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The effects on developing countries of the Kyoto Protocol and carbon dioxide emissions trading


  • Ellerman, A. Denny
  • Jacoby, Henry D.
  • Decaux, Annelene


The trading of rights to emit carbon dioxide has not officially been sanctioned by the United Nations Framework Convention on Climate Change, but it is of interest to investigate the consequences, both for industrial (Annex B) and developing countries, of allowing such trades. The authors examine the trading of caps assigned to Annex B countries under the Kyoto Protocol and compare the outcome with a world in which Annex B countries meet with their Kyoto targets without trading. Under the trading scenario the former Soviet Union is the main seller of carbon dioxide permits and Japan, the European Union, and the United States are the main buyers. Permit trading is estimated to reduce the aggregate cost of meeting the Kyoto targets by about 50 percent, compared with no trading. Developing countries, though they do not trade, are nonetheless affected by trading. For example, the price of oil and the demand for other developing country exports are higher with trading than without. The authors also consider what might happen if developing countries were to voluntarily accept caps equal to Business as Usual Emissions and were allowed to sell emission reductions below these caps to Annex B countries. The gains from emissions trading could be big enough to give buyers and sellers incentive to support the system. Indeed, a global market for rights to emit carbon dioxide could reduce the cost of meeting the Kyoto targets by almost 90 percent, if the market were to operate competitively. The division of trading gains, however, may make a competitive outcome unlikely: Under perfect competition, the vast majority of trading gains go to buyers of permits rather than to sellers. Even markets in which the supply of permits is restricted can, however, substantially reduce the cost to Annex B countries of meeting their Kyoto targets, while yielding profits to developing countries that elect to sell permits.

Suggested Citation

  • Ellerman, A. Denny & Jacoby, Henry D. & Decaux, Annelene, 1998. "The effects on developing countries of the Kyoto Protocol and carbon dioxide emissions trading," Policy Research Working Paper Series 2019, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2019

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    Cited by:

    1. Yan, Yaxue & Zhang, Xiaoling & Zhang, Jihong & Li, Kai, 2020. "Emissions trading system (ETS) implementation and its collaborative governance effects on air pollution: The China story," Energy Policy, Elsevier, vol. 138(C).
    2. Criqui, Patrick & Mima, Silvana & Viguier, Laurent, 1999. "Marginal abatement costs of CO2 emission reductions, geographical flexibility and concrete ceilings: an assessment using the POLES model," Energy Policy, Elsevier, vol. 27(10), pages 585-601, October.
    3. Shreekant Gupta, 2010. "Incentive Based Approaches for Mitigating Greenhouse Gas Emmissions : Issues And Prospects for India," Working Papers id:2638, eSocialSciences.
    4. Alan de Brauw, 2006. "The Kyoto Protocol, market power, and enforcement," Applied Economics, Taylor & Francis Journals, vol. 38(18), pages 2169-2178.
    5. Brandt, Urs Steiner & Svendsen, Gert Tinggaard, 2002. "Hot air in Kyoto, cold air in The Hague--the failure of global climate negotiations," Energy Policy, Elsevier, vol. 30(13), pages 1191-1199, October.
    6. Shrestha, Ram M. & O.P. Marpaung, Charles, 2002. "Supply- and demand-side effects of power sector planning with CO2 mitigation constraints in a developing country," Energy, Elsevier, vol. 27(3), pages 271-286.


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