An Australian think tank has claimed that, depending on each country’s particular production and trade structure, changes to trade and investment under the Kyoto Protocol could lead to positive economic changes for some developing countries and problems for others.

Developing countries that rely on exports of fossil fuels, such as the Middle East, Venezuela and Indonesia, face reduced export earnings and income as developed countries reduce fossil fuel consumption to meet their emission targets, the Australian Bureau of Agriculture and Resource Economics (ABARE) says in a report.

On the other hand, ABARE says, countries that rely on exports of emission intensive goods, such as Brazil, India and Korea, could benefit from improved competitiveness as a result of penalties placed on emission intensive production in developed countries.

Economies with a more diverse trade and production structure, such as Argentina, Chinese Taipei and China are projected to be relatively less affected.

ABARE also argues that emissions trading will reduce the cost of implementing the Kyoto Protocol by partially shifting abatement from high cost sources to low cost sources. Emissions trading has the potential to reduce the global cost of the protocol to less than a sixth of what it would be without trading, ABARE claims.

ABARE’s report demonstrates that there is scope for developing countries to generate emissions credits worth up to US$7.1 billion over ten years under the Clean Development Mechanism with technology transfer in the electricity sector.

However, Dr Brian Fisher, Executive Director of ABARE, warns, “unless the clean development mechanism is broadly defined and includes carbon sequestration projects as well as emission reduction projects, the benefits will not be distributed equitably among developing countries. The international community must ensure that the opportunities afforded by the Kyoto mechanisms are not squandered by inappropriate mechanism design.”

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