Kyoto Accord Could Cost Truckers Billions, DOE Says
The agreement, which was negotiated in Kyoto, Japan, last year, could cause diesel prices to rise to between $1.33 and $2 per gallon from the current $1.04 average, and gasoline to increase to between $1.39 and $1.91, according to the Energy Information Administration.
The administration, the Energy Department’s forecasting branch, recently released its pessimistic predictions on what the accord would cost the U.S. if Congress ratifies it. The study says the costs will be significantly higher than the prediction made by the Clinton Administration when the tentative accord was signed.
The Kyoto agreement commits the approximately 150 nations that signed it to reduce carbon dioxide and other so-called greenhouse gases in 10 to 15 years, in a concerted drive to curb global warming. Under the pact, the U.S. would have to reduce greenhouse gas emissions to 7% below its 1990 levels between 2008 and 2012.
The EIA produced six different economic models showing the potential impact of the agreement in the year 2010, and concluded it would cost the U.S. between $77 billion and $348 billion a year to comply. It found that electricity prices would rise between 20% and 86%, and that coal and natural gas prices would also skyrocket.
If the agency’s estimates are on track, the Kyoto accord will “have a tremendous effect, far greater than any of us could imagine,” said Edward H. Arnold, chairman and CEO of Arnold Industries, Lebanon, Pa. “You would have to raise freight rates by 15% to 20% just to cover diesel, and that’s conservative,” he said.
Mr. Arnold estimated that fuel represents 15% of his operating costs. “Fuel is the lifeblood of our industry,” he said.
The Kyoto agreement, not yet ratified by the U.S., has pitted conservationists against those who feel there is not enough scientific evidence to support claims by some scientists of an industrial contribution to global warming. The extent to which industry exhaust causes global warming is the subject of much debate.
The treaty has run into trouble in Congress, where opponents are arguing that it could severely hamper the economy. Ratification requires the approval of two-thirds of the U.S. Senate.
I’ve suspected all along that the White House position on the Kyoto protocol is unrealistic and untenable, and this study confirms my suspicions,” said Rep. James Sensenbrenner Jr. (R-Wis.), chairman of the House science committee.
Susan Holte, the EIA’s director of integration and demand, said the agency wasn’t trying to pick sides in the fight. “We just do the research we’re instructed to conduct. We don’t necessarily reflect the administration’s views.”
Negotiators from around the world are scheduled to meet in Buenos Aires, Argentina, in November to start ironing out the details of the tentative accord.
Because trucking is “a pennies business, if diesel goes up that high, regardless of the reason, it would make it hard for motor carriers to make their returns,” said Robert G. Rothstein, general counsel for the Truckload Carriers Association. “So much of the economy is premised on energy costs, the economy would suffer.”
Several trucking executives said they would likely be forced to turn to shippers for help — in the form of surcharges — if diesel prices reach the levels forecast in the study.
Edward M. Emmett, president of The National Industrial Transportation League, the nation’s largest shippers’ association, said 2010 is far enough in the future that his group hasn’t studied the EIA’s report. “It’s obvious that drastic diesel prices would increase the cost of moving products. Beyond that I don’t know,” he said.
Bill Huie, assistant vice president of corporate transportation at NCH Corp., Irving, Texas, and chairman of NITL’s highway committee, said there are no “free lunches, that much we do know.”
If the cost of fuel increases, so will the cost of distribution, and that’s going to come out on the shelf,” Mr. Huie said. “It would have a devastating effect on the economy.”
NCH produces polishes and sanitation products, and uses major LTL carriers like UPS, RPS and Overnite to deliver its goods. He said NCH’s contracts with carriers do not include a fuel clause, but NCH has many different contracts that are interrelated with fuel. “We look at the differences in the price of diesel and see what we can do down the road,” Mr. Huie said.
Leroy McConnell, regional transportation manager of Johns Manville, Defiance, Ohio, said his company has amendments in some of its carrier contracts that call for a price surcharge when the Department of Energy’s weekly fuel price tops $1.20.
Tom Kloza, publisher of Oil Price Information Service, said the issue is not one that he has even kept up with. “I think it’s so far out in the future. My window is the next 30 days and next year,” Mr. Kloza said. “Beyond that my vision gets blurry.”
Duane W. Acklie, chairman of Crete Carrier Corp., Lincoln, Neb., said trucking companies would still operate if fuel prices skyrocket, but he said there would be far fewer shipments, and said customers would have to pick up the higher tabs. “It all comes down to the pocketbooks of everyone in America,” Mr. Acklie said.
Mr. McConnell said if diesel ever reached $2, Johns Manville would have to “take a harder look at intermodal.” But with railroads already overtaxed, as illustrated by Union Pacific Corp.’s ongoing traffic problems, he said intermodal is “scary” to consider.
Mr. Arnold, of Arnold Industries, agreed. “Right now, with the railroads in such a mess, if they are only hauling 10% (of the nation’s freight) and they had to start hauling 50%, how could they do it?”
