Developing Countries' Greenhouse Emissions: Uncertainty and Implications for Participation in the Kyoto Protocol

Developing countries can participate in the Kyoto Protocol to limit greenhouse gas emissions by adopting national emissions limits. Such limits could offer economic gains to developing countries, cost savings to industrialized countries, and environmental benefits. They could also address concerns of the U.S. Senate. On the other hand, uncertainty about greenhouse gas emissions in developing countries is so great that emissions limits may impose substantial costs if they turn out to be unexpectedly stringent. To manage risks arising from emissions limits, developing countries should index any emissions limits to variables that predict emissions in the absence of limits. This paper presents such an index—similar to one recently adopted by Argentina—and develops estimates showing that it could lower the risk of economic losses to developing countries from about 40 percent to about 35 percent.