INTERNATIONAL CLIMATE
CHANGE AGREEMENTS: AN
OVERVIEW
Ann Chou
April 14, 2010
Professor Nordhaus
ECON 331b
THE KYOTO PROTOCOL

Objective:


Annex I countries commit
to a 5% average decrease in
1990 global greenhouse gas
emission levels during 5year commitment period
(2008-2012)
Current Standing:

36 of 37 Annex I countries
have ratified Kyoto


U.S. has not ratified
Other UNFCCC members
have ratifed but have no
emission commitments
THE KYOTO PROTOCOL

Characteristics:
Binding targets for Annex I countries
 “Common but differentiated responsibilities”
 “Bank and Borrow”
 Flexibility Mechanisms

International Emissions Trading
 Joint Implementation
 Clean Development Mechanism


Consequences of non-compliance
Country
Base Year
Emissions
Kyoto
2003 Emissions, %
Target (%) by which above or
below Kyoto Target
Australia
423.4
+8.0
+20.3
Austria
78.5
-13.0
+34.0
Belgium
146.1
-7.5
+9.3
*Bulgaria
141.8
-8.0
-47.0
Canada
595.9
-6.0
+32.1
Croatia
31.6
-5.0
-0.5
*Czech Republic
192.1
-8.0
-16.7
Denmark
69.6
-21.0
34.6
*Estonia
43.5
-8.0
-46.6
EU 15
4238.0
-8.0
+7.2
EU 25
5212.0
-8.0
+2.7
Finland
70.5
+0.0
+21.5
*France
568.0
+0.0
-1.8
Germany
1248.3
-21.0
+3.2
*Greece
111.7
+25.0
-1.4
*Hungary
122.2
-6.0
-27.6
Country
Base Year
Emissions
Kyoto
2003 Emissions, %
Target (%) by which above or
below Kyoto Target
*Iceland
3.3
+10.0
-14.6
*Ireland
54.0
+13.0
+10.8
Italy
510.5
-7.5
+19.4
Japan
1187.2
-6.0
+20.0
*Lithuania
50.9
-8.0
-63.2
Netherlands
212.0
-6.0
+7.9
New Zealand
61.5
0.0
+22.5
*Poland
564.4
-6.0
-27.9
*Romania
265.1
-8.0
-41.4
*Slovakia
72.1
-8.0
-22.1
Spain
286.1
+15.0
+22.3
*Sweden
72.1
+4.0
-5.8
Switzerland
52.4
-8.0
+8.3
*Ukraine
978.2
+0.0
-46.1
UK
751.4
-12.5
-1.0
USA
6088.1
-7.0
+21.9
MODELING KYOTO: IS IT COST-EFFECTIVE?

Manne and Richels use MERGE 3.0, Model for
Evaluating Regional and Global Effects of
greenhouse gas reduction policies


An intertemporal market equilibrium model that
maximizes discounted utility over nine regions
Assumptions
Endogenous technological diffusion
 Autonomous energy efficiency improvement rate of
40% of the rate of growth of GDP


Try to answer…


What is the problem of “carbon leakage?”
What are the efficiency gains from flexible
mechanisms?
KYOTO: “CARBON LEAKAGE”

What is “carbon leakage”?


The reduction in emissions by Annex I countries is offset by
actions of non-Annex I countries
Carbon leakage through…
Price
 Comparative advantage


Remedy: Subject everyone to emissions limits
KYOTO: WHY HAVE FLEXIBILITY
MECHANISMS?

Cost Effectiveness
“Where” flexibility allows cost of mitigation to decrease
significantly
 Allows countries to mitigate where the marginal costs are
lowest



Manne and Richels also find that any limits to carbon emission
purchase results leads to inefficiency
Best Solution: Allow full global trading without any
carbon emission purchase constraints
KYOTO: WHY HAVE FLEXIBILITY
MECHANISMS?

Joint Implementation


Clean Development Mechanism


Earn credit allowances through emission reduction
units (ERU) when Annex I countries collaborate on
emission removal or emission reduction project
Earn credit allowances through emission reduction
credits (CERs) when Annex I country finances
emission removal or emission reduction projects in
non-Annex I projects
Jury is still out…
Unclear rules and regulations—transaction costs
 CDM assumes that abatement or mitigation is
cheaper in developing countries

THE BIGGER PICTURE:

Objective:

“…stabilization of greenhouse-gas concentrations in
the atmosphere at a level that would prevent
dangerous anthropogenic interference with the
climate system…”
THE PROBLEM OF NON-PARTICIPATION
AND NON-COMPLIANCE

Non-participation
High economic costs
 Inefficiencies
 Notions of fairness
 E.g. United States passes Byrd-Hagel Resolution to
not sign Kyoto 95-0 in the U.S. Senate.


Non-compliance
No enforcement measures
 Tragedy of the commons without full participation


Challenges of international governance
COPENHAGEN ACCORD

A letter of intent…


No deadline for renewal of binding international
agreement
No hard-and-fast rules to play by
Long-term plans—2 degree Celsius target
 Developed countries pledged financial resources to
developing countries
 Annex I and non-Annex I countries submit
emissions reduction targets by Jan 2010



Non-Annex I/non-LDC must engage in nationally
appropriate mitigation actions
Non-Annex I/LDC under voluntary mitigation measures
COPENHAGEN ACCORD

Carbon Leakage
Developing countries are involved in mitigation
 Moving towards full participation


Cost-effectiveness by trading
Still not trading
 NAMA and guaranteed funding from developed
countries
 Decrease in transaction costs


Non-participation/non-compliance
U.S. and China participation
 Still no compliance measures

CONCLUSION


Findings from MERGE 3.0 study
 Greater trading is more cost-efficient and JI/CDM
does not mirror trading
 Trading hould not be limited
 Carbon leakage
 Kyoto forever is, in the long-term, less stable for
emissions mitigation and more costly
Changes found in Copenhagen
Participation of developing countries
 Incremental movement toward full global trading



Weaknesses of long-term cost assessment
All efficient solutions rely on full participation and
full compliance—is this possible?