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Economics of Kyoto

September 15th, 2002

There’s been a lot of discussion about the economics of the Kyoto Protocol. Some time ago, the government commissioned Warwick McKibbin, who’s a leading critic of Kyoto, to model the effects. The results he found are pretty striking. Whether Australia ratifies or not, there’ll be a negative impact on the coal industry because other countries will import less. But given that other countries have ratified, McKibbin finds that, at least until 2010, Australia is better off ratifying Kyoto and implementing emission-reduction measures than staying out. The gain is reversed by 2020, but the current agreement calls for new targets to be agreed and implemented by 2012, encompassing more countries. The other striking feature is how small the numbers are -the benefit of staying out in 2020 is 0.2 per cent of GDP or about $1 billion per year. Although I disagree with Warwick’s policy position on Kyoto, I compliment him for keeping his independence as a modeller. The government clearly didn’t like his results one bit.

You can get the full paper in PDF form here. To make things a bit easier, I’ve appended the crucial table from McKibbin’s paper and a press release from Clive Hamilton of the Australia Institute
All of this reminds me that I heard a few days ago that the anti-Kyoto economists’ petition organised by Alex Robson, of which McKibbin was a leading signatory, was about to be released. But I didn’t see anything in the papers, and there’s nothing on Alex’s weblog. What’s the story?

Table 7: Summary of Impacts on Australia 2010 to 2020
2010 2015 2020
Australia in Kyoto without measures -0.41 -0.58 -0.67
Australia in Kyoto with measures -0.33 -0.47 -0.51
Australia not in Kyoto -0.40 -0.38 -0.30

News release
Contact Clive Hamilton 02 6249 6221 0413 993 223
Government humiliated by new economic
modelling of Kyoto
New modelling just released by the Federal Government concludes that the economic cost of the Kyoto Protocol will be higher if Australia does not ratify the treaty than if it joins other countries in global efforts to reduce greenhouse gas emissions, according to the Australia Institute.
The results demolish any remaining rationale for Australia’s continued refusal to sign up to the treaty, as the Howard Government has claimed consistently that it is not in Australia’s economic interests to do so.
The Government commissioned the new modelling after the Marrakech climate change conference last November. But Environment Minister David Kemp refused to release the results of the modelling for five months. It has now released the results after the Johannesburg Summit where Australia was vigorously attacked for refusing
to comply with the Kyoto Protocol.
The modelling, by ANU economist Warwick McKibbin, concludes that by 2010 Australia’s GNP will decline by 0.40% if Australia stays out of the Kyoto Protocol, but will decline by only 0.33% if Australia ratifies. In his media statement accompanying the release of the modelling, Minister Kemp distanced the Government from the new evidence, claiming the work it commissioned only addresses ‘a limited set of the issues’.
“For years the Government has backed its anti-Kyoto stance by referring to the results of economic models,” said Institute Executive Director Dr Clive Hamilton. “Now that the models conclude that we would be better off ratifying the Kyoto Protocol, the Government has run a mile from it.”
“No wonder the Government chose to release this new modelling at 6 o’clock on at Friday night”, said Dr Hamilton.

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