Perspectives from Economics, Game Theory and Public Choice
New Horizons in Environmental Economics series
Edited by Christoph Böhringer, Michael Finus and Carsten Vogt
Chapter 1: Introduction
Michael Finus Global warming is believed to be one of the most serious environmental problems for current and hture generations. This shared belief led more than 180 countries to sign the Framework Convention on Climate Change in Rio de Janeiro in 1992, which declares that serious action should be taken to reduce man-made greenhouse gas emissions. To this end, the Kyoto Protocol was signed in 1997 by 38 countries which agreed to reduce their greenhouse gas emissions by an average of 5.2 per cent compared to 1990 emission levels by the target period 2008-2012. The 38 countries comprise mainly industrialized countries, including the US, all countries of the European Union and some other European countries like Norway and Switzerland, Australia, New Zealand, Canada and Japan; and a few countries in transition to a market economy such as Russia and Ukraine. Since its signature, the Protocol has been widely celebrated as a major step towards mitigating global warming. In particular, economists were in favor of the Protocol, since it constitutes the first international environmental agreement which seeks to achieve environmental targets using market-based instruments. However, four years after the signature of the Kyoto Protocol, euphoria has turned into great disappointment. Despite many negotiation rounds, the parties still could not agree on the final details of the design of the Kyoto Protocol, and hence it has not been ratified by any of those countries which committed themselves to binding abatement targets and it is therefore not yet in force. Even worse, most...