11.4.2 Policy analysis of the effects of the Kyoto Protocol
Most analyses discussed in the TAR focused on national emission policies under the Kyoto Protocol in the form of an economy-wide tax or tradeable permit system. This has continued to be an active area of policy modelling since the Kyoto Protocol came into force. Global cost studies of the Kyoto Protocol since the TAR have considered more detailed implementation questions and their likely impact on overall cost. Chief among these have been the impact of the Bonn-Marrakesh agreements concerning sink budgets, the non-participation of the United States, and banking and the use of ‘hot air’ (Manne and Richels, 2001; Böhringer, 2002; den Elzen and de Moor, 2002; Löschel and Zhang, 2002; Böhringer and Löschel, 2003; McKibbin and Wilcoxen, 2004; Klepper and Peterson, 2005).
U.S. non-participation in the Kyoto Protocol, coupled with the increase in sink budgets in Bonn and Marrakech, implies that the target for Annex B countries as a whole will likely be met with virtually no effort. In other words, excess allowances in Russian and Ukraine (referred to as ‘hot air’) roughly equal the shortfall in Europe, Japan, Canada, and other countries. However, some of these same studies emphasize that strategic behaviour by Russia and Ukraine, acting as a supply cartel and/or choosing to bank allowances until the next commitment period, will lead to a positive emission price (Löschel and Zhang, 2002; Böhringer and Löschel, 2003; Maeda, 2003; Klepper and Peterson, 2005). For example, Böhringer and Löschel (2003) use a large-scale static CGE model of the world economy to analyse the costs of Kyoto in different scenarios with and without Annex B emissions trading and U.S. participation. GDP costs of Kyoto for 2010 without US participation, with Annex B trading, but without use of ‘hot air’ are estimated at 0.03% for Annex B (without US) for a carbon price of 13 US$/tCO2, with a 6.6% reduction in total Annex-B CO2. Regional GDP costs are 0.05% for the EU15 and Japan, and 0.1% for Canada, with benefits of 0.2% for the European Economies in Transition and 0.4% for Russia and other countries in Eastern Europe, the Caucasus and Central Asia. Without Annex B trading, the costs are estimated at 0.08% for Annex B (without US).
National and regional studies cited below also suggest similar low or negligible costs for the ratified Kyoto Protocol for Canada, the EU and Japan compared with the estimates in the TAR, depending on the extent of trade in emission permits and CDM/JI certificates. The importance of CDM supply and other assumptions on the carbon price is shown in Figure 11.5 (den Elzen and de Moor, 2002).
Figure 11.5: Key sensitivities for the emission permit price from the FAIR model applied to the Kyoto Protocol under the Bonn-Marrakesh Accords