THE KYOTO PROTOCOL & GLOBAL WARMING

The Kyoto Protocol is an agreement made under the United Nations Framework Convention on Climate Change (UNFCCC). Countries that ratify this protocol commit to reduce their emissions of carbon dioxide and five other greenhouse gases, or engage in emissions trading if they maintain or increase emissions of these gases.

The Kyoto Protocol aims for industrialized countries to reduce their collective emissions of greenhouse gases by 5.2% compared to the year 1990 (but note that, compared to the emissions levels that would be expected by 2010 without the Protocol, this target represents a 29% cut). The goal is to lower overall emissions of six greenhouse gases - carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, HFCs, and PFCs - calculated as an average over the five-year period of 2008 to 2012. National targets range from 8% reductions for the European Union and some others, to 7% for the US, 6% for Japan, 0% for Russia, and permitted increases of 8% for Australia and 10% for Iceland.

The Kyoto Protocol now covers more than 160 countries globally and over 55% of global greenhouse gas emissions. Australia and the USA are two of the highest greenhouse gas producers on a per capita basis, but have not ratified the treaty.

Objectives of the kyoto protocol

Kyoto is intended to cut global emissions of greenhouse gases.The objective is the stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.

The Intergovernmental Panel on Climate Change (IPCC) has predicted an average global rise in temperature of 1.4°C (2.5°F) to 5.8 °C (10.4°F) between 1990 and 2100). Current estimates indicate that even if successfully and completely implemented, the Kyoto Protocol will reduce that increase by somewhere between 0.02 °C and 0.28 °C by the year 2050 (source: Nature, October 2003).

Debated responsibility for greenhouse gas emission

The United Nations Framework Convention on Climate Change agreed to a set of a “common but differentiated responsibilities.” The parties agreed that greenhouse gases have mainly originated in developed countries, that per capita emissions in developing countries are still relatively low; and that the share of global emissions originating in developing countries will grow to meet their social and development needs.

In other words, China, India, and other developing countries were exempt from the requirements of the Kyoto Protocol because they were not the main contributors to the greenhouse gas emissions during the industrialization period that is believed to be causing today’s climate change.

However, critics of Kyoto argue that China, India, and other developing countries will soon be the top contributors to greenhouse gases. Also, without Kyoto restrictions on these countries, industries in developed countries will be driven towards these non-restricted countries, thus there is no net reduction in carbon.
The Protocol also reaffirms the principle that developed countries have to pay, and supply technology to other countries for climate-related studies and projects. This was originally agreed in the UNFCCC.

Status of the kyoto protocol agreement

Australia and the United States have signed the treaty but refuse to ratify it.The treaty was negotiated in Kyoto, Japan in December 1997, opened for signature on March 16, 1998, and closed on March 15, 1999. The agreement came into force on February 16, 2005 following ratification by Russia on November 18, 2004. As of December 2006, a total of 169 countries and other governmental entities have ratified the agreement (representing over 61.6% of emissions from Annex I countries). Notable exceptions include the United States and Australia. Other countries, like India and China, which have ratified the protocol, are not required to reduce carbon emissions under the present agreement despite their relatively large populations.

Opposition to the kyoto protocol

The two major countries currently opposed to the treaty are the United States and Australia. Some public policy experts who are skeptical of global warming see Kyoto as a scheme to either slow the growth of the world’s industrial democracies or to transfer wealth to the third world in what they claim is a global socialism initiative. Others argue the protocol does not go far enough to curb greenhouse emissions. Low-lying island nations such as Niue, The Cook Islands, and Nauru added notes to this effect when signing the protocol.

Many environmental economists have been critical of the Kyoto Protocol. Many see the costs of the Kyoto Protocol as outweighing the benefits, some believing the standards which Kyoto sets to be too optimistic, others seeing a highly inequitable and inefficient agreement which would do little to curb greenhouse gas emissions. It should be noted, however, that this opposition is not unanimous, and that the inclusion of emissions trading has led some environmental economists to embrace the treaty.

Further, there is controversy surrounding the use of 1990 as a base year, as well as not using per capita emissions as a basis. Countries had different achievements in energy efficiency in 1990. For example, the former Soviet Union and eastern European countries did little to tackle the problem and their energy efficiency was at its worst level in 1990; the year just before their communist regimes fell. On the other hand, Japan, as a big importer of natural resources, had to improve its efficiency after the 1973 oil crisis and its emissions level in 1990 was better than most developed countries. However, such efforts were set aside, and the inactivity of the former Soviet Union was overlooked and could even generate big income due to the emission trade. There is an argument that the use of per capita emissions as a basis in the following Kyoto-type treaties can reduce the sense of inequality among developed and developing countries alike, as it can reveal inactivities and responsibilities among countries.

In Australia, there is a strong and vocal anti-Kyoto lobby, with over 20,000 counter signatures presented to the government.

Cost-benefit analysis of the kyoto protocol

Economists have been trying to analyze the overall net benefit of Kyoto Protocol through cost-benefit analysis. Just as in the case of climatology, there is disagreement due to large uncertainties in economic variables. Still, the estimates so far generally indicate either that observing the Kyoto Protocol is more expensive than not observing the Kyoto Protocol or that the Kyoto Protocol has a marginal net benefit which exceeds the cost of simply adjusting to global warming. A study in Nature found that “accounting only for local external costs, together with production costs, to identify energy strategies, compliance with the Kyoto Protocol would imply lower, not higher, overall costs.”

The recent Copenhagen consensus project found that the Kyoto Protocol would slow down the process of global warming, but have a superficial overall benefit. Defenders of the Kyoto Protocol argue, however, that while the initial greenhouse gas cuts may have little effect, they set the political precedent for bigger (and more effective) cuts in the future. They also advocate commitment to the precautionary principle. Critics point out that additional higher curbs on carbon emission are likely to cause significantly higher increase in cost, making such defense moot. Moreover, the precautionary principle could apply to any political, social, economic or environmental consequence, which might have equally devastating effect in terms of poverty and environment, making the precautionary argument irrelevant. The Stern Review (a UK government sponsored report into the economic impacts of climate change) concluded that one percent of global GDP is required to be invested in order to mitigate the effects of climate change, and that failure to do so could risk a recession worth up to twenty percent of global GDP.

One problem in attempting to measure the “absolute” costs and benefits of different policies to global warming is choosing a proper discount rate. Over a long time horizon such as that in which benefits accrue under Kyoto, small changes in the discount rate create very large discrepancies between net benefits in various studies. However, this difficulty is generally not applicable to “relative” comparison of alternative policies under a long time horizon. This is because changes in discount rates tend to equally adjust the net cost/benefit of different policies unless there are significant discrepancies of cost and benefit over time horizon.

While it has been difficult to arrive at a scenario under which the net benefits of Kyoto are positive using traditional discounting methods such as the Shadow Price of Capital approach, there is an argument that a much lower discount rate should be utilized; that high rates are biased toward the current generation. This may appear to be a philosophical value judgment, outside the realm of economics, but it could be equally argued that the study of the allocation of resources does include how those resources are allocated over time.

how the kyoto protocol works

Kyoto is underwritten by governments and is governed by global legislation enacted under the UN’s aegis. Governments are separated into two general categories: developed countries, referred to as Annex 1 countries (who have accepted Greenhouse gas emissions emission reduction obligations); and developing countries, referred to as Non-Annex 1 countries (who have no greenhouse gas emissions emission reduction obligations and must submit an annual greenhouse gas inventory).
Any Annex 1 country that fails to meet its Kyoto target will be penalized by having its reduction targets decreased by 30% in the next period.
By 2008-2012, Annex 1 countries have to reduce their Greenhouse gas emissions emissions by an average of 5% below their 1990 levels (for many countries, such as the EU member states, this corresponds to some 15% below their expected Greenhouse gas emissions emissions in 2008). While the average emissions reduction is 5%, national targets range from 8% reductions for the European Union to a 10% emissions increase for Iceland. Reduction targets expire in 2013.
Kyoto includes “flexible mechanisms” which allow Annex 1 economies to meet their Greenhouse gas emissions targets by purchasing Greenhouse gas emissions emission reductions from elsewhere. These can be bought either from financial exchanges (such as the new EU Emissions Trading Scheme) or from projects which reduce emissions in non-Annex 1 economies under the Clean Development Mechanism (CDM), or in other Annex-1 countries under the JI.
Non-Annex 1 economies have no Greenhouse gas emissions emission restrictions, but when a Greenhouse gas emissions emission reduction project (a “Greenhouse gas emissions Project”) is implemented in these countries, that Greenhouse gas emissions Project will receive Carbon Credit which can be sold to Annex 1 buyers.

The Kyoto linking mechanisms are in place for two main reasons:

the cost of complying with Kyoto is prohibitive for many Annex 1 countries (especially those countries, such as Japan or the Netherlands for example, with highly efficient, low Greenhouse gas emissions polluting industries, and high prevailing environmental standards). Kyoto therefore allows these countries to purchase Carbon Credits instead of reducing Greenhouse gas emissions emissions domestically; and,
this is seen as a means of encouraging Non-Annex 1 developing economies to reduce Greenhouse gas emissions emissions since doing so is now economically viable because of the sale of Carbon Credits.
All the Annex 1 economies have established Designated National Authorities to manage their Greenhouse gas emissions portfolios under Kyoto. Countries including Japan, Canada, Italy, the Netherlands, Germany, France, Spain and many more, are actively promoting government carbon funds and supporting multilateral carbon funds intent on purchasing Carbon Credits from Non-Annex 1 countries. These government organizations are working closely with their major utility, energy, oil & gas and chemicals conglomerates to try to acquire as many Greenhouse gas emissions Certificates as cheaply as possible.

Virtually all of the Non-Annex 1 countries have also set up their own Designated National Authorities to manage the Kyoto process (and specifically the “CDM process” whereby these host government entities decide which Greenhouse gas emissions Projects they do or do not wish to support for accreditation by the CDM Executive Board).

The objectives of these opposing groups are quite different. Annex 1 entities want Carbon Credits as cheaply as possible, whilst Non-Annex 1 entities want to maximize the value of Carbon Credits generated from their domestic Greenhouse gas emissions Projects.

If the Enforcement Branch determines that an Annex I country is not in compliance with its emissions targets, then that country is required to make up the difference plus an additional 30 percent. In addition, that country will be suspended from making transfers under an emissions trading program.

Asia Pacific Partnership on Clean Development and Climate

The Asia Pacific Partnership on Clean Development and Climate is an agreement between six Asia-Pacific nations: Australia, China, India, Japan, South Korea, and the United States. It was introduced at the Association of Southeast Asian Nations (ASEAN), regional forum on July 28, 2005. The pact allows those countries to set their goals for reducing greenhouse gas emissions individually, but with no enforcement mechanism. Supporters of the pact see it as complementing the Kyoto Protocol whilst being more flexible while critics have said the pact will be ineffective without any enforcement measures and ultimately aims to void the negotiations leading to the Protocol called to replace the current Kyoto Protocol (negotiations started in Montreal in December 2005).

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