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Industry Outlook
Kyoto to Copenhagen –
Opportunities and Constraints for Developing Countries
a report by
John R Swinton
Associate Professor of Economics, Georgia College and State University
The Kyoto agreement (Kyoto Protocol to the UN Framework advantages come with costs. To fully realise the benefits of engaging
Convention on Climate Change, or Protocol for short) relies on the global community, developing countries will face considerable
incentive-based regulations layered underneath a global cap on the net expenses in updating their legal systems. Any country that chooses to
emissions of greenhouse gases. The agreement presents both become host to either sequestration projects or capital projects will lose
opportunities and constraints for signatory nations. In this article I some autonomy over its resource base.
examine specific benefits and costs offered to developing countries
within the agreement. An examination of both the opportunities and Market Incentives and Investment Decisions
the drawbacks introduced by the Kyoto agreement helps explain why Economic theory suggests that one cause of pollution is a lack of clear
most developing nations have embraced the treaty but a few others ownership of the services the environment offers. No-one owns
have, thus far, rejected it, and provides insight into what is necessary the atmosphere, so everyone consumes it as if its use were free. The
for the Copenhagen convention to move climate negotiations forward. build-up of greenhouse gases is just one symptom of this over-use.
The Protocol takes its lead from previous environmental regulations
Markets and the Creation of Value that created new property rights by limiting the aggregate amount of
The Kyoto agreement represents the most ambitious and far-reaching a pollutant permissible and allowing the market to allocate the right to
environmental treaty to date. The current agreement is global in use that limit. In particular, the success of the US cap-and-trade
scale, as it must be if it is to meet its goal of reducing global emissions programme defined in the 1990 Clean Air Act Amendments served as
of carbon and other greenhouse gases to pre-1990 levels. As the a key precedent for the framers of the Protocol. However, the Protocol
climate talks scheduled for December 2009 in Copenhagen draw introduces an important and interesting twist. As greenhouse gases
near, the difficult process of hammering out a treaty that is build up in the atmosphere, a mechanism is needed to remove existing
acceptable to the anticipated 200 attendee nations continues. For gases from the air. Not only does the Protocol limit additional
any agreement reached in Copenhagen to be successful, two things emissions, it also creates credits for activities that sequester existing
must happen. Initial success hinges on developed nations, which are greenhouse gases. These two features create opportunities for
responsible for the majority of global greenhouse gas emissions, developing countries to profit from participating in the Protocol.
choosing to participate and abide by the agreement. However, in the
long run the treaty will have to address the growing emissions of One way in which developing countries can help address concerns over
developing countries. Currently, developing countries that sign the the build-up of greenhouse gases in the atmosphere is to provide carbon
treaty face no limitations on their contribution to greenhouse gases sinks. The world’s forests have the capability to capture vast amounts of
in the atmosphere. As the economies of these nations grow, they carbon each year.
2
Before the Protocol, this benefit had no marketable
face two choices: either they will contribute to the growing value. Without a mechanism that defines ownership of these services,
concentrations of greenhouse gases in the atmosphere or they will outside nations can enjoy a ‘free ride’ and not pay for carbon removal
embrace a cleaner path to development. The specific provisions of services. Given the choice between managing forests for their lumber
any environmental agreement will help determine the path along and managing them for their carbon sequestering capabilities,
which nations will develop. Therefore, it is worthwhile to examine the governments have typically chosen the former. Carbon sequestration is a
incentives that developing nations face within the Protocol. To date, recognised service within the agreement. A country can earn ‘removal
most developing nations have elected to sign and ratify the treaty.
1
units’ that are equal to one tonne of CO
2
for every change in land use
that results in enough preserved forest to absorb one tonne of CO
2
.
3
A
Herein I discuss two incentives that were created within the Protocol and developing nation that does not face emissions restrictions under the
the positive repercussions of these incentives for developing countries. Protocol can sell these removal units on the carbon market – as long as
The drafters of the Protocol envisaged the primary implementation they have ratified the Protocol, that is. The sale of removal units allows
mechanism to be a market for carbon reduction efforts. Developing
countries have two opportunities to participate in these carbon markets
John R Swinton is an Associate Professor of Economics
even while they do not face mandatory reductions of their emissions.
at Georgia College and State University and Director
First, developing countries can undertake carbon sequestration
of the Center for Economic Education in the J Whitney
Bunting College of Business. His particular focus is on
activities. Second, developing countries can host ‘joint implementation
environmental and natural resource economics. Dr
projects’ – these are capital investment projects that lead to cleaner Swinton has published extensively on the incentives of
production practices than required by law. Developing countries
the 1990 Clean Air Act Amendments and their
implications for reducing acid-rain-causing emissions
generally have a comparative advantage in these two undertakings. Two
in a cost-effective manner.
benefits of adopting these opportunities are a cleaner (and more
E: John.swinton@gcsu.edu
modern) industrial base and stronger legal institutions. However, these
© TOUCH BRIEFINGS 2009
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