The Effect of the Kyoto Protocol on Carbon Dioxide Emissions
Kumazawa, Risa, Callaghan, Michael S., Journal of Economics and Finance
Abstract In this paper, we investigate the impact of the Kyoto Protocol on world emissions of a greenhouse gas, carbon dioxide. We use a large unbalanced panel data consisting of 177 countries from 1980 to 2006. The key finding of this paper is that there are structural breaks in the data that demonstrate the effects of the international agreement. While carbon dioxide emissions declined for industrialized (Annex B) countries since the signing of the international agreement, the effect of income per capita is much larger during these years. However in the same period, the effect of industrial production has declined not just for industrialized countries but for developing countries as well. The results are robust to the exclusion of the US and Australia as Annex B countries since they had not ratified the protocol by 2006.
Keywords Carbon Dioxide Emissions . Kyoto Protocol . Annex B . Environmental Kuznets Curve
JEL Classifications Q54 . Q56
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The greenhouse effect that contributes to global warming has been at the forefront of many economic and political debates in recent years. It is believed that when greenhouse gases such as carbon dioxide, nitrous oxide, and methane, trap energy from the sun, the climate becomes warmer. Even though greenhouse gases occur naturally in the atmosphere, humans contribute large amounts of emissions through power stations, industry, transportation, and agriculture byproducts (Jorgenson 2007). Many governments over the years have attempted to regulate greenhouse gas emission to hinder global warming. The Kyoto Protocol was established in Kyoto, Japan in December, 1997 as an amendment to the United Nations Framework Convention on Climate Change (UNFCCC). It remains the most comprehensive international agreement to date aimed at reducing greenhouse gases globally, with 187 countries worldwide agreeing to endorse it by 2010.
However, the effectiveness of the international agreement has long been debated since its inception in 1997 (Rollings-Magnusson and Magnusson 2000; McKibbin and Wilcoxen 2002; Bohringer 2003; Helm 2003; Sathiendrakumar 2003; Barrett 2008; Winkler 2008). This paper is the first of its kind to empirically assess the impact of the Kyoto Protocol on one of the pollutants, carbon dioxide emissions, by using data from 1980 to 2006.1 The protocol may not be an effective policy in the short-run if activities that lead to increases in the carbon dioxide emissions, such as fossil fuel consumption and industrial production, simply shift from developed to developing countries due to global trade (Dasgupta et al. 2002; Jaffe et al. 1995; Sathiendrakumar 2003).
While most previous empirical studies assessed the impact of income per capita on emissions per capita commonly known as the Environmental Kuznets Curve (EKC) (Shafik 1994; Grossman and Krueger 1995; Schmalensee et al. 1998; Dijkgraaf and Vollebergh 2005), the effect of the international agreement itself and the role of industrial production have been not been addressed to date. Therefore, we estimate an augmented EKC model in this paper that tests for the effect of the Kyoto Protocol and conduct a panel version of the Chow test of a structural break in the pre- and post-international agreement years. All else equal, we find that emissions decreased after the signing of the agreement, especially for industrialized countries as a whole. The effects of income per capita and industrial production are mixed when we compare industrialized countries to developing countries. However, we recognize that additional years of data will give more definitive conclusions in the near future about the true effectiveness of the protocol.
The paper continues as follows. The next section outlines the recognized problems with the Kyoto Protocol as an international agreement. Section 3 provides a description of the data and estimation methods that are used for this study. …