Greenhouse gas emissions have been a big concern in recent decades. The Kyoto Protocol is currently the most important international agreement aiming at reducing global carbon emissions. However, the Kyoto Protocol excludes developing countries so the unilateral action raises concern about carbon leakage. The first chapter adopts a Ricardian approach to explore how the differences in carbon intensity influence the magnitude of carbon leakage relative to the literature that ignores them. It finds the Ricardian model includes an additional, extensive-margin channel through which leakage occurs. As a result, it generates higher levels of carbon leakage than the typical Armington approach, with the magnitude of leakage depending on the degree of heterogeneity in carbon intensity per dollar across goods. Due to the variations in carbon intensity, the extensive margin effects are potentially an important determinant of carbon leakage.
The second chapter uses a differences-in-differences plus country-specific time trends approach to examine the effectiveness of the Kyoto Protocol in reducing carbon emissions and its carbon leakage effects. The empirical strategy corrects the endogeneity problem and captures the different time trends in carbon emissions among developed and developing countries that cannot be attributed to the Kyoto Protocol. Main results show that domestic carbon emissions on average have been reduced by 8% if a country ratified the Protocol and had a binding target compared with the case it did not. Compared with the literature, studies that fail to capture country-specific time trends over-estimate the effects of the Protocol by 2 percentage points.
The third chapter empirically examines the effectiveness of the Kyoto Protocol in reducing emissions in each single country. The synthetic control method enables the case study of heterogeneous treatment effects in each single country rather than the aggregate effects in all countries as a group. Empirical results show on average the Protocol has reduced carbon emissions per capita by 12% and reduced carbon emissions per dollar by 14% in each European country who have participated in the EU ETS. Effects of the Protocol in former Soviet Union countries and their neighbors are about a half of that in the EU ETS countries.