Economics of the Kyoto Protocol for Russia

Abstract

In this article we propose a careful analysis of the economic consequences of the Kyoto Protocol for Russia, taking into account the most recently available data and the latest developments in the trends regarding Russian economic recovery. We present a review of different GHG forecasts for Russia and develop a new forecast for uncertain GDP growth and changing elasticity of GHG emission per GDP. Since the rate of growth remains uncertain, elasticity could change over time, as well as the fuel mix. We apply the Monte-Carlo method to simulate these uncertainties and to produce a reasonable interval for CO₂ emissions in 2010. The probability of Russia exceeding its Kyoto emissions budget is essentially zero. Further, we discuss the benefits for Russia from the Kyoto Protocol, and more generally from implementation of GHG mitigation policy. Ancillary benefits from Kyoto Protocol implementation will bring essential reductions in risk to human health. On the other hand, potential negative changes in the fuel mix and GDP structure, as well as a slowing of the innovation process, could exacerbate existing health problems. Alternatives to the Kyoto Protocol may bring much tougher commitments to Russia. We conclude that the Kyoto Protocol is the best possible deal for Russia. Therefore, Russia most will ratify it.     

Implementing the Kyoto Protocol without Russia

Abstract

This paper examines implementation of the Kyoto Protocol without Russia. It concludes that implementation without Russia is possible, although it requires political will on the part of the countries that wish to proceed with the Protocol. It would lead to higher compliance costs for Annex B buyer regions, but other regions, except Russia, would benefit financially. Russia would forego revenue of at least $20 billion for the first commitment period. Implementation without Russia could improve the environmental performance of the Protocol. It would reduce reliance on Annex B sinks, use of surplus assigned amount units (AAUs) for compliance, and the quantity of Kyoto units banked for subsequent commitment periods. Actual emissions by Kyoto Protocol Parties would fall, but the reduction may be offset by leakage to the US and Russia.     

The WTO and the Kyoto Protocol: interaction issues

Abstract

This article builds upon the broad survey of climate-trade interactions in Part 1, by focusing upon the specific issues in the interaction of the WTO and the Kyoto Protocol.¹ It classifies the various issues into three groups according to their potential to cause problems and relative urgency. The article gives special attention to issues that are problematic because of the likelihood of occurrence of specific conflicts and the significance of their economic and/or political consequences. It concludes that although there are many interactions that are not problematic and some that offer the potential for win—win outcomes, the possibility of offsetting border measures that could be applied against energy-intensive imports from the USA may become a particularly nettlesome issue.     

The emperor's new clothes: redressing the Kyoto Protocol

Abstract

US President Bush repudiated the Kyoto Protocol because, in his view, it is ‘fatally flawed in fundamental ways’. This paper evaluates seven proposals to redress the protocol according to their potential to deal with three key issues that have reinforced US intransigence: hot air, cost uncertainty and developing country participation. It argues that negotiations on intensity targets hold the most promise. Because intensity targets limit hot air, but do not limit economic growth, and a high variance of carbon intensity exists among countries with similar GDP per capita, intensity targets based on best practice levels might be agreeable to developing countries and the US. If a protocol specifying such targets were implemented, less warming would be associated with larger world GDP than would otherwise be the case, and countries' carbon intensity and emissions per capita would tend to converge to best practice levels at every stage of development.     

Sinks and the Kyoto Protocol

Abstract

Deliberate land management actions that enhance the uptake of CO₂ or reduce its emissions have the potential to remove a significant amount of CO₂ from the atmosphere over the next three decades. The quantities involved are large enough to satisfy a substantial portion of the Kyoto Protocol commitments for many countries, but are not large enough to stabilise atmospheric concentrations without also implementing major reductions in fossil fuel emissions. ‘Sinks’ can be deployed relatively rapidly at moderate cost and thus could play a useful bridging role while new energy technologies are developed.

There is no difference in climatological effect between CO₂ taken up by the land and CO₂ reductions due to other causes. There are potential regulatory differences, related to the security with which the CO₂ is held and to the accuracy with which it can be measured and verified. A variety of policy approaches are available to address these differences.     

Sinks and the Kyoto Protocol

Deliberate land management actions that enhance the uptake of CO₂ or reduce its emissions have the potential to remove a significant amount of CO₂ from the atmosphere over the next three decades. The quantities involved are large enough to satisfy a substantial portion of the Kyoto Protocol commitments for many countries, but are not large enough to stabilise atmospheric concentrations without also implementing major reductions in fossil fuel emissions. ‘Sinks’ can be deployed relatively rapidly at moderate cost and thus could play a useful bridging role while new energy technologies are developed.There is no difference in climatological effect between CO₂ taken up by the land and CO₂ reductions due to other causes. There are potential regulatory differences, related to the security with which the CO₂ is held and to the accuracy with which it can be measured and verified. A variety of policy approaches are available to address these differences.     

Tropical Deforestation and the Kyoto Protocol

The current annual rates of tropical deforestation from Brazil and Indonesia alone would equal four-fifths of the emissions reductions gained by implementing the Kyoto Protocol in its first commitment period, jeopardizing the goal of Protocol to avoid “dangerous anthropogenic interference” with the climate system. We propose the novel concept of “compensated reduction”, whereby countries that elect to reduce national level deforestation to below a previously determined historical level would receive post facto compensation, and commit to stabilize or further reduce deforestation in the future. Such a program could create large-scale incentives to reduce tropical deforestation, as well as for broader developing country participation in the Kyoto Protocol, and leverage support for the continuity of the Protocol beyond the 2008–2012 first commitment period.     

California RECLAIM's market failure: lessons for the Kyoto Protocol

Abstract

The failure of Los Angeles' RECLAIM emission trading market in the summer of 2000 uncovers important issues that have direct relevance for the various systems now emerging for exchanging greenhouse gas credits. Two primary causes for the breakdown of RECLAIM are apparent. On the one hand, RECLAIM did not succeed because of a series of unpredictable events that included manipulation of the market by brokers and the California energy shortage. On the other hand, several potentially foreseeable program design flaws contributed to the failure. This study examines the structure of RECLAIM and concludes that there was sufficient resilience to endure the two unexpected crises. However, the problematic program design features created a market that was fatally flawed and, regardless of impinging circumstances, was ultimately bound to collapse. We also investigate the status of the rapidly developing international greenhouse gas market and identify several lessons from the RECLAIM experience: the need for a holistic approach to market design that includes the role of a bank, the interface with project-based credits, the similarities of the industries enrolled in the program, and need to carefully consider how to handle the problems caused by the end of the trading period.     

Climatic Implications of the Kyoto Protocol: The Contribution of International Spillover

We explore the long-run impact of the Kyoto Protocol commitments to limit greenhouse gas emissions under various assumptions about the international spillover arising from actions led by the industrialised countries. International spillover comprises many complex processes including substitution due to price effects, diffusion of technology innovations, and policy and political spillovers. We represent these in terms of their aggregate impact on emission intensities over the next century. Limiting industrialised country emissions alone has limited environmental benefit if there is no international spillover; in our base case atmospheric concentrations by the end of the century rise to 730 ppm. However, this implies a large divergence of emission intensities, contrary to both empirical long term aggregate trends, and to identifiable influences towards convergence associated with economic globalisation. In contrast, if spillover leads to convergence of emission intensities by 2100, atmospheric concentrations are kept to below 560 ppm and are close to stabilising. Weargue that zero or negative international spillover, as assumed in manyanalyses, is not credible; we estimate the most likely range for the international spillover parameter in our model to be 0.5–1.0. For our base scenario this would imply a mean global average temperature change from pre-industrial levels by 2100 of 2.7–3.4 °C instead of 4.2 °C,and rising at only 0.15–0.29 °C/decade instead of 0.45 °C/decade.Long-run sea-level rise is greatly curtailed. The regional benefits to the industrialised countries are also magnified because of the spillover to developing county emissions. Although the aggregate degree of spillover is uncertain, the available evidence suggests that it will be important and environmentally beneficial in aggregate. Spillover will help to spread the global effectiveness of the Kyoto first period and subsequent commitments, and deserves much further scrutiny.     

Russian behaviour in the market for permits under the Kyoto Protocol

After the US withdrawal from the Kyoto Protocol and the extension of national quotas in the Bonn and Marrakesh agreements, meagre environmental effects and a low price of emission permits are likely to be the outcome of implementation. This paper attempts to analyze this scenario, mainly in relation to the Russian case. I discuss on the basis of certain key assumptions the strategic options open to the supply side of the permit market and Russia’s potentially incompatible interests as a producer of oil and gas on the one hand and a dominating seller of emission permits under the Kyoto Protocol on the other. The analysis shows that Russian oil and gas interests are likely to boost Russia’s inclination to sell permits, ultimately resulting in lower permit prices.     

Russian behaviour in the market for permits under the Kyoto Protocol

After the US withdrawal from the Kyoto Protocol and the extension of national quotas in the Bonn and Marrakesh agreements, meagre environmental effects and a low price of emission permits are likely to be the outcome of implementation. This paper attempts to analyze this scenario, mainly in relation to the Russian case. I discuss on the basis of certain key assumptions the strategic options open to the supply side of the permit market and Russia's potentially incompatible interests as a producer of oil and gas on the one hand and a dominating seller of emission permits under the Kyoto Protocol on the other. The analysis shows that Russian oil and gas interests are likely to boost Russia's inclination to sell permits, ultimately resulting in lower permit prices.     

Carbon Sequestration, Soil Conservation, and the Kyoto Protocol: Summary of Implications

This paper discusses relationships between soil conservation, carbon sequestration, and the Kyoto Protocol. The Kyoto Protocol is the first attempt to use the flexibility of the global market place to stabilize and reduce GHG emissions, mitigate climate change, and promote sustainable development. The protocol emerged first as a framework agreement, but through international negotiations it is progressing into sets of legal articles. These impose obligations on all signatories, but they also identify opportunities for improved environmental land management at local, national and international levels. This is particularly true for soil conservation, where the sequestration of carbon above and below ground increases soil organic matter, enhances soil fertility, and improves production, while concomitantly reducing atmospheric CO₂. It is a classic `win-win' situation. Both the evolving opportunities and the obligations under the Kyoto Protocol are discussed in the paper.     

《京都议定书》第二承诺期谈判艰难迈出第一步

2005年12月在蒙特利尔举行的《京都议定书》第一次缔约方会议决定按议定书第三条第九款的规定启动附件一缔约方(发达国家和经济转轨国家)2012年后温室气体减排指标的谈判,即第二承诺期谈判,并成立了“不限名额特设工作组”(以下简称工作组)。第二承诺期谈     

Lessons from JI and GIS for post-2012 carbon finance mechanisms in Russia and Ukraine

The main incentives for Russia's and Ukraine's participation in the first commitment period of the Kyoto Protocol were its mechanisms. The opportunities that the anticipated post-2012 mechanisms will offer Russia and Ukraine are explored in light of the lessons from Joint Implementation (JI) and the Green Investment Scheme (GIS) during this first period. Four key factors that explain the success of these mechanisms are identified: the design of the mechanisms, the role of the private sector in their implementation, the coordination required, and the political will gained. Even though a weak rule of law, problems with policy implementation, and the ambiguous role of private-sector actors are not ‘make or break’ issues, they are likely to defer future mechanisms. Success and failure will, rather, hinge on the priority these factors are accorded by the top leadership. It is likely that simple mechanisms that only involve a few actors will be less complicated to set up and run than, for instance, emissions trading schemes (which require domestic burden sharing). Project-based options in which domestic actors have gained experience may be better suited. However, any lessons prior to the new mechanisms taking a clearer shape must be considered as preliminary.

Policy relevance

The Kyoto Protocol mechanisms, despite their problems, provided Russia and Ukraine with their main incentives for participation in the Protocol's first commitment period. As the chances that these countries will participate in the second commitment period seem slim, the opportunities that the anticipated post-2012 mechanisms will offer Russia and Ukraine are explored in light of the lessons from JI and GIS. The key factors that have determined the success and failure of these mechanisms are likely to be of relevance to future mechanisms. It is argued that – of the post-2012 options available – simple mechanisms with few actors involved should be chosen. Project-based options rather than emissions trading schemes may be more likely to succeed due to experience gained by domestic actors.     

Equity and the Kyoto Protocol: measuring the distributional effects of alternative emissions trading regimes

This paper offers a few preliminary steps in bringing the equity implications of building global emissions trading, Annex B trading only, and no trading to the fore as an issue to be considered in the negotiations of how to implement the Kyoto Protocol. All three policy regimes worked within the Charles Rivers State Impacts Assessment Model to make the distribution of per capita gross state product across the United States worse than it would be otherwise, but not significantly. In terms of the distribution of per capita consumption across the states, though, all three of the policy alternatives worked to improve equity (even more) modestly with the largest improvement associated with the “No Trade” option. The equity implications of alternative trading regimes were far more striking in the global context. Global trading did sustain the highest mean in per capita consumption, but the “No Trade” and “Annex B” trading alternatives reduced significantly the underlying inequity in the distribution of per capita. Weighted by a logarithmic utility function, the present value of the certainty equivalent level of mean per capita consumption would fall by more than five times the efficiency gain if global trading were allowed instead of limited Annex B trading. Moreover, this measure of willingness to pay to avoid inequity would be more than eight times larger than the efficiency gain if global trading were chosen over the “No Trade” alternative. The estimates reported here are, of course, highly speculative and extremely model-specific. Different models and, more importantly, different allocations of permits within the United States and/or across the globe would produce different results. The results do not mean that global trading in emissions permits should be shelved because the equity properties are so poor. Much like the other studies that have identified issues that need to be monitored carefully in the design of mechanisms with which the signators of Kyoto Protocol might meet their commitments, though, they do emphatically add equity to the list of fundamental concerns that must be considered.     

Military Emissions, Armed Conflicts, Border Changes and the Kyoto Protocol

The impacts of military activities in peacetime, military action and territorial changes on greenhouse gas emission commitments of nations under the Kyoto Protocol are analysed. We propose rules and institutional responsibilities to deal with the repercussions of such changes on markets in emission permits and national commitments aiming at prevention of serious distortions.     

Catching air? Climate change policy in Russia, Ukraine and Kazakhstan

Russia, Ukraine and Kazakhstan have each participated actively in the UN Framework Convention on Climate Change (UNFCCC) Conferences of the Parties, and each is developing domestic rules and institutions to address UN obligations under the treaties. Russia and Ukraine are each Annex I/Annex B countries. Kazakhstan will become Annex I upon ratification of the Kyoto Protocol, but has not yet established itself as Annex B. Each state has evolved a distinct set of policies and priorities in the domestic and the international arena. Drawing largely on interviews in each country, this article presents brief histories of the evolution of climate policy, focusing on each state’s behavior in the international arena, the sources of domestic policy leadership, and the forces that led to change in each national approach. Current policies and practices are evaluated with an eye towards learning from the successes and failures in each state.