The effects of the Kyoto Protocol on the carbon trade balance

Anton Hartl

doi:10.1007/s10290-019-00350-5

Abstract

This study presents estimates of the magnitude of carbon leakage as a consequence of emission reduction commitments under the Kyoto Protocol using gravity model-style regression analysis on data from the WIOD project. The carbon trade balance between 2002 and 2009 was reduced by 705 megatons of carbon dioxide due to Kyoto and carbon leakage amounts to slightly above 4% of traded carbon dioxide emissions. We highlight four previously neglected issues: First, we control for multilateral trade resistance in the estimation of a unilateral policy by using a two-stage procedure. Second, we control explicitly for the effect of Eastern European countries on leakage estimates. We show that this country group strongly affects the baseline estimates in the framework introduced by Aichele and Felbermayr (Rev Econ Stat 97(1):104–115, 2015). Third, we introduce an alternative specification of the Kyoto variable. Fourth, this is the first study to present econometric evidence for the magnitude of carbon leakage from services sectors. While service elasticities are estimated to be sizable, strong leakage is limited to transport sectors as well as renting of machinery. The manufacturing sectors of metals, machinery and transport equipment are responsible for three quarters of observed leakage.

Highlights

In the process of international negotiations that led to the agreement in Kyoto,1 fears about possible carbon leakage effects2 from the Protocol were widespread (Barrett 1998)
The aim of the present study is to estimate the partial equilibrium carbon leakage caused by the Kyoto Protocol while controlling for multilateral trade resistance
In order to identify the effect of the Kyoto Protocol on the carbon trade balance we follow and extend the methodolgy proposed by Aichele and Felbermayr (2015)

Summary

Introduction

In the process of international negotiations that led to the agreement in Kyoto, fears about possible carbon leakage effects from the Protocol were widespread (Barrett 1998). Studies by Aichele and Felbermayr (2012, 2015) presented the first econometric evidence for carbon leakage via international trade. Their second paper examines leakage on a sectoral level. The authors argue that Kyoto ratification caused an increase of sectoral imports from non-member countries and a decrease of exports to non-members of 7.8%. Their estimation strategy derives from the building blocks of structural gravity models. Regressions are conducted on pooled data of sectoral trade flows (40 countries, 12 sectors)

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