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The Kyoto Protocol: An Economic Appraisal

Michael Grubb

Cambridge University Faculty of Econ; Carbon Trust; Imperial College Centre for Environmental Policy

April 2000

FEEM Working Paper No. 30.2000

This paper examines the overall economics of the Kyoto Protocol on climate change, in three main parts. The first part explores the structure of the Protocol and how this matches against classical economic criteria of an 'optimal' climate change agreement. This discussion also considers the nature of and reasons for shortcomings, and the prospects for its evolution. Given the various flexibilities in the agreement, the Kyoto Protocol is far more economically efficient in its structure than any previous global environmental agreement. The central conclusion is that, from an economic perspective, the Protocol's structure for industrialised country commitments is as good as could reasonably be expected. The second part of the paper explores more closely the economics of the commitments themselves and how they combine with the various flexibilities, briefly reviewing the available literature and using a simple spreadsheet model of how the commitments might combine with trading mechanisms under a range of assumptions. Flexibility is intrinsic and necessary, but it is argued that the allocations to Russia and Ukraine in particular mean that unlimited flexibility could render the Protocol's commitments weaker in their impacts than is economically desirable to address climate change. It is argued that, should this prove to be the case, access to the large surplus in the transition economies could be used as a control valve to limit the costs of the Protocol to within acceptable limits. Finally, the paper considers the issues of developing country involvement in the Kyoto Protocol, and the Protocol's longer-term impact and evolution, including its impact on technological evolution and dissemination and the evolution of future commitments. It is argued that taking account of such issues critically affects views of the Protocol.

Number of Pages in PDF File: 33

JEL Classification: Q28, Q38

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Date posted: October 27, 2000  

Suggested Citation

Grubb, Michael, The Kyoto Protocol: An Economic Appraisal (April 2000). FEEM Working Paper No. 30.2000. Available at SSRN: https://ssrn.com/abstract=229280 or http://dx.doi.org/10.2139/ssrn.229280

Contact Information

Michael Grubb (Contact Author)
Cambridge University Faculty of Econ ( email )
Trinity Ln
Cambridge, CB2 1TN
United Kingdom
HOME PAGE: http://www.econ.cam.ac.uk
Carbon Trust ( email )
3 Clement's Inn
London, WC2A 2AZ
United Kingdom
HOME PAGE: http://www.thecarbontrust.co.uk
Imperial College Centre for Environmental Policy ( email )
Exhibition Road
London, SW7 2AZ
United Kingdom
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