Economic Impacts of GHG Stabilization Scenarios and regional differentiation of targets based on burden sharing rules

The report starts with an overview of the energy version of WorldScan, which is a dynamic multi-region, multi-sector applied general equilibrium model. The second part presents applications, and concern the medium term (Kyoto protocol) and the long run (stabilization scenarios). The report then concludes with the main findings. Finally, one of the appendices presents an overview of the WorldScan User Support System (WUSS), which we developed as part of this project. WUSS visualizes a database with WorldScan model simulations and includes the new IPCC-SRES baselines and post-SRES stabilization scenarios.

The analyses presented in this report show that some countries will gain and some will lose from implementing the Kyoto Protocol (KP). However, the USA does not ratify the Protocol, and this will economically benefit the other OECD countries and burdens the former Soviet Union and the global environment. The KP will imply a cost to the Non-Annex B energy exporters such as the Middle East. But in globalizing worlds they may gain, because of lower trade barriers that encourage relocation of energy-intensive production from Annex B towards the Middle East. This phenomenon "carbon leakage" undermines the effectiveness of the KP. In the long run, non-Annex B countries will have to reduce emissions to stabilize greenhouse gasses in the atmosphere. Global emission trading is the instrument that allows for allocations of emission permits to non-Annex B that compensate them for any losses without sacrificing economic efficiency.