Kyoto and technology at world level: costs of CO 2 reduction under flexibility mechanisms and technical progress

This paper is dedicated to the analysis of the consequences of CO2 emission reduction policies, as deriving, in a world perspective, from the Kyoto Protocol for the 2010 horizon. The basic methodological principles for the assessment of the Marginal Abatement Costs and for the quantification of the economic "gains from trade" in flexibility mechanisms are first presented in Section 2. Section 3 provides a thorough assessment, based on the POLES model results, of the marginal and total costs of compliance to the Kyoto Protocol for a "non trading" case and for two cases of emission trading, respectively at Annex B level and at world level. Section 4 identifies some possible consequences and policy implications of decisions on "flexibility mechanisms", particularly in the perspective of induced technical change. It shows that, in principle, low flexibility schemes may induce strong price signals in a limited number of constrained countries, while high flexibility schemes may induce lower price signals but on a much broader geographical basis.