CUTTING CARBON EMISSIONS AT A PROFIT (PART II): IMPACTS ON U.S. COMPETITIVENESS AND JOBS

Abstract

This article examines how an integrated least‐cost implementation of the Kyoto Protocol in the United States would affect U.S. competitiveness and jobs. Drawing on previous work, the authors analyze integrated emission reduction strategies based on a $50/ton carbon tax (including border tax adjustments), a payroll tax cut, energy‐productivity–oriented market reforms, and international flexibility mechanisms. This policy portfolios is compared to conventional approaches that omit market and fiscal reforms.Input‐output data are used to estimate the impact on export prices of goods and services produced in the United States. Similar data are used to translate changes in GDP and energy production into employment impacts in energy and nonenergy sectors. The costs of providing transitional assistance for workers in the coal industry are compared to the GDP benefits of a profitable Kyoto strategy.The analysis shows that relative to purchasing international emission rights, productivity‐raising domestic market, institutional, and fiscal reforms offer much broader advantages for tradE‐exposed U.S. industries. Though allowance purchases alone increase export prices of U.S. manufactured goods and services, an integrated no‐regrets strategy reduces export prices for the large majority of U.S. industries and limits the impact of climate protection policies on the few most energy‐intensive basic materials industries to very small levels. Relative to the baseline, an integrated least‐cost implementation of the Kyoto target increases economy‐wide employment levels by several hundred thousand jobs in 2010.