Pact Casts Cloud of Uncertainty on U.S. Economy

WASHINGTON â€”  The global warming agreement reached in Kyoto, Japan, is likely to cast a pall of uncertainty over the U.S. and world economies for the next several months, and possibly even for years, many economists say.

The accord’s specific impact will depend on a variety of key factors that are still not decided, including how the new limits will be administered and how widely the burden will be spread.

At worst, the 166-nation pact could shave U.S. economic growth by several percentage points between now and 2012, cost between 2 million and 3 million jobs and send energy prices soaring.

At best, it could have a far milder effect, restraining economic growth only slightly and, environmentalists contend, saving consumers and businesses millions of dollars in pollution cleanup costs.

The participating governments agreed to put off until next year the key question of whether high-pollution countries will be able to buy pollution “credits� from lower-pollution countries.

So at least in the short run, businesses will be unable to start adjusting to the new order, concedes Robert Repetto, an analyst at the World Resources Institute, an environmental group. “The worst thing for business is uncertainty,� he says.

But California might actually thrive under the agreement because it leads the nation in pressing for low-pollution technology such as electric cars. “This is a big new competitive edge for California if it comes to pass,� says Ralph Cavanagh, co-director of the energy program at the Natural Resources Defense Council.

Nor does the accord appear to spell disaster for the national economy. Even the gloomiest forecast calls for a slowdown rather than a full-fledged slump.

“It’s not enough to cause a real recession, but it’s enough to take a healthy whack out of the economy,� says David Montgomery, an economist at Charles River Associates, an economic analysis group.

Still, if the United States takes its commitment seriously and agrees to cut greenhouse gas emissions by 7% from 1990 levels, the impact on certain industries and regions could be severe:

* The coal industry would be the big loser as the value of coal declined sharply, hundreds of mines are shut and thousands of miners are thrown out of work. “Coal mining is headed for the graveyard,� says William D. Nordhaus, a former presidential economic advisor now at Yale University.

* Energy prices--including gasoline, natural gas and electricity--could rise perhaps as much as 25% to 50% at retail, with gasoline prices jumping by as much as 45 cents a gallon, if the nation chose to use higher prices to force reduction in fossil fuel consumption.

* Energy-intensive industries such as automobile manufacturing, steel, aluminum, chemicals, transportation, agriculture and some utilities would be especially hard hit.

* Exporting industries would face an uncertain future. With Japan and Europe under similar constraints, the overseas market for U.S. goods would probably be less buoyant, even if Asia recovered from its current turmoil.

Among individual states and regions, the nation’s coal-mining areas--Wyoming, West Virginia, Colorado, Pennsylvania, Tennessee, Kentucky and Ohio--would be hit the hardest. So would oil states--Texas and Oklahoma.

The Midwest would suffer the most of any region. Besides mining and autos, the area has the largest concentration of energy-intensive industries in the country and is heavily agricultural to boot.

Analysts are divided over how California might fare. On one hand, the state has a diversified economy and is far ahead of the rest of the country in pressing for emissions-reducing technology such as electric cars.

The state also has a large farming sector, however, and depends heavily on exports. Some analyses show California losing about 350,000 jobs from the global warming accord between now and 2012--a significant loss but one that would be far outweighed by the normal pace of job creation.

Analysts say the actual impact of the agreement depends substantially on a variety of issues that governments are going to have to resolve over the next several months:

* Will participating governments agree to set up a global trading system that would allow polluting countries to buy pollution permits from countries that exceed their targets for reducing greenhouse gases?

If the United States could purchase some of these credits from other countries, it would help ease the burden on U.S. businesses and consumers and make the economic adjustment less painful.

Rejection of that proposal, by contrast, would convert the global warming problem into a domestic problem for the United States, says Mary Novak, an economist at the WEFA economic forecasting group. “The United States essentially will be bearing its burden alone,� she says.

* How will the administration decide to prod business into cutting back on greenhouse gas emissions: by imposing more government regulations or by providing new economic incentives, such as taxes or auctioning off pollution permits?

Yale’s Nordhaus recommends a new tax on the use of carbon fuels, with the revenue dedicated to cutting general excise taxes, thus neutralizing the economic blow.

If Congress balks at that, he suggests, the administration should propose auctioning off permits that would enable big polluters to adjust more slowly, albeit at a price.

The most costly alternative, he says, would be to increase government regulation through such actions as tougher fuel-efficiency standards. If that happened, he cautions, the impact on the economy could be far worse.

* How quickly will the administration set the ground rules and put industry on notice about what it has to do so that the United States will comply with the accord?

The adjustment will grow more painful with every month the government delays, WEFA’s Novak asserts. Putting the changes off until just before the 2012 deadline, she says, could make the impact intolerable.

Quick decisions do not seem to be prospects, however. The emissions-trading issue will not be ironed out until next year, and the Senate will not vote on whether to ratify the accord before 1999.

For Californians, the impact could vary widely. But for the most part, the L.A. lifestyle would probably survive reasonably intact.

Times staff writer Chris Kraul in Los Angeles contributed to this story.