The Kyoto Protocol is an amendment to the United Nations Framework Convention on Climate Change (UNFCCC), which assigns mandatory emission limitations — aimed at reducing greenhouse gas emissions — to signatory nations. It opened for signature on December 11, 1997, in Kyoto, Japan.
The objective of the protocol is the “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system”, as mentioned in Article 2 of the UNFCCC.
As of December 2006, a total of 169 countries and other governmental entities have ratified the agreement (representing over 61.6 per cent of emissions from Annex-I countries). Some countries that have ratified the protocol, such as India and China, are not required to reduce carbon emissions under the present agreement. While Australia ratified the Kyoto Protocol on 3rd December 2007, the US is still notable with its intention not to ratify.
There has been substantial amount of debate on the usefulness and effectiveness of the protocol.
 Why should I be aware of it?
 All about the Kyoto Protocol
 An Overview
Countries that ratify the Kyoto Protocol commit to reduce their emissions of carbon dioxide (CO2) and five other greenhouse gases (GHGs) — methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) — or engage in emissions trading if they maintain or increase emissions of these gases. The treaty is to expire in 2012 and international talks began in May 2007 on a future treaty to succeed the current one.
According to a press release from the United Nations Environment Programme: “The Kyoto Protocol is an agreement under which industrialized countries will reduce their collective emissions of greenhouse gases by 5.2 per cent compared to the year 1990 (but note that, compared to the emissions levels that would be expected by 2010 without the protocol, this limitation represents a 29 per cent cut). The goal is to lower overall emissions of six greenhouse gases — carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, HFCs and PFCs — calculated as an average over the five-year period of 2008-12. National limitations range from 8 per cent reductions for the European Union and some others to 7 per cent for the US, 6 per cent for Japan, 0 per cent for Russia, and permitted increases of 8 per cent for Australia and 10 per cent for Iceland.”
The Intergovernmental Panel on Climate Change (IPCC) has predicted an average global rise in temperature of 1.4°C (2.5°F) to 5.8°C (10.4°F) between 1990 and 2100. Proponents, such as Tom Wigley, also note that “Kyoto is a first step” as requirements to meet the UNFCCC will be modified until the objective is met, as required by UNFCCC Article 4.2(d).
 Principles of the Kyoto Protocol
At its heart, the Kyoto Protocol establishes the following principles:
- Kyoto is underwritten by governments and is governed by global legislation that is enacted under the aegis of the United Nations (UN).
- Governments are separated into two general categories — developed countries, referred to as Annex-I countries (who have accepted greenhouse gas emission reduction obligations and must submit an annual greenhouse gas inventory); and developing countries, referred to as non-Annex-I countries (who have no greenhouse gas emission reduction obligations but may participate in the CDM or Clean Development Mechanism}.
- Any Annex-I country that fails to meet its Kyoto obligation will be penalised by having to submit 1.3 emission allowances in a second commitment period for every tonne of greenhouse gas emissions they exceed their cap in the first commitment period (that is, from 2008 to 2012).
- By 2008-2012, Annex-I countries have to reduce their greenhouse gas emissions by an average of 5 per cent below their 1990 levels (this corresponds to some 15 per cent below their expected greenhouse gas emissions in 2008 for many countries, such as the European Union member states). While the average emissions reduction is 5 per cent, national limitations range from 8 per cent reductions for the EU to a 10 per cent emissions increase for Iceland; but since the EU intends to meet its obligation by distributing different rates among its member states, much larger increases (up to 27 per cent) are allowed for some of the less-developed EU countries. Reduction limitations expire in 2013.
- Kyoto includes “flexible mechanisms” that allow Annex-I economies to meet their greenhouse gas emission limitation by purchasing GHG emission reductions from elsewhere. These can be bought either from financial exchanges (such as the new, unrelated EU Emissions Trading Scheme) or from projects that reduce emissions in non-Annex-I economies under the CDM, or in other Annex-1 countries under a scheme called Joint Implementation (JI), which is a similar mechanism to CDM and which applies to transitional economies, mainly in the former Soviet Union and Eastern Europe.
- Only CDM executive board-accredited Certified Emission Reductions (CER) can be bought and sold in this manner. Under the aegis of the UN, Kyoto established this Bonn-based CDM executive board to assess and approve projects (“CDM Projects”) in non-Annex-I economies prior to awarding CERs.
What this means in practice is that non-Annex-I economies have no GHG emission restrictions, but when a greenhouse gas emission reduction project (a “Greenhouse Gas Project”) is implemented in these countries, that project will receive carbon credit which can be sold to Annex-I buyers.
The Kyoto linking mechanisms are in place for two main reasons. Firstly, the cost of complying with Kyoto is prohibitive for many Annex-I countries (especially countries such as Japan or the Netherlands, for example, which have highly efficient, low greenhouse gas polluting industries and high prevailing environmental standards). Kyoto, therefore, allows these countries to purchase carbon credits instead of reducing greenhouse gas emissions domestically. Therefore, this is seen as a means of encouraging non-Annex-I developing economies to reduce greenhouse gas emissions as doing so is now economically viable because of the sale of carbon credits.
All Annex-I economies have established designated national authorities to manage their greenhouse gas portfolios under Kyoto. Countries such as Japan, Canada, Italy, the Netherlands, Germany, France, Spain and many more, are actively promoting government carbon funds and supporting multilateral carbon funds intent on purchasing carbon credits from non-Annex-I countries. These government organisations are working closely with their major utility, energy, oil and gas, and chemicals conglomerates to try and acquire as many greenhouse gas certificates as cheaply as possible.
Virtually all of the non-Annex-I countries have also set up their own designated national authorities to manage the Kyoto process and specifically the “CDM process”, whereby these host government entities decide which Greenhouse Gas Projects they do or do not wish to support for accreditation by the CDM executive board.
The success of the protocol lies in the fact that the objectives of these opposing groups are quite different. Annex-I entities want carbon credits as cheaply as possible, whilst non-Annex-I entities want to maximise the value of carbon credits generated from their domestic Greenhouse Gas Projects.
 Current Status
The treaty was negotiated in Kyoto, Japan, in December 1997, opened for signature on March 16, 1998, and closed on March 15, 1999. The agreement came into force on February 16, 2005, following ratification by Russia on November 18, 2004. As of December 2006, a total of 169 countries and other governmental entities have ratified the agreement (representing over 61.6 per cent of emissions from Annex-I countries).
According to Article 25 of the protocol, it enters into force “on the ninetieth day after the date on which not less than 55 Parties to the Convention, incorporating Parties included in Annex-I which accounted in total for at least 55 per cent of the total carbon dioxide emissions for 1990 of the Parties included in Annex-I, have deposited their instruments of ratification, acceptance, approval or accession”.
Of the two conditions, the “55 parties” clause was reached on May 23, 2002, when Iceland ratified. The ratification by Russia on November 18, 2004, satisfied the “55 per cent” clause and brought the treaty into force, effective February 16, 2005.
 Common but Differentiated Responsibility
The Kyoto Protocol is an agreement negotiated as an amendment to the UNFCCC, which was adopted at the Earth Summit in Rio de Janeiro in 1992. All parties to the UNFCCC can sign or ratify the Kyoto Protocol, while non-parties to the UNFCCC cannot. The Kyoto Protocol was adopted at the third session of the Conference of Parties to the UNFCCC. Most provisions of the Kyoto Protocol apply to developed countries listed in Annex-I to the UNFCCC. Emission figures exclude international aviation and shipping.
The UNFCCC agreed to a set of a “common but differentiated responsibilities”. The parties agreed that:
- The largest share of historical and current global emissions of greenhouse gases has originated in developed countries.
- Per capita emissions in developing countries are still relatively low.
- The share of global emissions originating in developing countries will grow to meet their social and development needs.
In other words, China, India and other developing countries were exempt from the emission reduction target of the Kyoto Protocol because they were not the main contributors to the greenhouse gas emissions during the industrialisation period that is believed to be causing today’s climate change. However, even without the commitment to reduce emissions according to the Kyoto target, developing countries do share the common responsibility that all countries have in reducing emissions.
 Financial Commitments
The protocol also reaffirms the principle that developed countries have to pay billions of dollars and supply technology to other countries for climate-related studies and projects. This was originally agreed to by the UNFCCC.
 The Conference of Parties
The protocol has left several issues open to be decided later by the Conference of Parties (COP). COP6 attempted to resolve these issues at its meeting in the Hague in late 2000, but was unable to reach an agreement due to disputes between the EU on the one hand, which favoured a tougher agreement, and the US, Canada, Japan and Australia on the other, which wanted the agreement to be less demanding and more flexible.
In 2001, a continuation of the previous meeting (COP6bis) was held in Bonn where the required decisions were adopted. After some concessions, the supporters of the protocol, led by the EU, managed to get Japan and Russia in as well by allowing more use of carbon dioxide sinks. COP7 was held from October 29, 2001 to November 9, 2001, in Marrakech to establish the final details of the protocol.
The first Meeting of the Parties to the Kyoto Protocol (MOP1) was held in Montreal from November 28 to December 9, 2005, along with the 11th Conference of the Parties to the UNFCCC (COP11).
As mentioned in the UNFCCC’s ‘An Introduction to the Kyoto Protocol Compliance Mechanism’, if the enforcement branch determines that an Annex-I country is not in compliance with its emissions limitation, then that country is required to make up the difference plus an additional 30 per cent. In addition, that country will be suspended from making transfers under an emissions trading programme.
 In favour of Kyoto protocol
Advocates of the Kyoto Protocol state that reducing emissions is crucially important, as carbon dioxide is causing the earth’s atmosphere to heat up. This is supported by the ‘attribution analysis’. No country has passed national legislation requiring compliance with their treaty obligation. The governments of all of the countries whose parliaments have ratified the protocol are supporting it. Most prominent among advocates of Kyoto have been the EU and many environmentalist organisations. The UN and some individual nations’ scientific advisory bodies (including the G8 National Science Academies) have also issued reports favouring the Kyoto Protocol.
An international day of action was planned for December 3, 2005, to coincide with the MOP in Montreal. A group of major Canadian corporations also called for urgent action regarding climate change and have suggested that Kyoto is only a first step. In the United States, there is at least one student group, Kyoto Now!, which aims to use student interest to support pressure towards reducing emissions as targetted by the Kyoto Protocol compliance.
 Against the Kyoto Protocol
Some public policy experts who are skeptical of global warming see Kyoto as a scheme to either slow the growth of the world’s industrial democracies or to transfer wealth to the Third World in what they claim is a global socialism initiative. Others argue the protocol does not go far enough to curb greenhouse emissions; for example, countries such as Niue, The Cook Islands and Nauru added notes to this effect when signing the protocol.
Some environmental economists have been critical of the Kyoto Protocol. Many see the costs of the protocol as outweighing the benefits, some believing the standards which Kyoto sets to be too optimistic, others seeing a highly inequitable and inefficient agreement which would do little to curb greenhouse gas emissions. It should be noted, however, that this opposition is not unanimous, and that the inclusion of emissions trading has led some environmental economists to embrace the treaty.
Further, there is controversy surrounding the use of 1990 as a base year, as well as not using per capita emissions as a basis. Countries had different achievements in energy efficiency in 1990. For example, the former Soviet Union and Eastern European countries did little to tackle the problem and their energy efficiency was at its worst level in 1990; the year just before their communist regimes fell. On the other hand, Japan, as a big importer of natural resources, had to improve its efficiency after the 1973 oil crisis and its emissions level in 1990 was better than most developed countries. However, such efforts were set aside; the inactivity of the former Soviet Union was overlooked and could even generate big income due to emissions trading. There is an argument that the use of per capita emissions as a basis in the following Kyoto-type treaties can reduce the sense of inequality among developed and developing countries alike, as it can reveal inactivities and responsibilities among countries.
 The Cost-Benefit Analysis
Economists have been trying to analyse the overall net benefit of the Kyoto Protocol through a cost-benefit analysis. Just as in the case of climatology, there is disagreement due to large uncertainties in economic variables, as reported by the US Department of Energy. Some of the estimates indicate either that observing the Kyoto Protocol is more expensive than not observing the Kyoto Protocol, or that the Kyoto Protocol has a marginal net benefit which exceeds the cost of simply adjusting to global warming.
However, a study in Nature, by Giulio A De Leo, Luca Rizzi, Andrea Caizzi and Marino Gatto, in 2004 found that “accounting only for local external costs, together with production costs, to identify energy strategies, compliance with the Kyoto Protocol would imply lower, not higher, overall costs”.
A recent project by Copenhagen Consensus, an international organisation that establishes priorities for global welfare, found that the Kyoto Protocol would slow down the process of global warming, but have a superficial overall benefit. Defenders of the protocol argue, however, that while the initial greenhouse gas cuts may have little effect, they set the political precedent for bigger, and more effective, cuts in the future. They also advocate commitment to the precautionary principle. Critics point out that additional higher curbs on carbon emissions are likely to cause significantly higher increases in cost, making such defence moot. Moreover, the precautionary principle could apply to any political, social, economic or environmental consequence, which might have an equally devastating effect in terms of poverty and environment, making the precautionary argument irrelevant. The Stern Review (a UK government sponsored report into the economic impacts of climate change) concluded that 1 per cent of global GDP is required to be invested in order to mitigate the effects of climate change, and that failure to do so could risk a recession worth up to 20 per cent of global GDP.
 Discount Rates
One problem in attempting to measure the “absolute” costs and benefits of different policies to global warming is choosing a proper discount rate. Over a long-time horizon, such as that in which benefits accrue under Kyoto, small changes in the discount rate create very large discrepancies between net benefits in various studies. However, this difficulty is generally not applicable to “relative” comparison of alternative policies under a long-time horizon. This is because changes in discount rates tend to equally adjust the net cost/benefit of different policies unless there are significant discrepancies of cost and benefit over time horizon.
While it has been difficult to arrive at a scenario under which the net benefits of Kyoto are positive using traditional discounting methods, such as the Shadow Price of Capital approach, there is an argument that a much lower discount rate should be utilised; that high rates are biased towards the current generation. This may appear to be a philosophical value judgement, outside the realm of economics, but it could be equally argued that the study of the allocation of resources does include how those resources are allocated over time.
- Sustainable Development and the Environment, by A. M. Thirumurthy and Francis Fanthome, 2002
- Arthur Max, Associated Press
- The United Nations Framework Convention on Climate Change
- The Kyoto Protocol: CO2, CH4, and Climate Implications, by Tom Wigley
- The United Nations Framework Convention on Climate Change’s An Introduction to the Kyoto Protocol Compliance Mechanism
- Carbon Emissions: The Economic Benefits of the Kyoto Protocol, by Giulio A. De Leo, Luca Rizzi, Andrea Caizzi and Marino Gatto, in the journal Nature
- Stern Review: The Economics of Climate Change, Summary of Conclusions, by Nicholas Stern
- One World