US demilitarization and global warming An empirical investigation of the environmental peace dividend Anthony G. Heyes and Catherine Liston-Heyes In the paper input-output methods are used to generate ballpark empirical estimates of the im- plications for global warming of the projected demilitarization of the US federal budget. The impact is found to be qualitatively ambiguous, and highly sensitive to the manner in which the funds saved are distributed. The effect is adverse where the budgetary savings are used to fund economy-wide cuts in personal taxation and~or deficit reduction. In other cases the effect may be neutral or beneficial. Keywords: Globalwarming;Demilitarization; Energyaccounting In recent years the threat posed by anthropogenical- ly induced global warming has become a major environmental policy issue. In this paper we assess what the implications of the large-scale demilitariza- tion of the US federal budget, of the type now envisaged by most informed commentators, might be for the output of greenhouse gases (GHGs) by the US economy. Our approach is essentially a composite one: changes in the pattern of government taxation and spending can be expected to induce transfers of economic activity between sectors. When the environ- mental friendliness of activity varies significantly A.G. Heyes is with the Department of Economics, Birk- beck College, University of London, 13-15, Gresse Street, London, W1P 1PA; Catherine Liston-Heyes is with the Groupe de Recherche en l~conomie de l'Energie et des Ressources Naturelles, (GREEN), Universit6 Laval, Quebec, G1K 7P4, Canada, and National Westminster Centre for Management Studies, Royal Holloway and Bedford New College, University of London, Egham, Surrey. from one sector to another, such transfers will, in general, have some non-zero net impact on the environment. Input-output estimates of the total (direct and indirect) 'energy intensities' of different categories of government and non-government ex- penditures are used to examine the impact of a large scale reduction in the US defence budget upon US emissions of CO2 and methane (CH4), the two most important GHGs. In a simple general equilibrium model it is shown that demilitarization may increase or decrease aggre- gate GHG output, despite the belief sometimes expressed that military spending is one of the en- vironment's worst enemies, t More specifically, the extent to which US demilitarization over the next few years is likely to be good or bad for the environment is shown to be highly sensitive to the manner in which the budgetary savings are used. We analyse the case of an US$87 billion cut in defence expenditure (approximately the cut envisaged before Bill Clinton's election in the autumn of 1992) and consider three scenarios, differentiated by the way in which the revenue windfall from cutting back the military is assumed to be allocated. The qualitative conclusions of the paper are two- fold. First, the implications for global warming of the demilitarization of the US defence budget antici- pated over the next few years are qualitatively ambiguous. If the fiscal savings are used to fund tax cuts (or pay off the federal budget deficit) then greenhouse gas emissions will increase significantly; if they are used to fund other categories of federal expenditures then the impact upon the environment can be expected to be neutral or beneficial. Thus, the end of the Cold War has the potential to provide a substantial 'environmental peace dividend'. Equal- ly, it has the potential to cause substantial environ- mental damage. 0301-4215/93/12 1217-08 (~ 1993 Butterworth-Heinemann Ltd 1 21 7