Kyoto protocol will reduce European economic growth

Kyoto protocol will reduce European economic growth
01 January 2006


That is the finding of a recent study from the International Council for Capital Formation, a market-based think tank. It projects that by 2010, Spain’s growth will have fallen by three per cent, and that Italy’s will shrink by two per cent.

These are bigger figures than previous studies have found, and their release comes as world leaders struggle to find a successor to the Kyoto treaty (reports the BBC).

In recent weeks, British Prime Minister Tony Blair has become the latest leader to suggest that constructing a "child-of-Kyoto" agreement involving firm targets for reducing greenhouse gas emissions will be tricky.

"No country will want to sacrifice its economy in order to meet this challenge," he told a London conference recently, commenting further that talk of frameworks and targets "...makes people nervous".

The US and Australian governments have opted out of Kyoto over economic concerns; and this new analysis of four European states from the International Council for Capital Formation (ICCF) endorses their view that the protocol will prove expensive.

It concludes that by 2010 - the middle of the four-year period in which Kyoto signatory states are supposed to meet their targets - Spain’s economic growth will be reduced by 3.1 per cent from what it would have otherwise been, Italy’s by 2.1 per cent, Britain’s by 1.1 per cent and Germany’s by 0.8 per cent.

ICCF managing director Margo Thorning said that these reductions took into account a projected uptake of green technologies. "We have a fair amount of new, clean technology already embedded in our forecasts," she told the BBC News website, "so we’re already assuming more use of renewables, more efficiency and so on. We also assume the development of a regime in Europe which all energy use would be subject to in an attempt to push emissions down."

Currently, the European Union’s principal mechanism for reducing greenhouse gases, the Emissions Trading Scheme (ETS), includes only industrial producers.  But most of the EU’s pre-expansion countries are some way off meeting their Kyoto targets, and there are moves to include the domestic and transport sectors in an expanded ETS.

The ICCF analysis suggests this would raise energy costs to a considerable degree, with electricity prices across the continent growing by an average 26 per cent by 2010.  This means, it says, that economies would suffer, increasing unemployment by several hundred thousand people in each of the countries studied as well as reducing growth.



Energy prices in some European countries have risen sharply in recent months, though Dr Thorning acknowledged this had more to do with a changing supply and demand equation than the Kyoto Protocol.

The differences between the four countries studied by ICCF arise largely because Germany and the UK are close to achieving their targets already, whereas Italy and Spain are considerably off course.

Earlier this year a UK government agency, the National Audit Office, concluded that meeting renewable energy targets would raise energy costs in the UK by 5% by the end of the decade.

Funded as it is by industrial, trade and finance groups, including oil companies, some observers might not consider it surprising that the ICCF report casts a harsh light on the post-Kyoto world.

"The figures given for Spain are very different from all other studies done so far," commented Bert Metz of the Netherlands Environmental Assessment Agency (MNP), co-chair of the Intergovernmental Panel on Climate Change working group on mitigation.

"Other studies show changes in the order of one per cent if you use options like emissions trading, two per cent if you don’t," he told the BBC News website. "You can get any conclusion from any economic study by choosing your assumptions carefully."

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