Environment [Working Papers]

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    The Economic and Environmental Implications of the U.S. Repudiation of the Kyoto Protocol and the Subsequent Deals in Bonn and Marrakech
    (Honolulu, HI : East-West Center, 2002) Löschel, Andreas ; Zhang, ZhongXiang
    Taking account of sinks credits as agreed in Bonn and Marrakech, this paper illustrates how market power could be exerted in the absence of the US ratification under Annex 1 emissions trading and explores the potential implications of the non-competitive supply behavior for the international market of tradable permits, compliance costs for the remaining Annex 1 countries to meet their revised Kyoto targets, and the environmental effectiveness. Our results show that the US withdrawal from the Kyoto Protocol has had by far the greatest impact on the environmental effectiveness of the Protocol. This would lead to no real emission reduction in all remaining Annex 1 regions. As the biggest single buyer on the permit market, the absence of US ratification would significantly reduce the demand for permits. Consequently, the price of permits under Annex 1 trading would drop to zero. While all remaining Kyoto-constrained Annex 1 countries would enjoy meeting their revised Kyoto targets at zero costs, seller countries with excess supply of hot air would lose all their revenues under perfect Annex 1 trading. Given the former Soviet Union (FSU) and the Eastern European countries (EEC) as the dominant suppliers of emissions permits on the international market, it seems likely that they would exert market power to maximize their revenues from permit sales. Depending on how market power is exerted, our results show that the overall compliance costs of all remaining Annex 1 regions in the case of FSU cooperating with EEC could reach as much as two times that in the case of only FSU acting as a monopoly. But no matter how market power is exerted, all Kyoto-constrained Annex 1 regions are better off with emissions trading in terms of their compliance costs than with no trading at all. Moreover, curtailing permit supply by market power will cut the amount of hot air being emitted into the atmosphere by more than half and at the same time, increases Annex 1 domestic abatement efforts. Thus, the overall environmental effectiveness is increased, although it is much less under the market power scenarios examined than in the case of the ratification of all Annex 1 regions including the US. A Monte Carlo simulation supports the robustness of our quantitative findings.
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    Domestic Climate Policies and the WTO
    (Honolulu, HI : East-West Center, 2002) Zhang, ZhongXiang ; Assunção, Lucas
    The Kyoto Protocol gives Annex 1 countries considerable flexibility in the choice of domestic policies to meet their emissions commitments. Possible climate policies include carbon/energy taxes, subsidies, energy efficiency standards, eco-labels, and government procurement policies. In order to meet their targets with minimum adverse effects on their economies, Annex 1 governments with differentiated legal and political systems are highly likely to pursue these policies that may have the potential to bring them into conflict with their WTO obligations. This paper explores the potential interaction between these domestic climate policies and WTO rules. It argues that their potential conflicts can be avoided or at least minimized if WTO rules are carefully scrutinized, and efforts are made early on to ensure that the proposed climate policies comply with them. It suggests an early process of pursuing consultations between WTO members and the Parties to the Climate Change Convention and points to the need of further exploring ways to enhance synergies between the trade and climate regimes.
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