- The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development
Edited by Carlo Carraro and Vito Fragnelli
Chapter 4: Kyoto and Beyond Kyoto Climate Policy: Comparison of Open-Loop and Feedback Game Outcomes
Juan Carlos Císcar and Antonio Soria 1. INTRODUCTION From the start of the industrial revolution human-induced activities have warmed the Earth’s atmosphere. The combustion of fossil fuels and changes in land use have gradually increased the concentration of greenhouse gases (GHG) in the atmosphere, which has altered the global climate.1 The 1997 Kyoto Protocol on climate change2 sets for the ﬁrst time binding GHG emission reduction targets to developed countries (known in the protocol as Annex B countries). GHG emissions in the Annex B countries are to be reduced by 5.2% in 2010, with respect to the 1990 emission levels. Developing countries (the non-Annex B countries) do not have mitigation goals. Most studies assessing climate policies, and in particular the Kyoto Protocol, have considered a static framework in the sense that countries act once and at the same time deciding their policies for all future periods (the Kyoto commitment period and the beyond Kyoto decades). The information structure of this simultaneous game is known in the literature as openloop, and leads to the open-loop Nash equilibrium. Such a static approach has been predominant in the numerical economic literature dealing with climate change policy. OECD (1999), Nordhaus and Boyer (2000), Peck and Teisberg (1999), and Manne and Richels (1999) study the ‘Kyoto forever’ hypothesis. This scenario assumes that the climate policy beyond Kyoto keeps constant the Kyoto emission target of the Annex B region forever, while the non-Annex B region does not reduce emissions at all in the foreseeable future....
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