Decomposing the Cost of Kyoto: A Global CGE Analysis of Multilateral Policy Impacts

Abstract

We decompose the economic implications of the Kyoto Protocol at the cross-country level, splitting the total economic impact for each region into contributions from its own emission abatement policy and those from other regions. Our analysis which is based on a large-scale computable general equilibrium model for the world economy indicates that spillover effects are an important consequence of multilateral carbon abatement policies. We calculate a crosscountry matrix for monetary transfer payments which would have to be assigned on a bilateral basis in order to provide compensation for the international spillovers associated with the implementation of the Kyoto Protocol.

JEL Classification: C63, C68, D58, F11, Q4