries. Steel and chemical companies may end up exporting jobs, rather than metal or complex compounds, to countries such as South Korea that do not have to comply with the treaty.

Domestic heating-oil prices will also increase significantly. When in 1994 the Conservative government in the U.K. tried to increase sales tax on heating oil by 8% there was an uproar and the move was defeated. But according to the report the cost of heating oil would rise by nearly 50% by 2010. Any bets how long Tony Blair's pro-Kyoto stance would last if that prediction started to come true?

The irony in all this is there is still significant scientific debate about the contribution of mankind's emissions to global climate change. But in political circles at least, the question is largely believed to be settled--prompting measures to reduce emissions, such as energy tax increases, fuel switching and energy-efficiency measures.

When Kyoto was drawn up five years ago, the U.S. agreed to reduce emissions by 7%, and the EU as a whole by 8%. Germany and Britain, which respectively benefited from the demise of East German industry and collapse of domestic U.K. coal production, thought they could do better than the average and both agreed to reduce by over 10%. The governments of Germany and Britain, and especially their soon-to-be-unemployed, may begin to rue this move.

But European nations seem to be rushing into policies almost certain to cause high unemployment and recession. While the U.K.'s Economist magazine, which accepts the global-warming dogma, nevertheless thought President George W. Bush "right to reject the prohibitively expensive Kyoto pact." Meanwhile, Mr. Blair and German Chancellor Gerhard Schroeder have started to entertain claims from climate alarmists that Europe should reduce emissions by 60% by 2050.

The DRI report projects a dismal future if such targets were actually implemented by massive energy taxation or other regulation. And if nuclear power is phased out (as Germany has committed to do) the DRI-WEFA projections for economic depression and unemployment become even worse.

If climate apocalypse were truly around the corner then a new depression would be a small price to pay. But the evidence for this is far from certain. As a recent scientific report from the European Science and Environment Forum demonstrates, there simply isn't a consensus that man is to blame for much of recent warming, and costs of warming have been modest. The ESEF report, contributed to by numerous climate experts, takes a more balanced look at the evidence than do the U.N. policy makers' summaries.

These heavily politicized summaries regularly play down the uncertainties in knowledge, and are more alarmist than the underlying science warrants. Their purpose is to achieve consensus on the need for political action--as such they are not scientific documents, but political ones. It is therefore not surprising that governments around the world, which rely on these summaries, are so eager to act.

Global warming is a 150-year phenomenon--this phase at least; global temperatures have been far warmer in the past, as when vineyards flourished in Northern England. Whatever threat it may pose is not imminent. Climate science is improving all the time. Surely a careful consideration of current knowledge will produce better legislation than what has so far been proposed against a background of near-hysterical reaction to unbalanced and incomplete information. Europe's economic problems are real and immediate--remedial action is overdue. In this context, the Kyoto Protocol is an expensive red herring.

Mr. Bate is director of the International Policy Network in London, and is a trustee of the European Science and Environment Forum.

URL: http://online.wsj.com/article/0,,SB1019425221944735080.djm,00.html