The Kyoto Protocol and developing countries

Under the Kyoto Protocol, the world's wealthier countries assumed binding c ommitments to reduce greenhouse gas emissions. The agreement requires these countries to consider ways to minimize adverse effects on developing count ries of these actions, transmitted through trade. Using a general equilibri um model of the world economy, we find that adverse effects fall mainly on energy-exporting countries, for some even greater than on countries that ar e assuming commitments. Removing existing fuel taxes and subsidies and usin g international permit trading would greatly reduce the adverse impacts and also reduce economic impacts on the countries taking on commitments. Anoth er approach, preferential tariff reduction for developing countries, would benefit many developing countries, but would not target those most adversel y affected. If instead, OECD countries directly compensated developing coun tries for losses, the required annual financial transfer would be on the or der of $25 billion (1995 $US) in 2010. (C) 2000 Elsevier Science Ltd. All r ights reserved.