Assessing the impacts of the Kyoto Protocol

Australia’s ratification and the entry into force of the Kyoto Protocol would have significant economic implications both globally and for Australia. Greenhouse gas emission targets agreed to by individual countries are set out in Annex B to the protocol. Reductions in greenhouse gas emissions from sources and removals by sinks (such as forestry activities, subject to certain limitations and future agreement on rules) can be used to meet the target commitments. The protocol also includes provision for the use of mechanisms such as international emissions trading, the clean development mechanism and joint implementation to help parties meet their targets. The protocol provides only a framework for these provisions — much of the detail required for implementation was left for further negotiation after Kyoto. The intention was to resolve the operating rules and guidelines for the mechanisms and sinks, together with those for many other aspects of the protocol, at the sixth Conference of the Parties in the Hague in November 2000. However, agreement could not be reached on a number of key issues, and the meeting was suspended, to be resumed in mid-2001. In this paper the economic impacts of implementing the protocol are examined under a range of possible outcomes on sinks and emissions trading. The degree of access to sinks and emissions trading is shown to have important consequences for the costs of meeting the Kyoto targets.