Working Paper: CEPR ID: DP3239
Authors: Barbara Buchner; Carlo Carraro; Igor Cersosimo
Abstract: The US decision not to ratify the Kyoto Protocol and the recent outcomes of the Bonn and Marrakech Conferences of the Parties has important implications for both the effectiveness and the efficiency of future climate policies. Among these implications, those related with technical change and with the functioning of the international market for carbon emissions are particularly relevant, because these variables have the largest impact on the overall abatement cost to be born by Annex B countries in the short and in the long run. This Paper analyses the consequences of the US decision to withdraw from the Kyoto/Bonn Protocol both on technological innovation and on the price of emission permits (and, as a consequence, on abatement costs). A first goal is to assess the impact of the US defection on the price of permits and compliance costs when technological innovation and diffusion is taken into account (the model embodies international technological spillovers). A second goal is to understand for what reasons in the presence of endogenous and induced technical change the reduction of the price of permits is lower than in most empirical analyses recently circulated. A third goal is to assess the role of Russia in climate negotiations, its increased bargaining power and its eventual incentives to follow the US defections.
Keywords: agreements; climate; incentives; negotiations; policy
JEL Codes: H00; H10; H30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US withdrawal from the Kyoto Protocol (F64) | decrease in demand for emission permits (Q31) |
| decrease in demand for emission permits (Q31) | decrease in permit price (R48) |
| decrease in permit price (R48) | decrease in compliance costs (K29) |
| decrease in permit price (R48) | decrease in incentives for energy-saving R&D (O38) |
| decrease in incentives for energy-saving R&D (O38) | increase in emissions (O44) |
| increase in emissions (O44) | increase in demand for permits (R48) |
| strategic behaviors by permit-exporting countries (F14) | mitigates fall in permit prices (R48) |
| decrease in R&D investments (O39) | increase in emissions in Annex B countries (F64) |
| Russia's increased bargaining power (D74) | higher permit prices (R48) |