International Trade and The Kyoto Protocol
Pollution, specifically global warming, is of growing concern to people and governments. It is a controversial issue whose validity is still being debated by scientists. The Kyoto Protocol is an international attempt to address global warming through emissions controls. Traditional neoclassical economic models do not incorporate pollution in rudimentary theories of supply, demand, or pricing, as a result, firms do not consider pollution as a cost of production, which leaves government regulation as the primary method for controlling these externalities. The goal of emissions trading is to allow one business, which can make greenhouse gas emission reductions for a relatively low cost, to sell the rights to those reductions, or credits, to an entity which would find it more expensive to achieve the same level of reduction through in-house activities. Unfortunately, public sentiment on the Kyoto Protocol focuses only on the end goal of reducing greenhouse gas emission and does not look at implications of the agreement. The Kyoto Protocol attempts to establish an international agreement to lower global emissions through a combination of domestic and offshore policies. While domestic policies can have an effect on international markets, they are considered less important than offshore policies. It is the offshore policies of emissions trading, clean development mechanisms, and joint implementation, which are predicted to have the greatest impact on emissions controls and international trade. This paper will outline the provisions of the protocol and attempt to explain some of the shortcomings which may have led to the United States withdrawing its support for the agreement.
The details of the Kyoto Protocol are not completely agreed upon, but set the goal of reducing emissions of the six greenhouse gases in Annex I countries to approximately 5.2% below 1990 levels by 2012. Annex I countries are industrialized nations with large carbon emissions, such as the US, Australia, EU, and Russia. The agreement has four implementation mechanisms designed to achieve the desired reductions in emissions, but only asks that countries comply with the reductions rather than suggesting a methodology. The primary method for countries to reduce emissions is through domestic policies, traditionally taking the form of governmental controls, which each nation would be responsible for creating and enforcing. Domestic policy is “…likely to become a ‘hook’ to ensure that the industrialized countries implement the policies necessary to spur real changes towards less carbon-intensive production and consumption patterns (Depledge 11).” The domestic policy article in the Kyoto Protocol is intended to provide governments, not an international body, with direct control over domestic emissions.
“For the time being, however, it is still the flexibility mechanisms that have attracted the most attention… (11).” The...