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This paper analyzes the economic impacts on different regions of the world of a global Ž . agreement to limit carbon emissions. A multi-sector, multi-region trade model MS-MRT is developed that focuses on the international trade aspects of climate change policy. These include the distribution of impacts on economic welfare, international trade and investment across regions, the spillover effects of carbon emission limits in Annex 1 countries on non-Annex 1 countries, carbon leakage, changes in terms of trade and industry output, and the effects of international emissions trading. Our central estimates are presented with a set of sensitivity tests to assess the extent to which our conclusions depend on elasticity and baseline assumptions. A technical appendix presents algebraic details of the model structure and calibration. q 1999 Elsevier Science B.V. All rights reserved.Keywords: Climate; International trade; Emissions trading; General equilibrium models OverviewInternational negotiations over a global policy to address climate change have been underway for many years. These negotiations led first to the adoption in 1992 ) Corresponding author. 0928-7655r99r$ -see front matter q 1999 Elsevier Science B.V. All rights reserved.Ž . PII: S 0 9 2 8 -7 6 5 5 9 9 0 0 0 0 9 -3 ( ) P.M. Bernstein et al.r Resource and Energy Economics 21 1999 375-413 376 Ž . of the United Nations Framework Convention on Climate Change FCCC , signed by 154 nations at the Rio Earth Summit. The first session of the Conference of the Ž . 1 Parties COP-1 in Berlin in 1995 followed this agreement. Two years later, in Ž . December 1997, the third Conference of the Parties COP-3 convened in Kyoto, where representatives from over 150 countries produced an agreement known as the Kyoto Protocol.This agreement defined the next steps to be taken to reduce emissions and identified a series of important issues about the future course of climate change policy. The Protocol calls for the majority of industrialized countries to limit their emissions of greenhouse gases by the first part of the next century and includes several 'flexibility mechanisms,' such as the international trading of emission permits, that could significantly reduce costs for some countries.Industrial countries agreed to limit their greenhouse gas emissions, averaged over the 5-year period from [2008][2009][2010][2011][2012], to specific percentages of their 1990 or 1995 emissions. The percentages range from 92%-for the European Union and some other countries-to 108% for Australia. Developing countries undertook no commitments to limit their emissions and insisted on deleting from the Protocol any proposed procedures under which such commitments could be made. Flexibility mechanisms included coverage of six greenhouse gases, provisions for international emissions trading, credits for reforestation and other actions that remove Ž . greenhouse gases from the atmosphere 'sinks' , and a Clean Development Mechanism under which industrial countries could finance and gain cred...

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