Global impacts of the Kyoto agreement: results from the MS-MRT model

Abstract

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...

Estimating Leakage from Forest Carbon Sequestration Programs

“…Several papers have examined the potential empirical magnitude of leakage when GHG abatement actions in the energy sector (e.g., emissions limits, carbon taxes, or tradable permits) are applicable to only a subset of the world's countries (e.g., Oliveira-Martins et al 1992;Felder and Rutherford 1993;Manne and Rutherford 1994;Jacoby et al 1997;Smith 1998;Bernstein et al 1999;Barker 1999;Babiker 2001). These leakage estimates range from negligible (Barker 1999) to substantial (Felder and Rutherford 1993) but typically are in the range of 5 to 20 percent of targeted country emission reductions (IPCC 2001).…”

Analyzing Economic Effects with Energy Mix Changes: A Hybrid CGE Model Approach

“…The elasticity of substitution between production factors and intermediate commodities 0, that between non-electricity sources used in the household 0.25, that that between electricity and non-electricity energy 0.5. The elasticity of substitution between consumption composite and leisure is assumed 0.5 [27]. Table 8.…”

Climate Policy and Economic Growth in Developing Countries

“…Developing countries can be influenced by the direct cost of emissions-reducing activities in industrialised countries or by the changes in investment due to expectations on future costs. Furthermore, LDCs can be affected by changes in terms of trade of energy and non-energy goods and by payments for emission permits (Bernstein, Montgomery, and Rutherford, 1999).…”

“…Using the multi-sector, multi-regional trade MS-MRT model, Bernstein, Montgomery, and Rutherford (1999) investigate the international trade aspects of climate change policy, looking among other things at the distribution of impacts across countries. Also their findings confirm that the Kyoto restrictions on industrialised countries have negative welfare on oil-producing countries and mixed spillover effects on other Non-Annex B countries, pointing at the positive effects on energy-importing developing countries.…”

“…Looking at the shift in terms of trades from a Non-Annex B viewpoint, there are three potentially offsetting effects (Bernstein, Montgomery and Rutherford, 1999):…”