Analyzing the Kyoto Protocol under the Marrakesh Accords: economic efficiency and environmental effectiveness

This article evaluates the environmental effectiveness and economic implications of the Kyoto Protocol (KP) after the Bonn agreement and the Marrakesh Accords. We will break it down into several components that correspond with major steps in the international process: pre-COP 6 version of the KP, with unrestricted international emissions trading but without sinks; withdrawal of the USA; and decisions on sinks in Bonn and Marrakesh. The Marrakesh Accords bring Annex-I emissions in 2010 without the USA at 0.5% under base-year levels; this corresponds to nearly 2% above the 1990-levels. The US withdrawal has by far the greatest impact in reducing the environmental effectiveness of the KP, whereas the impact of the decision on sinks is comparatively small. The US withdrawal also substantially reduces the permit demand and permit prices will drop dramatically. Hot air becomes increasingly dominant and may threaten the viability of the Kyoto Mechanisms (KM), especially in lower baseline (business-as-usual (BaU)) scenarios. Therefore, banking of hot air is of absolute importance to improve the environmental effectiveness of the protocol at moderately higher costs, while enhancing the development of a viable emission trading market. A strategy of curtailing and banking permit supply is also in the interest of the dominant seller, Russia. [Copyright &y& Elsevier]