Free-Rides in Kyoto Protocol

Article Title: UN urges countries to ratify Kyoto Protocol extension
Article Author: Ed King
Source: RTCC
Region of the world analyzed: United Nations
URL: http://www.rtcc.org/2014/09/03/un-urges-countries-to-ratify-kyoto-protocol-extension/

Comment:

1. Information about Kyoto Protocol

Kyoto Protocol is an international agreement on greenhouse gas linked to the United Nations Framework Convention in 1997. It commits its parties by setting internationally binding emission reduction targets.

2. Summary of the news

At climate talks in Doha, December 2012, it was negotiated and agreed by all 144 parties of UN to extend Kyoto Protocol to 2010. However, most countries postponed the agreement settlement without a definite duration.

In terms of related regulations of the UN, the amendment will not enter into law until all 144 parities ratify the Kyoto Protocol extension as they promised and deliver their “instruments of acceptance” to the New York.

As a result, the amendment of extension is suspended.

3. Free-drive problems in Kyoto Protocol

Kyoto Protocol expect countries to act against their economic self-interests by voluntarily imposing higher costs on themselves (reducing carbon emissions), while other countries can reap whatever environmental benefits are gained without reducing emissions themselves (free-riding). This dynamic incentivized countries like the U.S. and Canada to drop out of the agreement, minimizing the Protocol’s impact

4. Alternatives to deal with free-drive problems in international agreements.

Prof. Nordhaus proposed an alternative model for an international climate agreement designed to eliminate the free-riding problem, an arrangement he called a “climate club.” This type of club would consist of two elements: (1) All member countries would agree to meet a target minimum price for carbon emissions, and (2) The member countries would impose a tariff on non-participant countries as a penalty.

5. Conclusion

As only minor countries have signed the extension of Kyoto Protocol, free drive problems indeed exist in this international agreement. Parties reject to sign the extended agreement because they value the profit better than the environmental externalities in global climate change. They are free riders as other countries keep to the permit formulated by the regulations. This will lead to unequal resource allocation worldside, so compensation to the parties who tied to the rules is an essential issue.

Based on these analysis, Prof. Nordau designed a concept of “climate club” with effective economic sanction (tariff), which increase the incentives to sign agreements by the “climate club”. In this way, compensation to the parties obeying the agreement is feasible through clear share of the profit. In addition, increase in the cost can also drive some parties away from pollution.

Reference: http://www.cossa.org/2014/10/06/henry-and-bryna-david-lecturer-proposes-international-climate-club/