The Kyoto Protocol, Emissions Trading and the CDM: An Analysis from Developing Countries Perspective

In this paper the Kyoto Protocol is analyzed from the perspective of developing countries. The literature on the Protocol's impact indicates that Annex B countries will benefit from an emissions trading regime and the benefit is highest when non-Annex B countries are also included in the trading system. The paper addresses the issue of allocation of gains to developing countries from the Clean Development Mechanism, when the CDM simulates emissions trading. It was found that gains to non-Annex B from participation in GHG mitigation might vary from $6 billion to $29 billion, about 7% and 20% respectively of the global gains in an emissions trading system. However, several institutional issues related to CDM design and implementation will have to be resolved before developing countries can optimize their gains. Indirect impacts of the Kyoto Protocol through trade, although expected to be significant, have not been included. To optimize their gains, non-Annex B countries need to actively participate in the design and implementation aspects of the CDM.