The Kyoto Protocol: Hot Air for Russia

The Kyoto Protocol sets the carbon emission targets for 2008-2012 for the major emitting countries. Several former Soviet countries have emissions quotas that appear to be in excess of their anticipated emissions as a result of economic downturn. This excess is sometimes referred to as ”hot air”, and could, in principle, be traded with other countries. The “hot air ” estimates range from 150 to 500 MtC, while the other signatory countries are projected to reduce their emissions by a total of 800-900 MtC. For political reasons, only Russia and Ukraine, who together account for approximately two-thirds of the total size of the “hot air”, are likely to sell it. The signatory countries are divided into two polar groups based on their views toward the principles of international emission trading. One group proposes a ceiling on the amount of traded emission permits because of a stated preference for higher domestic abatement activities. The other group advocates unrestricted trade because of its efficiency. Based on a global computable general equilibrium model, the ceiling proposal implies substantial welfare losses while failing to reduce total emissions significantly. Welfare estimates for Russia vary enormously depending on the proposed principles of emission trading. However, Russia alone cannot impose a credible threat of removing itself from the Kyoto agreement if the ceiling were imposed. An alliance with the other signatory countries who experience high mitigation costs and who want to exploit the full efficiency of free trade in carbon permits makes adoption of the ceiling proposal questionable