The economic and environmental implications of the US repudiation of the kyoto protocol and the subsequent deals in Bonn and Marrakech

Abstract

The Economic and Environmental Implications of the US Repudiation of the Kyoto Protocol and the Subsequent Deals in Bonn and Marrakech. — Taking account of sinks credits as agreed in Bonn and Marrakech, this paper illustrates how market power could be exerted in the absence of the US ratification under Annex 1 emissions trading and explores the potential implications of the non-competitive supply behavior for the international market of tradable permits, compliance costs for the remaining Annex 1 countries and the environmental effectiveness. The results show that the US withdrawal from the Kyoto Protocol leads to no real emission reduction in all remaining Annex 1 regions. The results also indicate that the overall compliance costs of all remaining Annex 1 regions in the case of the former Soviet Union (FSU) cooperating with the Eastern European countries could reach as much as two times that in the case of only FSU acting as a monopoly. Moreover, curtailing permit supply by market power substantially increases the overall environmental effectiveness, although to much less extent than in the case of the US ratification. A Monte Carlo simulation supports the robustness of our quantitative findings.