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Backgrounder #1322 on Energy and Environment

September 17, 1999

Squandering the Surplus: $11 Billion on the Unratified Kyoto Protocol

By

In December 1997, more than 150 nations met in Kyoto, Japan, to negotiate the terms of the Kyoto Protocol, a global climate agreement under the U.N. Framework Convention on Climate Change. The Protocol reflects a comprehensive plan to reduce six greenhouse gas emissions, including carbon dioxide (CO2), between 2008 and 2012. During the negotiations, President Bill Clinton pledged that, in those five years, the United States would reduce emissions by 7 percent below 1990 levels. However, developing countries will not be held to the same standards as industrialized countries like the United States. In addition, it is not certain that meeting the targets will reduce greenhouse gas emissions, and various econometric analyses predict that the treaty's restrictions will seriously affect the U.S. economy. Data provided by a recent economic report indicate that the restrictions would reduce America's gross domestic product (GDP) by as much as $2 trillion between 2008 and 2012.1 This impact will come at great cost to the American taxpayer: According to the President's own estimates, the Administration's many climate change programs, if fully funded, will account for almost $11 billion in spending from FY 1998 through FY 2000.2

Concerns about the impact of the treaty are not new. Before the President went to Kyoto, the Senate expressed its opposition to the Protocol in a vote of no confidence. On July 25, 1997, the Senate overwhelmingly (95-0) passed Senate Resolution 98 (S. Res. 98), known as the "Byrd-Hagel resolution," that conditions ratification of the Kyoto Protocol on 1) the inclusion of "new specific scheduled commitments to limit or reduce greenhouse gas emissions for Developing Country Parties within the same compliance period," and 2) evidence that the treaty was not "result[ing] in serious harm to the U.S. economy."3 The Administration, however, ignored the concerns of the Senate and agreed to the Kyoto Protocol in December 1997, and signed it on November 12, 1998, even though it still does not meet the criteria of S. Res. 98.4 Furthermore, the President has not submitted the treaty to the Senate for ratification. To ensure that the Administration would not begin implementing a flawed agreement without Senate advice and consent, Congress began a series of hearings in 1997 to answer four specific questions:

  1. What conclusive scientific evidence exists that global warming is occurring and is indeed harming the environment?

  2. Will implementation of climate change-related programs in the developed world decrease the planet's aggregate emissions?

  3. What economic effects will implementation of the agreement have on the United States?

  4. Is the Administration implementing the Protocol through back-door funding to circumvent the Senate's role in the ratification process?

Much of the testimony of scientists, economists, policymakers, and analysts during the congressional hearings (see Appendix A) served not only to intensify calls for the Administration to provide evidence that the treaty was based on sound science but also to highlight the unfair, draconian measures the treaty would impose on the United States and how it would severely affect the U.S. economy. For example, Dr. Sallie Baliunas, an astrophysicist at the Harvard-Smithsonian Center for Astrophysics, testified that:

An important feature of the surface temperature record of the last 100 years is that the temperature rose about 0.4C between 1910 and 1940. But most of the increases in greenhouse gases occurred after 1940. That means that the recent increase of greenhouse gases cannot be the cause of the 0.4C warming that occurred earlier in the 20th century. Most of the warming early in this century must have been due to natural causes of climate change. These natural causes must be understood in order to make an accurate assessment of the effect of any human climate influences added to the natural changes.5

Ronald G. Prinn, professor of atmospheric chemistry at the Massachusetts Institute of Technology, testified that:

Current climate models cannot simulate realistically the remarkable natural climate changes exemplified by the succession of ice ages and warm periods over the last 250,000 years. There may even be fundamental limitations to our ability to predict climate due to chaotic processes such as we already see in weather predictions. As a result, forecasts of future climate changes due to future emissions of greenhouse gases are very uncertain.6

And Mary H. Novak, senior vice president of WEFA, Inc., an internationally acclaimed econometrics forecasting firm, testified that:

Implementing the Kyoto Protocol would mean sharply higher prices for energy and electricity. Gasoline prices would rise 65 cents, industrial gas and electricity prices would double. Higher energy costs would not only reduce U.S. living standards, but would give developing countries a competitive advantage over the U.S. and other developed economies....Family incomes would be reduced. The average loss in income, $2,700 per family, would take a devastating toll on middle- and lower-income families. The U.S. would lose more than 2.4 million jobs.7

A September 1999 report issued by the American Council on Capital Formation (ACCF), a group that promotes cost-effective environmental regulation, reinforced the assessment that efforts to reduce CO2 emissions to meet Kyoto Protocol targets, let alone 1990 levels, would reduce economic growth significantly8 as well as impose a heavy burden on every U.S. household and industry, including agriculture.9 The ACCF report points out that, "the projected federal budget surpluses, which many hope will fund a more secure retirement for the baby boom generation, are imperiled by the slow growth in GDP stemming from CO2 emission reductions."10 (See Chart 1.)

Yet Congress has been funding many of the Administration's initiatives to begin implementing the Protocol's controversial climate change agenda. Now, the Administration is requesting a $1 billion increase in FY 2000 funding for its climate change initiatives--30 percent more than in FY 1999.11 In its April 20, 1999, Report to Congress on Federal Climate Change Expenditures, the Administration organized these activities into 32 programs, or groups of programs (see Appendix B), spanning nine Cabinet-level departments and five independent agencies. Taken together, these programs account for almost $11 billion of funding during FY 1998 to FY 2000.12 Since FY 1998, 13 climate change programs have also received additional funding from new sources, primarily the Climate Change Technology Initiative. If the Administration's FY 2000 request for funds is granted, total funding for all climate change programs and related tax policies will increase by more than 40 percent over FY 1998 levels.13

In May, the U.S. General Accounting Office (GAO) acknowledged that the Administration's April report to Congress: 1) was delivered nearly three months late, 2) did not always link activities and performance goals to line items in the President's budget, and 3) did not always specify the outcomes the Administration expected from use of the federal funds.14 The GAO's conclusions demonstrate that there are few mechanisms in place in Washington to hold federal agencies accountable for how they spend taxpayer dollars or for what that spending should accomplish.

In FY 1999, Congress took the extremely modest step of including in the Foreign Operations, Treasury, Veterans-Housing and Urban Development, and Interior appropriations bills some restrictive language sponsored by Representative Joseph Knollenberg (R-MI) and others. The "Knollenberg" language restricts the use of federal funds for implementing the Kyoto Protocol prior to Senate ratification.15 Given the significant scientific uncertainties about climate change and the potential adverse impact of the Protocol on the economy and the surplus, some Members of Congress have indicated their willingness in FY 2000 to stop any effort to fund and implement the agreement until more research has been conducted and scientific information is available on the nature and causes of global warming.

It is unlikely that frugal appropriations committees will approve the $4.5 billion requested by the President for his climate change projects. The House already has incorporated the "Knollenberg" language into the six appropriation bills it passed (Agriculture, Commerce/Justice/State, Energy and Water, Foreign Operations, Interior, and VA-HUD) to restrict the Administration's efforts to implement the unratified Protocol. Thus, several of the FY 2000 appropriations bills are likely to see a presidential veto.

Looking beyond the FY 2000 appropriations debate, Representative David McIntosh (R-IN) introduced H.R. 2221, the Small Business, Family Farms, and Constitutional Protection Act to 1) extend and strengthen funding restrictions already in place in the FY 1999 VA-HUD appropriation bill, 2) prevent federal regulation of CO2 emissions without a law that specifically grants such authority, and 3) prevent the use of federal funds for "voluntary" CO2 emission credits prior to Senate ratification of the Protocol.

CONCLUSION

As Congress considers funding federal agencies in FY 2000 within the spending caps set in the 1997 Balanced Budget Agreement, it must carefully scrutinize any climate change funding requests from the Administration. Billion-dollar backdoor implementation of an unratified Kyoto Protocol, which is based on unproven science and will have a long-term impact on the nation's economic growth, will make it more difficult for Congress to pay for tax cuts, reform Social Security, and fund genuine national priorities.

If the Administration insists on using surplus funds for its climate change initiatives rather than on shoring up Social Security and Medicare and giving middle-class Americans a hard-earned tax cut, it should make this priority clear to all Americans. As numerous experts explained in previous congressional hearings, implementing the Kyoto Protocol will go against sound science and threaten America's economic and environmental well-being. Congress should stand firm on its efforts to halt further implementation of the unratified Kyoto Protocol and stand by its earlier commitment to the Balanced Budget Agreement.

Gregg VanHelmond is a former Research Assistant in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

APPENDIX A
EXCERPTS OF CONGRESSIONAL TESTIMONY ON GLOBAL WARMING AND THE EFFECTS OF THE KYOTO PROTOCOL

On the Uncertain Science of Global Warming

"The Kyoto Protocol requires that the United States reduce its overall greenhouse gas emissions by a remarkable 43% for the 2008-2012 average....Wigley recently calculated the "saved" warming, under the assumptions noted above, that would accrue if every nation met its obligations under the Kyoto Protocol. According to him, the earth's temperature in 2050 will be 0.07ºC lower as a result. My own calculations produced a similar answer. Wigley is a Senior Scientist at the U.S. National Center for Atmospheric Research. [A temperature change of] 0.07°C is so small that it cannot be reliably measured by ground-based thermometers. If one assumes the more likely scenario that warming to the year 2100 will be approximately half of the IPCC [the United Nations' Intergovernmental Panel on Climate Change] estimate, the saved warming drops to 0.04°C over the next fifty years. This is no benefit at an enormous cost."16

--Patrick J. Michaels, Climatologist and
 Professor of Environmental Sciences,
 University of Virginia

"[A]ccording to Accu-weather, the world's leading weather forecasting company, there has been only a .45 degrees C change in this century, and satellite data shows that a slight cooling has occurred in the last 18 years.... a Gallup survey of the American Meteorological Society and the American Geophysical Society found that only 17% of their members believe that any warming is the result of human activity. Additionally, over 15,000 scientists recently signed a petition that urged the rejection of the Kyoto protocols. These scientists find no convincing evidence that human activity is causing heating of the atmosphere, or disruption of the climate."17

--The Honorable Bill Walaska,
Rhode Island State Senator

"In brief, a decade of focus on global warming and billions of dollars of research funds have still failed to establish that global warming is a significant problem....One of the common claims in support of the reality and seriousness of global warming is that we have had a large portion of record breaking warm years during the last decade or so. This is not a claim used by the IPCC, and its presence in any discussion is a rather clear piece of evidence of the intent to deceive."18

--Richard S. Lindzen,
Professor of Meteorology, Massachusetts
 Institute of Technology

"The detection of human effects on the Earth's climate has not been convincingly proven because (1) the variations we have observed to date are not outside of the natural variations of the system and (2) the Earth system is very complex and probably has ways to expel heat energy which are not properly accounted for in climate models."19

-- John R. Christy, Professor of Atmospheric Science,
 University of Alabama

On the Protocol's Serious Economic Consequences

[I]t is important to look at the impacts of the prices energy users actually pay. The price of a gallon of gasoline, for instance would increase an estimated 14 to 66 cents in 2010. The price of electricity would be more heavily impacted, rising an estimated 20 to 86 percent over the baseline price in 2010....In 2010, EIA estimates that the Gross Domestic Product will be $13 to $397 billion ($1992) smaller than in the reference case....This represents a projected reduction of between 0.1 percent and 4.2 percent [of GDP] from the level expected otherwise."20

--Jay E. Hakes, Administrator,
Energy Information Administration

"New studies predict that meeting the emissions targets in the [Kyoto] Protocol would lead to significant reductions in output and employment among energy intensive producers. U.S. output of energy intensive products such as autos, steel, paper, and chemicals could be 15 percent less under the reference case by 2020....The Administration's estimates of economic damage from the CO2 emission reductions are far below those of other models due to their unrealistic assumptions...."21

--Margo Thorning, Senior Vice President
 and Chief Economist,
American Council for Capital Formation

"The loss of real GDP would be significant under the proposed Kyoto Protocol....the decline in GDP would be about 1.2% on average in the 2008-2012 compliance period. This represents economic losses in excess of $100 billion per year, and cumulative losses from 2001 to the end of the initial compliance period in 2012 would be about $1.1 trillion....Our analysis indicates that GDP losses would exceed $400 per person in 2010 and GDP losses per household would be nearly $1,200 in the same year. Cumulative GDP losses from 2001 to [2012] of over $4,000 per person and nearly $12,000 per household."22

--Cecil E. Roberts,
President, United Mine Workers of America

"We estimate that holding carbon emissions to 1990 levels from 2010 onward would cause GDP losses on the order of 1% of GDP in 2010, rising to 2.7% by 2030....Job impacts on energy producing and energy intensive industries will range from a loss of two-thirds of the jobs in the coal industry by 2030 to losses of about 7% in motor vehicles and 4% in metals."23

--W. David Montgomery,
Vice President, Charles River Associates

On the Effects of the Protocol's Implementation Without Ratification

"On March 3, 1999, the EPA announced a Final Rule for `Protection of Stratospheric Ozone' `Refrigerant Recycling,' [and] `Substitute Refrigerants.' These new rules establish sales restrictions on HFC and PFC refrigerants and would ban the `manufacture in or import into' the U.S. of certain devices, including `self-chilling cans.' Not, however, because the chemicals used in the devices would deplete the ozone layer, but because of their supposed contribution to global warming. It is questionable whether the EPA has the legal authority to consider the greenhouse warming potential of a refrigerant as a basis for proscribing its use under Section 612 of the Clean Air Act."24

--William H. Lash,
Professor of Law, George Mason University

"The President's FY2000 budget for DOE programs related to climate change proposes $1,674 million, an increase of $252 million over FY1999 appropriated levels...Taken as a whole, these programs will help reduce U.S. greenhouse gas emissions...."25

--T.J. Glauthier, Deputy Secretary,
U.S. Department of Energy

"Last month this subcommittee heard from the State Department's nominee to head climate activities regarding his role in developing `pilot emissions trading' programs with Russia. The Committee had received documentation of meetings by EPA to create a pilot program for trading in carbon emissions--a mechanism called for in the Kyoto Protocol on Climate Change. Previously, the Administration had assured this Committee that there would be no implementation of any aspect of the Kyoto Protocol unless the Senate gave its advice and consent.... According to EPA lawyers: `because the possible pilot program would not impose any legal obligations on the United States (or on the U.S. private sector), the issue of relying on authorities provided under the Framework Convention on Climate Change does not arise.' The contorted argument put forward by these lawyers is that the United States can engage in all activities called for in the Kyoto Protocol so long as the Administration justifies its activities as the legitimate exercise of the President's foreign affairs powers."26

--Senator Chuck Hagel (R-NE),
 Chairman of the International Economic
 Policy, Export, and Trade Promotion
 Subcommittee, Senate Foreign
 Relations Committee

"President Clinton authorized the U.S. to sign the [Kyoto] treaty, but he has refused to submit it to the Senate for ratification. Nevertheless, the administration works tirelessly to implement Kyoto de facto....The President himself has cited global warming as a reason for (1) his executive order mandating a 30% emissions reduction in federal facilities (an order Senator [Thad] Cochran [R-MS] is fighting to block in the Senate), (2) various provisions of his electricity restructuring plan geared to reducing emissions and promoting the so-called renewables, and (3) EPA's attempt to regulate particulate matter and ozone."27

--Jack Kemp, Distinguished Fellow,
The Competitive Enterprise Institute

"[A] Senate report directed the administration to provide the Congress with a detailed plan for implementing key elements of the President's proposal on climate change.... In setting out this directive, the report said that the administration must do a better job of explaining the components of the programs, their anticipated goals and objectives, the justification for any funding increases, a discussion of how success would be measured, and a clear definition of how these programs were justified by goals and objectives that were not linked to implementing the Kyoto protocol."28

--Peter F. Guerrero, Director of
 Environmental Protection Issues,
General Accounting Office

On the Kyoto Protocol's Double Standard

"No matter what policy is chosen, energy and energy-related costs will become much higher in the U.S. than in countries that do not adhere to the same emission limits.... Increases in emissions from developing countries that do not participate in emission limits (`leakage') will offset U.S. efforts to reduce emissions. For every three tons of emission reduction accomplished by the U.S., developing country emissions could increase by 1 ton."29

--W. David Montgomery,
Vice President, Charles River Associates

"[I]t is well recognized that emissions from developing countries are increasing rapidly due to increases in population and economic growth, and are likely to surpass those from developed countries within a few decades...."30

-- Robert T. Watson, Chairman,
 Intergovernmental Panel on Climate Change

"[N]o single country has an incentive to reduce emissions sufficiently to protect the global environment against climate change. Each has an economic incentive to `free ride' on the efforts of others. Even if the United States sharply reduced its emissions unilaterally without an international agreement limiting emissions abroad, greenhouse gas emissions from all other countries would continue to grow, and the risks posed by climate change would not be significantly reduced."31

--Dr. Janet Yellen, Chairwoman,
Council of Economic Advisers

"[R]egardless of the CDM [Clean Development Mechanism], developing countries, especially China and India, have steadfastly refused to make any commitments to limit or reduce their emissions--and even have refused to agree to any talks about future participation in any voluntary or mandatory initiatives....Bert Bolin, former chairman of the [IPPC]...first raised this point in February 1995 when he stated that the impact of proposals under consideration then for reductions only by developed nations `would not be detectable on projected temperature increases.'"32

--Terry F. Steinbecker, President and CEO,
 St. Joseph Light & Power Company

"Although the United States remains the world's leading emitter of greenhouse gases, developing countries make up an increasingly large share of the global emissions problem. Their emissions are expected to surpass those of the industrialized nations in the next twenty years. As countries like India and China bring dozens of new coal-fired power plants on line each year, their emissions of carbon dioxide will grow greater and greater."33

--Harriet Babbitt, Acting Administrator,
 U.S. Agency for International Development

APPENDIX B
PROGRAMS AND TAX POLICIES RELATED TO CLIMATE CHANGE (IN MILLIONS OF DOLLARS OF BUDGET AUTHORITY)




1. Margo Thorning, "Climate Change Policy, the Federal Budget Surplus, and U.S. Economic Growth," Special Report, American Council for Capital Formation, Center for Policy Research, September 1999, p. 2.

2. Office of Management and Budget, Report to Congress on Federal Climate Change Expenditures, April 20, 1999 (in accordance with section 573 of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1999, as contained in P.L. 105-277).

3. S. Res. 98, introduced June 12, 1997.

4. Angela Antonelli and Brett D. Schaefer, "Why the Kyoto Signing Signals Disregard for Congress," Heritage Foundation Executive Memorandum No. 559, November 23, 1998, p. 1.

5. Testimony before the Committee on Foreign Relations, U.S. Senate, October 9, 1997.

6. Testimony before the Committee on Science, U.S. House of Representatives, October 7, 1997.

7. Testimony before the Committee on Government Reform, U.S. House of Representatives, April 23, 1998.

8. Thorning, "Climate Change Policy, the Federal Budget Surplus, and U.S. Economic Growth," p. 1. "In dollar terms, estimates show that near-term reductions to the Kyoto Protocol target of 7 percent below 1990 levels would reduce U.S. GDP by about 1 percent to over 4 percent annually. This translates into annual losses of $100 billion to over $400 billion (in inflation adjusted dollars) in GDP each year compared to the baseline forecast for energy use." (See also p. 2.)

9. Ibid.

10. Ibid., p. 2. "A report by the Congressional Budget Office (CBO) shows that if economic growth slows relative to the baseline forecast and GDP were 4 percent lower in 2009, the projected on-budget (excluding Social Security contributions) surplus virtually disappears, dropping from $178 billion to only $18 billion."

11. Office of Management and Budget, Report to Congress on Federal Climate Change Expenditures, April 20, 1999.

12. Ibid.

13. Ibid.

14. Peter F. Guerrero, "Climate Change: Observations on the April 1999 Report on Climate Change Programs," Testimony before the Committee on Energy and Natural Resources, U.S. Senate, GAO/T-RCED-99-199, May 20, 1999.

15. U.S. House of Representatives, Foreign Operations, Export Financing, and Related Programs Appropriations Bill, FY1999, Report 105-825, 105th Cong., 2nd Sess., p. 205; U.S. Senate, Treasury and General Government Appropriations Bill, FY1999, Report 105-251, 105th Cong., 2nd Sess., pp. 5-6; U.S. House of Representatives, Veterans Affairs and Housing and Urban Development, and for Sundry Independent Agencies, Boards, Commission, Corporations, and Offices Appropriations Bill, FY1999, 105th Cong., 2nd Sess., Report 105-769, pp. 37, 274; U.S. Senate, Department of the Interior and Related Agencies Appropriations Bill, FY1999, 105th Cong., 2nd Sess., Report 105-227, p. 7.

16. Testimony before the Committee on Small Business, U.S. House of Representatives, July 27, 1998.

17. Testimony before the Committee on Government Reform, U.S. House of Representatives, April 23, 1998.

18. Testimony before the Committee on Environment and Public Works, U.S. Senate, July 10, 1997.

19. Testimony before the Committee on Small Business, U.S. House of Representatives, July 29, 1998.

20. Testimony before the Committee on Science, U.S. House of Representatives, October 9, 1998.

21. Testimony before the Committee on Commerce, U.S. House of Representatives, October 6, 1998.

22. Testimony before the Committee on Energy and Natural Resources, U.S. Senate, March 25, 1999.

23. Testimony before the Committee on Science, U.S. House of Representatives, October 9, 1997.

24. Testimony before the Committee on Government Reform, U.S. House of Representatives, May 20, 1999.

25. Testimony before the Committee on Government Reform, U.S. House of Representatives, May 20, 1999.

26. Testimony before the Committee on Foreign Relations, U.S. Senate, July 28, 1999.

27. Testimony before the Committee on Government Reform, U.S. House of Representatives, July 15, 1999.

28. Testimony before the Committee on Government Reform, U.S. House of Representatives, May 20, 1999.

29. Testimony before the Committee on Science, U.S. House of Representatives, October 9, 1997.

30. Testimony before the Committee on Small Business, U.S. House of Representatives, July 27, 1998.

31. Testimony before the Committee on Small Business, U.S. House of Representatives, June 4, 1998.

32. Testimony before the Committee on Small Business, U.S. House of Representatives, June 4, 1998.

33. Testimony before the Committee on Foreign Relations, U.S. Senate, July 30, 1999.

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