Abstract:International climate agreements such as the Kyoto Protocol of 1997 and, more recently, the Paris Climate Agreement are fragile because, at a national level, political constituencies' value systems may conflict with the goal of reducing greenhouse gas (GHG) emissions to sustainable levels. Proponents cite climate change as the most pressing challenge of our time, contending that international cooperation will play an essential role in addressing this challenge. Political opponents argue that the disproportionate requirements on developed nations to shoulder the financial burden will inhibit their economic growth. We find empirical evidence that both arguments are likely to be correct. We use standard regression techniques to analyze a multi-country dataset of GHG emissions, GDP per capita growth, and other factors. We estimate that after the Kyoto Protocol (KP) entered into force 'Annex I' countries reduced GHG emissions on average by roughly 1 million metric tons of CO 2 equivalent (MTCO2e), relative to non-Annex I countries. However, our estimates reveal that these countries also experienced an average reduction in GDP per capita growth rates of around 1-2 percentage points relative to non-Annex I countries.

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The share of electric power generated from renewable energy sources such as wind and solar must increase dramatically in the coming decades if greenhouse gas emissions are to be reduced to sustainable levels. An under-researched implication of such a transition in competitive wholesale electricity markets is that greater wind and solar generation capacity directly affects wholesale price variability. In theory, two counter-vailing forces should be at work. First, greater wind and solar generation capacity should reduce short-run variance in the wholesale electricity price due to a stochastic merit-order effect. However, increasing the generation capacity of these technologies may increase price variance due to an intermittency effect. Using an instrumental variables identification strategy to control for endogeneity, we find evidence that greater combined wind and solar generation capacity is associated with an increase in the quarterly variance of wholesale electricity prices. That is, the intermittency effect dominates the stochastic merit-order effect.

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