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This paper presents a generalized dynamic model of greenhouse gas emissions trading under constraints on the volume of transactions. An empirical version of the model is used to evaluate potentially cost-saving flexibility mechanisms (joint implementation and clean development mechanism) and potentially cost-adding restrictions (supplementarity) of the Kyoto Protocol. The results indicate the greatest gains would stem from extending permit trading spatially among industrialized nations, although sizable gains would also emanate from the inclusion of developing countries. Gains from intertemporal trading (banking and borrowing) are meager. Restrictions on the volume of permit purchases have by far the most costly effect when developing countries are incorporated into trading. Sensitivity tests with respect to differential discount rates across countries and technological change indicate the results are robust.

This paper evaluates the relative gains from augmenting or restricting several of the flexibility mechanisms of the Kyoto Protocol. A nonlinear programming model of international emissions trading is used to assess the net benefits of extending trading across time periods and across countries (Joint Implementation), and including the developing world (Clean Development Mechanism). The effect of limiting permit purchases (supplementarity) is also evaluated. The analysis is intended to help guide further climate negotiations by identifying flexibility mechanisms that contribute the most to enhancing the gains from greenhouse gas mitigation and identifying restrictions that detract the most from these gains.

ne of the major obstacles to reaching a comprehensive agreement on global warming is the setting of greenhouse gas emission reduction targets for individual countries. Long-standing tensions between industrialized and developing countries have raised the issue of equity in burden-sharing. Moreover, individual industrialized nations have pleaded special circumstances and have sought differentiation in their obligations. This paper analyzes alternative rules for distributing tradable carbon dioxide emissions permits. A non-linear programming model, which distinguishes between allocation-based and outcome-based rules, is used to analyze the relative welfare outcomes. The model is applied to the world body of nations and yields several important policy implications.

In December 1997, 34 industrialized countries signed the Kyoto Protocol committing to targets and timetables to reduce 6 greenhouse gases (GHGs). Why were the only signatories industrialized countries? Two reasons are usually put forth. The first is pragmatism, in that only this group, as opposed to developing countries, can afford the costs of mitigating GHGs. Still, this explanation is imperfect since 12 of the signatories are transitional economies of Eastern Europe and the former Soviet Union. The second reason is fairness, in that industrialized countries are responsible for the vast majority of the GHGs already built-up in the atmosphere and are responsible for over 60% of the current emissions. The fairness explanation is further supported by the fact that "differentiation" was invoked in Kyoto, i.e., not all signatories agreed to equal cutbacks, several citing special economic circumstances. In the future, both pragmatism and fairness will be relevant to the question of when and how developing countries will sign a global GHG agreement. Another major influence will be the pursuit of economic efficiency or, at least, cost-effectiveness, i.e., making sure that the targets are met at the lowest global cost. This can be fine-tuned in future agreements by the use of incentive-based instruments and the timing of commitments. Efficiency may also be affected by relative burden-sharing, since this will influence the number of countries that make mitigation commitments in the future. The purpose of this paper is to analyze fairness, or equity, aspects of the current Kyoto Protocol and its extension to a truly global agreement that includes developing countries. This is done in the context of a policy approach gaining increasing favor - tradeable emission permits. A dynamic model of intercountry CO2 permit trading is used to address the following questions: 1) To what extent does permit trading lower global CO2 mitigation costs? 2) How are intercountry welfare impacts influenced by alternative permit distributions according to various equity criteria? 3) How might developing countries be brought into the agreement without requiring CO2 reductions, yet promoting global efficiency gains by utilizing their relatively lower cost mitigation capabilities? 4) To what extent does allowing for permit trading over time further lower global mitigation costs? 5) How are intercountry welfare impacts distinguished by not just static definitions of equity but also dynamic versions, such as sustainability criteria?

This paper examines the efficiency and equity implications of alternative assignments of marketable permits for carbon dioxide. A non-linear programming model is used to estimate the net welfare changes of permit allocations based on Sovereignty and Rawlsian equity criteria for 8 countries/regions covering the spectrum of economic development levels. The net welfare gains associated with an overall 20% reduction in CO2 emissions are estimated to be nearly $20 billion, an increase of several billion dollars over a system of inflexible emission quotas requiring 20% abatement in each country. Also, although the welfare changes implied by alternative permit assignments may vary greatly between countries before trading, the trading process significantly reduces the disparities. This result stems from the Coase Theorem, which implies a uniquely efficient outcome. That is, individual country abatement levels and hence, costs, are the same under all permit assignments after trading, and net welfare for a given nation differs only by the amount of permit revenues/expenditures associated with the application of alternative equity criteria. Foremost among the paper's policy implications is that although equity criteria may differ significantly in principle, their welfare implications in practice may be very similar for various subsets of these criteria. This should reduce tensions at the bargaining table and facilitate the negotiation of greenhouse gas agreements.

In December 1997, 38 industrialized and transitional countries agreed to the Kyoto Protocol, which committed them to targets and timetables to reduce six greenhouse gases (GHGs). In November 1998, in Buenos Aires, at the Fourth Conference of the Parties to the Framework Convention on Climate Change (COP-4), efforts were made to improve upon Kyoto by expanding the number of co-operating countries and enhancing the range of policy instruments to implement its objectives. However, COP-4 was a failure, as only two developing countries made commitments, and little progress was made in increasing the flexibility of policy implementation.

This paper formulates an input-output method for determining the distributional consequences of energy development projects. The method is oriented to the conditions appearing in many contemporary development settings where large resident populations and other factors are likely to inhibit boomtown scenarios. An analysis of geothermal energy development in Imperial County, California, is presented. The results indicate that personal income inequality is likely to increase by several percentage points as measured by the Gini coefficient. The sensitivity of the results is examined with respect to important factors such as labor supply elasticities, preferential employment of local residents, and the concentration of land holdings.

Recent legislation mandates an increased role for public participation in natural resource policy making. This paper presents an operational way to provide those impacted with relevant information and to enable public officials to assess public reaction to proposed policies. The methodology transforms results obtained from a multisector model of income formation and distribution into positive economic measures of distributional impacts. The usefulness of the methodology is illustrated in the context of a policy to increase coal surface mining on public lands.

Tax preferences relating to exploration and production in the oil and gas industries received a great deal of attention during the enactment of the US Federal Tax Reform Act of 1986. One of the main arguments put forth in favour of the removal of these preferences was that they favoured higher income taxpayers, and, therefore, were inequitable. A multisector income distribution model is utilized to examine the direct, indirect and induced distributional impacts of the ensuing reforms. The results indicate that, while the direct impact of these reforms is an improvement in equity among those receiving income from the oil and gas industries, the overall impact throughout the economy is equity-neutral. The result stems from the secondary effects of the tax, which lead to net reductions in production in the oil and gas industries and their direct and indirect suppliers.