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Clubs, Ceilings and CDM: Macroeconomics of Compliance with the Kyoto Protocol

Abstract:
The Kyoto Protocol suggests that imposing restrictions on emission trade among Annex I countries may force domestic action in each country. The Protocol also mentions the Clean Development Mechanism (CDM) as On instrument to extend trade to countries outside Annex I. We analyze both restrictions on and extensions of permit trade among Annex I countries. We use the applied general equilibrium model WorldScan in this analysis. We show that, compared to unrestricted trade, the USA tends to gain from restrictions on emission trade while other OECD countries are likely to be harmed. We further show that restrictions probably do not prevent so-called hot air in the former Soviet Union from being used. On the contrary, restrictions tend to increase global emissions. Finally, we conclude that CDM can be an efficient option to reduce abatement costs, but certain conditions should be fulfilled to avoid severe carbon leakage.

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Energy Specializations: Energy Modeling – Other; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance

JEL Codes: Q54: Climate; Natural Disasters and Their Management; Global Warming, Q41: Energy: Demand and Supply; Prices, F18: Trade and Environment, Q52: Pollution Control Adoption and Costs; Distributional Effects; Employment Effects, Q48: Energy: Government Policy

Keywords: Kyoto protocol. Clean Development Mechanism (CDM), Greenhouse gases, Emission Cap, Emissions tax, Emissions trading, Climate policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-8


Published in Volume 20, Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.