US Strategy on Climate Change Policy: Does it make sense? Prepared by: Dr. Margo Thorning Managing Director, International Council for Capital Formation 1750 K Street NW, Suite 400 Washington, DC Web: Tel: Fax: National Press Club February 14, 2005 National Press Club February 14, 2005

Where Does Europe Stand on Actually Complying with Kyoto? European Union is projected to be 7% above the 1990 emission levels by EU leaders realize they cannot reconcile goals of increased EU industrial competitiveness as well as tighter future targets for GHG emission reductions. EU policy-makers are beginning to worry about the additional steps required to meet the targets including impact of emission trading schemes on industry. Recent credible analyses of impact on EU economics has shifted terms of the debate.

Impact of Purchasing Carbon Emission Permits on GDP Levels Under the Kyoto Protocol and Under More Targets on Major Industrial Economies Impact of Purchasing Carbon Emission Permits on GDP Levels Under the Kyoto Protocol and Under More Stringent Targets on Major Industrial Economies Source: DRI-WEFA,

Economic Impact of Mandatory CO 2 Reductions on the U.S. Economic Impact of Mandatory CO 2 Reductions on the U.S.  Energy Prices Rise  household electricity31% 43%  gasoline23% 31%  natural gas for industry56% 82%  Job Losses 250, ,000  Household Income Falls $1300 $2300  GDP Annual Decrease0.4%1.7%  State and Federal tax receipts decline.  Low income and elderly bear large burden due to higher energy costs.

Rapid Growth in China's and India's CO2 Emissions Projected (Million Metric Tons CO2) 0 2,000 4,000 6,000 8, Base Case Projection: Energy Information Administration, International Energy Outlook, 2004 China India If increase limited to 50% of baseline forecast

? Russia’s Kyoto Cross: Under the Kyoto Protocol Russia will be a buyer, not a seller of CO 2 quotas (Actual Russia’s CO 2 emissions, conservative forecast and its Kyoto Protocol limits) Kyoto 2012 limit Actual Conservative Forecast Kyoto 2050 limit Mln t Seller Buyer

Conclusions Many EU policy makers are realizing that actually meeting the 2010 Kyoto target is impossible. Developing countries, the source of future emission growth, are unwilling to slow economic growth by curbing energy use. U.S. policymakers understand the economic cost of the “targets and timetables” approach and have chosen another path forward on climate change policy. New energy technologies, carbon sequestration and nuclear power for electricity generation could gradually reduce global concentrations of GHGs.