United States General Accounting Office

Washington, D.C. 20548

A

Page 1 GAO-04-144R Estimated Costs of the Kyoto Protocol

January 30, 2004 Letr

The Honorable Ernest F. Hollings

Ranking Minority Member

Committee on Commerce, Science 

 and Transportation

United States Senate

The Honorable John F. Kerry

Ranking Minority Member

Subcommittee on Oceans, Fisheries

 and Coast Guard

Committee on Commerce, Science

 and Transportation

United States Senate

Subject: Climate Change: Analysis of Two Studies of Estimated Costs of Implementing the 

Kyoto Protocol

In 1992 the United States ratified the United Nations Framework Convention on Climate Change, 

which was intended to stabilize the buildup of greenhouse gases in the earth’s atmosphere but did 

not impose binding limits on emissions. In July 1997, when preliminary negotiations on a new 

climate agreement were under way, the Senate passed a resolution expressing the sense of the 

Senate that the Clinton administration should not agree to limits on U.S. greenhouse gas 

emissions if such an agreement did not include economically developing nations or if it could 

seriously harm the U.S. economy. In December 1997 the United States participated in drafting the 

Kyoto Protocol, an international agreement to specifically limit greenhouse gas emissions. The 

Protocol did not impose limits on developing nations’ emissions, and its possible effect on the U.S. 

economy was the subject of numerous studies during that period, including the two studies that 

are the subject of this report. Although the U.S. government signed the Protocol in 1998, the 

Clinton administration did not submit it to the Senate for advice and consent, which are necessary 

for ratification. In March 2001, President Bush announced that he opposed the Protocol.

A participating nation’s compliance with the Kyoto Protocol will be determined by first 

calculating its average emissions of the six covered gases—carbon dioxide, methane, nitrous 

oxide, and three synthetic gases1

—for the 5-year period 2008 through 2012. Reductions can then 

be made for, among other things, the purchase of emissions reductions from certain other nations; 

this feature, called emissions trading, allows a nation that has reduced its emissions more than the 

required amount to sell its unused emissions reductions to other nations. In addition, developing 

1

Hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride.
Page 2 GAO-04-144R Estimated Costs of the Kyoto Protocol

nations can generate emissions reductions for developed countries by participating in certain 

projects.

Although the United States is not participating in the Kyoto Protocol, climate change remains a 

topic of congressional and public concern, and there is continuing interest in estimating how 

reducing greenhouse gas emissions could affect the U.S. economy and quality of life. To make 

such estimates, economists typically rely on economic models—computerized sets of 

mathematical equations that represent the economy in a simplified way to project future 

conditions. Models can vary in terms of size, structure, complexity, and other features. Any such 

model’s results can be significantly affected by changing its assumptions about economic growth, 

energy prices, and other key variables. For example, the estimated costs of implementing the 

Kyoto Protocol could be significantly higher or lower, depending on the modelers’ assumptions 

about the future values of such variables. In addition, a model’s results can be significantly 

affected by changing its assumptions about how a policy, like the Protocol, is implemented. 

At a July 2002 hearing on the administration’s climate initiative, the Chairman of the Council on 

Environmental Quality (CEQ) testified that implementing the Kyoto Protocol would reduce U.S. 

economic output by “up to $400 billion” in 2010.2

 This estimate is similar to a $397 billion estimate 

that appeared in a 1998 report by the Energy Information Administration (EIA), an independent 

statistical and analytical agency within the U.S. Department of Energy.3

 The EIA estimate differed 

from another, well-publicized estimate prepared the same year by the Council of Economic 

Advisers (CEA), which found that the costs of implementing the Protocol could be as little as $7 

billion to $12 billion a year in economic output, depending on the extent of international 

emissions trading allowed and the participation of developing countries.4

 You asked us to identify 

likely reasons for the differences between the two cited cost estimates ($397 billion from EIA and 

$7 billion to $12 billion by CEA), based on (1) the economic models used to prepare these 

estimates and (2) the assumptions incorporated into these models, including economic 

assumptions and assumptions about how the Protocol would be implemented. You also asked us 

to determine the basis for the cost estimate cited by the CEQ Chairman.

To address these objectives, we reviewed the CEA and EIA reports, the CEQ testimony, and 

related literature. We did not perform any independent economic modeling. In addition, we did 

not attempt to track the continuing international negotiations on the details of the Protocol or to 

determine whether CEA’s and EIA’s assumptions about the Protocol’s operations turned out to be 

accurate.

2

Statement of James L. Connaughton, Chairman, White House Council on Environmental Quality, on United States 

Global Climate Change Strategy, before the Senate Committee on Commerce, Science and Transportation, July 11, 2002.

3

Energy Information Administration, Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity. 

Report No. SR/OIAF/98-03, October 1998.

4

President’s Council of Economic Advisers, The Kyoto Protocol and the President’s Policies to Address Climate 

Change: Administration Economic Analysis, July 1998.
Page 3 GAO-04-144R Estimated Costs of the Kyoto Protocol

Results in Brief

Two likely reasons why the cost estimates differed based on the economic models are that (1) the 

models focus on different time periods, with different assumptions about how the economy 

adjusts to new policies, and (2) they measure costs differently. CEA used a type of model that 

typically focuses on longer time periods and generally assumes that the economy adjusts 

smoothly to new policies over the longer-term, while EIA used a type of model that typically 

focuses on a more immediate time period and highlights the near-term costs of economic 

adjustments (such as unemployment). The different types of models produce different types of 

cost estimates; EIA’s model used a more comprehensive cost measure than CEA’s model and was 

thus able to capture certain costs that CEA’s model could not capture.

It was likely that EIA’s cited cost estimate would be higher than CEA’s estimate because of two 

assumptions the agencies made about the U.S. economy and about the Protocol’s operations. 

First, the cited EIA estimate assumed that all reductions would be achieved domestically, while 

the cited CEA estimate allowed for the purchase of emissions reductions from other nations. 

Second, the economic growth rate assumed by EIA (2.3 percent a year for 1995 through 2010) was 

higher than the growth rate assumed by CEA (2.1 percent for the same time period). A higher 

growth rate results in more growth in emissions and would require larger reductions to reach an 

emissions target.

In testifying that implementing the Kyoto Protocol “would have cost our economy up to $400 

billion” in 2010, the CEQ Chairman was relying on the highest of six cost estimates prepared by 

EIA. This scenario would have required reductions in U.S. greenhouse gas emissions to 7 percent 

below the 1990 level—the most restrictive of the six EIA estimates. Following the hearing, the 

Chairman noted that certain provisions in the Kyoto Protocol could require smaller reductions 

(specifically, to 4 percent below the 1990 level), but he did not cite a cost estimate corresponding 

to this smaller reduction.

We received written comments on a draft of this report from the Council of Economic Advisers 

and Council on Environmental Quality, jointly, and from the Energy Information Administration. 

The Councils characterized our draft as, among other things, “incorrect, incomplete, and lacking 

in analytical rigor in several significant areas.” We strongly disagree with this characterization 

and do not believe that the points in their comment letter provide adequate substantiation for 

such a broad assertion. However, we did enhance our report to provide additional information on 

developments prior to the negotiation of the Protocol, better specified the report’s objectives, and 

clarified the importance of assumptions about how the Protocol might be implemented and the 

effect of these assumptions on the cost estimates. In addition, the Councils provided one 

technical comment, which we incorporated. EIA suggested that we include additional material on 

its approach to modeling, and we did so. EIA also provided technical comments, which we 

incorporated where appropriate.

Background

Carbon dioxide and certain other gases trap some of the sun’s heat in the earth’s atmosphere and 

prevent it from returning to space. The trapped heat warms the earth’s climate, much like glass in 

a greenhouse. Hence, the gases that cause this effect are often referred to as greenhouse gases. 

The most prevalent of the six greenhouse gases covered by the Protocol is carbon dioxide, which 
Page 4 GAO-04-144R Estimated Costs of the Kyoto Protocol

results from combustion of coal and oil in power plants and industrial boilers, the burning of 

gasoline in vehicles, and other sources. The six gases covered by the Protocol differ in their 

effects on the atmosphere and their expected lifetimes.

In recent decades, concentrations of greenhouse gases have built up in the atmosphere, giving rise 

to concern that continuing increases might interfere with the earth’s climate system, for example, 

by increasing temperatures or changing precipitation patterns. In 1992, the United States joined 

with other nations in developing the United Nations Framework Convention on Climate Change, 

which does not impose specific binding targets or timetables for emissions reductions. In 

contrast, in the Kyoto Protocol, a follow-on to the Convention signed by the United States and 

about three dozen other nations—most of them economically developed—emissions were limited 

by specific amounts over a specified time frame. To help achieve the required reductions, the 

Protocol allows countries to purchase emissions reductions from other countries or to offset their 

emissions through the use of sinks, such as trees, which capture and store carbon dioxide.

Over the past decade or longer, there have been many efforts to estimate the cost to the U.S. 

economy of implementing various regimes for regulating greenhouse gas emissions. In the area of 

climate policy, two basic types of models, often referred to as top-down and bottom-up, are 

frequently used in assessing potential costs and benefits of reducing emissions. The two model 

types are based on fundamentally different perspectives, although in recent years the distinctions 

between the two model types have narrowed as modelers have begun to integrate features of the 

two types.

• Top-down models are economywide models that describe, among other things, the 

relationships between energy and the rest of the economy, based on observations of past 

experience, to project future policy-induced changes. One type of top-down model, a 

macroeconomic model, starts from a view of how the economy as a whole functions and how 

macroeconomic variables, such as economic output (known as gross domestic product, or 

GDP), consumption, and aggregate savings and investment, are determined and interrelated. 

Another type of top-down model, a computable general equilibrium model, draws from 

microeconomic theory and assumes that markets adjust efficiently in the long run as 

consumers and producers adapt to changing prices in response to, for example, a new policy 

regulating greenhouse gas emissions.

• Bottom-up models generally contain a great deal of technological detail, but less detail on the 

rest of the economy. Their projections are based on, among other things, calculations of future 

technological possibilities under different economic or policy conditions. In contrast to topdown models, bottom-up models used for analyzing climate policy focus primarily on the 

energy sector of the economy, with less detail on the economy as a whole. They contain 

extensive information about specific energy technologies, identifying the least expensive 

technology options available for energy savings and fuel-switching to reach a specific 

emissions target. Unlike top-down models that project possibilities for technological 

substitution based on trends observed in the past, bottom-up models allow for the substitution 

of new technologies at various prices, if, for example, the price of energy increases in response 

to a new carbon policy. Because they lack detail about the general economy, they are 

sometimes linked to top-down models, which can provide such detail.
Page 5 GAO-04-144R Estimated Costs of the Kyoto Protocol

Even among models of the same type (e.g., macroeconomic or computable general equilibrium 

models) results can vary because each model is designed with different features and may include 

different input assumptions.

CEA and EIA posed the same basic question about the potential costs to the U.S. economy of 

implementing the Kyoto Protocol but took different approaches to modeling these costs and 

produced different results.

CEA’s study. CEA’s 1998 study sought to estimate the costs to the U.S. economy of complying 

with the Kyoto Protocol by 2010. CEA modeled 10 scenarios of how the Protocol might be 

implemented, which differed in the extent to which they allowed international emissions trading 

and the purchase of emissions credits in developing countries.5 Among these were scenarios in 

which the United States traded emissions only with certain other industrialized countries (i.e., 

other nations signing Annex I of the 1992 Framework Convention on Climate Change6

); with 

Annex I countries and certain developing countries; and with certain Annex I countries, as well as 

the countries of Eastern Europe and certain developing countries. Under the last scenario—the 

least restrictive—the cost to the U.S. economy in 2010 was estimated to be 0.07 percent of GDP, or 

about $7 billion a year in total resource costs, which are defined by CEA as the direct costs to the 

U.S. economy of meeting its Kyoto target, including both the cost of abating emissions 

domestically and the cost of purchasing emissions reductions from abroad. CEA estimated that 

under this scenario the corresponding cost of reducing emissions would be $14 a ton in 2010.7

 At 

the other extreme, the CEA report implied that if the United States made all its reductions 

domestically, the cost would be $192 to $200 a ton.8

Table 1 shows selected results for four of CEA’s scenarios, from the least restrictive to the most 

restrictive. For each scenario, cost is represented both as the percentage by which GDP would 

decrease and the incremental cost of reducing emissions by one ton. As the scenarios become 

increasingly restrictive, total resource costs and the incremental cost of reducing emissions by 

one ton increase. (The costs shown do not include short-term adjustment costs, such as the 

temporary unemployment of workers due to high energy prices, which is discussed in more detail 

on pp. 7 and 8.)

5

CEA’s report presents the results of nine scenarios that incorporated international emissions trading. It also refers to a 

tenth scenario, involving no emissions trading, assuming rather that all reductions occurred domestically. Although 

CEA did not present the results for that scenario, the inferred cost is $54 billion to $60 billion.

6

Thirty-six developed countries are listed in Annex I. These countries include all the countries belonging to the 

Organization of Economic Cooperation and Development in 1990, plus most of the central and eastern European 

economies-in-transition.

7

Costs per ton refer to costs per metric ton of carbon.

8

We estimated this range on the basis of information provided in the CEA report on the trading scenarios. 
Page 6 GAO-04-144R Estimated Costs of the Kyoto Protocol

Table 1: CEA’s Cost Estimates under Four Scenarios 

Source: GAO analysis of CEA data.

a

We estimated these figures on the basis of information provided for other scenarios. The estimates were derived based on 

information provided by CEA for the $14-per-ton and $23-per-ton carbon price scenarios.

b

The cost to reduce emissions is referred to by CEA as the permit price. We refer to the permit price as the incremental (marginal) 

cost of reducing emissions.

EIA’s study. EIA’s 1998 study estimated the costs9 in 2010 of reducing carbon dioxide under six 

scenarios showing how the Protocol might be implemented. Because the exact rules that would 

govern final implementation of the Kyoto Protocol were not fully determined at the time of its 

analysis, EIA did not know the specific reduction in energy-related emissions that would be 

required. Therefore, EIA created six scenarios that assume a range of emission reductions levels. 

For example, the 1990 level minus 7 percent scenario was chosen to resemble the Kyoto Protocol 

target requiring the United States to reduce its emissions 7 percent below its 1990 baseline, 

without allowances for sinks, other greenhouse gases, or international activities; the 1990 level 

minus 3 percent scenario was chosen to represent a case where sinks and offsets from other gases 

produce a 4 percentage point contribution toward meeting the 7 percent target.10 EIA modeled 

four other scenarios: no change in emissions and emissions increases of 9 percent, 14 percent, 

and 24 percent above the 1990 level. Under these scenarios, it was assumed that the United States 

would purchase varying amounts of its required reductions abroad, with the most international 

purchases occurring under the 1990 level plus 24 percent scenario.

EIA estimated that the costs would be between 1.0 and 4.2 percent of U.S. GDP in 2010, depending 

on the scenario, and that the corresponding incremental cost of reducing carbon emissions would 

be between $67 and $348 a ton. The lowest cost estimate was based on the scenario in which 

emissions in 2010 would be 24 percent above the 1990 level. The highest cost estimate was based 

on the scenario in which emissions in 2010 would be 7 percent below the 1990 level.

Table 2 shows selected results for the six EIA scenarios, from the least restrictive to the most 

restrictive. Under each scenario, cost is represented both as the percentage by which GDP would 

Sources of emissions reductions 

from other nations

Decrease in GDP in 2010

Incremental cost to 

reduce emissions

(dollars per ton)a

Total resource costs

(1992 dollars in 

billions) Percentage of GDP

Certain Annex I nations, Eastern 

Europe, and key developing nations $7 0.07 $14

Annex I and key developing nations 12 0.11 23

Annex I nationsb 23-26 0.23-0.24 54-56

No international trading (domestic 

reductions only)b 54-60 0.54-0.55 192-200

9

EIA estimated incremental costs in 1996 dollars per metric ton of carbon. 

10According to the EIA study, a January 1998 fact sheet by the Department of State noted that the provisions of the 

Protocol would yield this 4 percentage-point difference—3 percentage points due to the counting of sinks and 1 

percentage point due to the use of 1995, rather than 1990, as the base year for the three synthetic greenhouse gases.
Page 7 GAO-04-144R Estimated Costs of the Kyoto Protocol

be reduced and the incremental cost of reducing emissions by one metric ton. As the scenarios 

become increasingly restrictive, the cost to the overall economy and the incremental cost of 

reducing emissions by one metric ton increase.

Table 2: EIA’s Cost Estimates under Six Scenarios 

Source: GAO analysis of EIA data.

Note: The decrease in GDP and the cost to reduce emissions in EIA’s model include short-term adjustment costs, such as temporary 

unemployment of workers resulting from higher energy prices. The incremental costs represent the carbon prices resulting from each 

scenario. These carbon prices result in higher energy prices and lower GDP.

Using Different Types of Economic Models Likely Contributed to Higher Cost Estimates 

from EIA than from CEA

In estimating the costs to the U.S. economy of implementing the Protocol, CEA and EIA used 

economic models that differ in the way they represent how the economy functions. The models 

focus on different time periods and measure costs differently. These differences likely 

contributed to higher cost estimates from EIA than from CEA.

CEA used a top-down computable general equilibrium model that describes the economy’s path 

over the long term. Such models generally represent markets as adjusting smoothly in the long 

run to price changes resulting from, for example, new regulations for greenhouse gas emissions. 

Because they are generally not as well suited as macroeconomic models to represent the nearterm effects of government policies, computable general equilibrium models may tend to 

underestimate the short-term costs of adjustments to a policy change. In contrast, EIA used a 

bottom-up energy sector model linked to a top-down macroeconomic model. Macroeconomic 

models often yield higher cost estimates than computable general equilibrium models because 

they are better able to capture short-term economic adjustment costs, such as those that might be 

caused by limiting greenhouse gas emissions.

Because of differences in how they represent the economy, the models include different measures 

of costs. The total loss in GDP attributable to emissions reduction policies has two components:

• Loss of potential GDP measures the loss of productive capacity of the economy. This loss is 

directly attributable to the reduction in energy resources available to the economy. (Polices to 

reduce greenhouse gas emissions raise the price of energy, leading to reduced use.)

Scenario

Decrease in economic output in 2010 Incremental cost to reduce 

emissions (1996 dollars 

1992 dollars in billions Percentage of GDP per metric ton)

1990 level + 24 percent $96 1.0 $67

1990 level + 14 percent 161 1.7 129

1990 level + 9 percent 188 2.0 163

1990 level 292 3.1 254

1990 level – 3 percent 327 3.5 294

1990 level – 7 percent 397 4.2 348
Page 8 GAO-04-144R Estimated Costs of the Kyoto Protocol

• Adjustment costs reflect frictions to the economy that result from the policies to reduce 

emissions. These frictions would include the temporary unemployment of workers and other 

resources resulting from higher energy prices.

The model used by CEA assumes that the economy makes a smooth transition to a new path over 

the long term, losing some productive capacity as a result of higher energy prices. Thus, CEA’s 

cost estimate includes only the loss in potential GDP, or the loss in GDP if employment were full. 

In contrast, EIA’s model captures both types of costs. EIA’s approach to modeling energy markets 

explicitly incorporates, on an annual basis, such as factors as technological change and costs, 

consumer choice behavior, and changes to energy infrastructure. Thus, in addition to the loss in 

potential GDP, the EIA model also estimates the adjustment costs, and the estimates shown in 

table 2 include both types of losses.11 Compared to CEA, therefore, EIA’s estimate of economic 

loss is a broader measure of the costs of implementing the Protocol.

EIA separately estimated economic losses in potential GDP, which is similar to the measure used 

by CEA. These estimates are shown in table 3. In all of these scenarios, the losses in potential 

GDP are smaller than the corresponding losses in total GDP shown in table 2. For example, for 

the most restrictive scenario—achieving emissions 7 percent less than the 1990 level—the 

estimated reduction in potential GDP was $72 billion, while the estimated reduction in total GDP 

was $397 billion.

Table 3: EIA’s Cost Estimates (in terms of potential GDP) under Six Scenarios 

Source: GAO analysis of EIA data.

Note: Like the CEA results in table 1, the decrease in GDP and costs to reduce emissions in this table do not include short-term 

adjustment costs, such as temporary unemployment of workers resulting from higher energy prices. The incremental costs represent 

the carbon prices resulting from each scenario. These carbon prices result in higher energy prices and lower GDP.

11EIA refers to the sum of loss in potential GDP and economic adjustment costs as “actual GDP.”

Scenario

Decrease in economic output in 2010 Incremental cost to reduce 

emissions (1996 dollars per 

1992 dollars in billions Percentage of GDP metric ton)

1990 level + 24 percent $13 0.1 $67

1990 level + 14 percent 27 0.3 129

1990 level + 9 percent 34 0.4 163

1990 level 53 0.6 254

1990 level – 3 percent 62 0.7 294

1990 level – 7 percent 72 0.8 348
Page 9 GAO-04-144R Estimated Costs of the Kyoto Protocol

Using Different Assumptions Also Likely Contributed to Higher Cost Estimates from 

EIA Than from CEA

Of the many assumptions incorporated into the two modeling efforts, we identified two used by 

CEA and EIA that likely contributed to their different results. One of these relates to how the 

Protocol would operate, while the other relates to the economy’s growth rate. Both assumptions 

would likely yield higher cost estimates from EIA than from CEA in the scenarios we examined.

International trade in emissions reductions. A scenario that does not allow the United States 

to purchase emissions reductions from other nations will likely yield higher estimated costs than 

a scenario that does allow such purchases, because the United States’ cost of reducing its 

emissions is likely to be higher than many other nations’ costs. The most restrictive of the 

scenarios modeled by EIA did not allow for international trade in emissions reductions, while the 

least restrictive of the CEA scenarios did allow for such trade.12 In fact, according to the CEA 

study, an effective international market for emissions trading among industrialized countries 

would potentially reduce the resource costs to the United States by more than half relative to a 

scenario in which all emissions reductions occur domestically. Moreover, if the United States 

were allowed to purchase emissions from developing countries, the costs could be reduced even 

further. Thus, as would be expected, EIA’s no-trading scenario cost estimate was higher than 

CEA’s full-trading scenario estimate.

Economic growth rates. The rate at which an economy’s GDP grows is important in 

determining the costs to limit emissions. A slower-growing economy uses less energy and 

produces fewer emissions; therefore, smaller emissions reductions are needed to meet a given 

target. Conversely, a faster-growing economy uses more energy and produces more emissions; 

therefore, larger reductions are needed to meet a given target. In its analysis, CEA assumed that 

the economy would grow by 2.1 percent between 1995 and 2010, while EIA assumed that the 

economy would grow by 2.3 percent during the same time period, a difference of 0.2 percentage 

points. This difference increases in significance when compounded over many years. In this case, 

CEA assumed that the economy would grow about 37 percent between 1995 and 2010, while EIA 

assumed it would grow about 41 percent. In the context of a roughly $10 trillion economy, this 

difference can be significant.

CEQ’s Chairman Cited a Cost Estimate Based on EIA’s Most Restrictive and Expensive 

Scenario

In prepared testimony in support of the administration’s 2002 climate change strategy, the 

Chairman of CEQ stated that implementing the Kyoto Protocol would cost the U.S. economy “up 

to $400 billion” in 2010. By citing this estimate, the CEQ Chairman focused on the most restrictive 

of the six scenarios modeled by EIA. This scenario required the deepest reduction in U.S. 

emissions (to 7 percent below the 1990 emissions level) and did not allow for, among other things, 

12As noted above, CEA modeled a range of scenarios with different levels of trading. The inferred cost of the no-trading 

CEA scenario is about $54 billion to $60 billion a year, while the estimated cost of the no-trading EIA scenario of 7 

percent below the 1990 level is $72 billion in terms of potential GDP. The comparable EIA estimate in terms of actual 

GDP is $397 billion.
Page 10 GAO-04-144R Estimated Costs of the Kyoto Protocol

emissions trading with other nations. Under this scenario, EIA estimated that the cost to the U.S. 

economy (in terms of reduced GDP) would be $397 billion in 2010.

In answering follow-up questions after the hearing, the Chairman recognized that the United 

States might not be required to reduce its emissions to 7 percent below the 1990 level. 

Specifically, he stated that “the inclusion of sinks provides a 3 percent offset to the most stringent 

case.”13 He did not provide an estimate for the cost of reaching that less stringent level.

Agency Comments

We provided a draft of this report to the Secretary of Energy; the Chairman, CEA; and the 

Chairman, CEQ, for review and comment. We received written comments jointly from the 

Chairman, CEA, and the Chairman, CEQ (see enc. I), and from the Administrator, EIA (see enc. 

II). The Councils characterized our draft as, among other things, “incorrect, incomplete, and 

lacking in analytical rigor in several significant areas.” We disagree with this characterization and 

do not find that it is substantiated in the Councils’ letter. However, we have provided additional 

information on developments prior to the negotiation of the Protocol, better specified the report’s 

objectives, and clarified the importance of assumptions about how the Protocol might be 

implemented and the effect of these assumptions on the estimated costs to the economy. Our 

objective was to explain the differences in the results of the 1998 economic modeling studies by 

CEA and EIA. In addition, we addressed the technical comment made by the Councils.

EIA suggested that we include additional material on its approach to modeling, and we did so. 

EIA also provided technical comments, which we incorporated where appropriate.

Scope and Methodology

To answer the first and second objectives, we reviewed the CEA and EIA studies and literature on 

economic modeling. To answer the third objective, we reviewed the CEQ Chairman’s July 2002 

testimony and his responses to follow-up questions. We did not independently assess the validity 

of the CEA and EIA models in this report. (In addition, we did not attempt to track the continuing 

international negotiations on the details of the Protocol or to determine whether the CEA’s and 

EIA’s assumptions about the Protocol’s operation turned out to be accurate.) We performed our 

work from July through December 2003 in accordance with generally accepted government 

auditing standards. 

As arranged with your offices, unless you publicly announce the contents of this report earlier, we 

plan no further distribution until 30 days from the date of this report. At that time, we will send 

copies to the appropriate congressional committees; the Secretary of Energy; the Chairman, CEA; 

13Response of the Honorable James Connaughton, Chairman, Council on Environmental Quality, to questions posed by 

Senators after the July 2002 hearing.
Page 11 GAO-04-144R Estimated Costs of the Kyoto Protocol

and the Chairman, CEQ. In addition, the report will be available at no charge on the GAO Web site 

at http://www.gao.gov.

Should you or your staff need further information, please contact me or David Marwick at 

(202) 512-3841. Chuck Bausell and Anne K. Johnson made key contributions to this report. Karen 

Keegan, Cynthia Norris, and Anne Stevens also made important contributions.

John B. Stephenson

Director, Natural Resources

 and Environment

Enclosures
Page 12 GAO-04-144R Estimated Costs of the Kyoto Protocol

Enclosure I:

Comments from the Council of Economic 

Advisers and Council on Environmental 

Quality EncolsureI:

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.
Enclosure I: Comments from the Council of Economic Advisers and Council on Environmental Quality

Page 13 GAO-04-144R Estimated Costs of the Kyoto Protocol

See comment 1.

See comment 2.

See comment 3.
Enclosure I: Comments from the Council of Economic Advisers and Council on Environmental Quality

Page 14 GAO-04-144R Estimated Costs of the Kyoto Protocol

See comment 4.

See comment 5.

See comment 6.
Enclosure I: Comments from the Council of Economic Advisers and Council on Environmental Quality

Page 15 GAO-04-144R Estimated Costs of the Kyoto Protocol
Enclosure I: Comments from the Council of Economic Advisers and Council on Environmental Quality

Page 16 GAO-04-144R Estimated Costs of the Kyoto Protocol

The following are GAO’s comments on the joint Council of Economic 

Advisers/Council on Environmental Quality letter dated December 10, 

2003.

GAO’s Comments 1. We prepared this report in response to a request from the Ranking 

Minority Members of the Senate Committee on Commerce, Science and 

Transportation and its Subcommittee on Oceans, Fisheries and Coast 

Guard.

2. We added information on developments prior to the negotiation of the 

Protocol. 

3. We stated that developing nations can generate emissions reductions, 

which CEA/CEQ does not dispute. As noted earlier, we did not attempt 

to track developments since 1998, such as how many such projects 

have been approved.

4. We believe that the first two paragraphs of our Results in Brief section 

appropriately summarize the results of our work on the likely reasons 

for the differences between the two cited cost estimates based on 

(1) the economic models used to prepare these estimates and (2) the 

economic and other assumptions incorporated into these models. 

However, in the body of the report, we have clarified in several places 

the importance of assumptions about how the Protocol might be 

implemented and the effect of these assumptions on the estimated 

costs to the economy.

5. We revised the report as suggested.

6. We deleted a comparison of the basis of the cost estimate cited by the 

CEQ chairman to a 1998 State Department fact sheet. However, we cite 

the fact sheet in the section dealing with EIA’s cost estimates, 

because—according to EIA officials—one of EIA’s six scenarios (a 

target of 3 percent below the 1990 emissions level) is based on the fact 

sheet.
Page 17 GAO-04-144R Estimated Costs of the Kyoto Protocol

Enclosure II:

Comments from the Energy Information 

Administration EncolsureI:

Note: GAO comments 

supplementing those in 

the report text appear 

at the end of this 

appendix.

See comment 1.
Enclosure II: Comments from the Energy Information Administration

Page 18 GAO-04-144R Estimated Costs of the Kyoto Protocol

See comment 2.

See comment 3.
Enclosure II: Comments from the Energy Information Administration

Page 19 GAO-04-144R Estimated Costs of the Kyoto Protocol

See comment 4.

See comment 4.

See comment 4.

See comment 4.
Enclosure II:

Comments from the Energy Information 

Administration

Page 20 GAO-04-144R Estimated Costs of the Kyoto Protocol

The following are GAO’s comments on the Energy Information 

Administration’s letter dated December 10, 2003.

GAO’s Comments 1. We believe that the first two paragraphs of our Results in Brief section 

appropriately summarize the results of our work on the likely reasons 

for the differences between the two cited cost estimates based on (1) 

the economic models used to prepare these estimates and (2) the 

economic and other assumptions incorporated into these models.

2. We expanded our discussion of its approach to modeling energy 

markets. See page 8.

3. EIA notes that we did not discuss the difference between CEA and 

EIA's approaches for estimating the economy's response as the Kyoto 

Protocol was phased in over time. We recognize that this assumption 

could have affected the agencies’ respective cost estimates. Whereas 

EIA notes that CEA “implicitly” assumed a particular phase-in period, 

we did not find explicit documentation in the CEA study for its 

assumption in this regard and, therefore, did not report on this issue.

4. We clarified our discussion, as suggested.

360394
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The General Accounting Office, the audit, evaluation and investigative arm of 

Congress, exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability of the

federal government for the American people. GAO examines the use of public 

funds; evaluates federal programs and policies; and provides analyses, 

recommendations, and other assistance to help Congress make informed 

oversight, policy, and funding decisions. GAO’s commitment to good 

government is reflected in its core values of accountability, integrity, and 

reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and fulltext files of current reports and testimony and an expanding archive of older 

products. The Web site features a search engine to help you locate documents

using key words and phrases. You can print these documents in their entirety, 

including charts and other graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its Web 

site daily. The list contains links to the full-text document files. To have GAO email this list to you every afternoon, go to www.gao.gov and select “Subscribe to 

e-mail alerts” under the “Order GAO Products” heading. 

The first copy of each printed report is free. Additional copies are $2 each. A 

check or money order should be made out to the Superintendent of Documents. 

GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to

a single address are discounted 25 percent. Orders should be sent to: 

U.S. General Accounting Office 

441 G Street NW, Room LM

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and

Testimony 

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Public Affairs