Kyotos Economic Effects on Developing Countries

Developing countries have been eager to see the Kyoto Protocol put into effect, especially since all of the required emission reductions would occur in the developed countries. The developing countries economies will be effected by the Kyoto Protocol, even though they dont have any emission reduction targets, according to a new report by the Australian Bureau of Agriculture and Resource Economics (ABARE).

The economic effects of the Kyoto Protocol on developing nations will be mixed, says the report. On the one hand, there will be a lowering of world demand for fossil fuels, much of which originates in developing countries. On the other hand, developing countries will experience an increase in competitiveness, especially in the production of emission-intensive goods.

The production and exportation of goods that use a lot of energy such as iron and steel and nonferrous metals will substantially shift to developing countries. This is due to the “carbon leakage” that would occur under the Kyoto Protocol. For every 1000 tons of carbon equivalent reduced in the developed countries, emissions in developed countries are expected to rise by 92 tons, according to the report. The South Korea iron and steel industry, for instance, would experience significant gains in competitiveness if Kyoto is implemented.

Countries that are major exporters of fossil fuels, on the other hand, will see a significant decline in revenues. Middle Eastern countries, Indonesia, and Latin American oil exporters will be hurt as a result of Kyoto. The report notes, for instance, that “The Mexican and Latin American oil industries rely heavily on exports to the United States, where oil consumption is projected to decline by around 15 percent.” Southern Africa will also be severely hurt, “where coal export revenue is projected to fall by US$529 million.

Overall, concludes the report, the net economic effects on the developing world will be positive, but effects will vary from country to country. Southern Africa, China, Brazil, India and Korea would be net beneficiaries under Kyoto, while Venezuela, the Middle East, Colombia, Indonesia and Mexico would be hurt on net. The report notes that the adverse effects of the Kyoto Protocol would be blunted under an international emissions trading system. But the potential benefits would also be reduced under emission trading. The report can be found at www.abare.gov.au.