July, 2001

The Economic Impact of the Kyoto Protocol

Noha Al-Gebali

The Kyoto protocol will certainly leave an imprint on the economies of the signatory countries, as well as on the global economy in general. Economists perceive that this impact will be crystallised in the financial burdens that the countries will shoulder in accordance with their commitments to the protocol. The protocol will similarly affect macroeconomic variables such as inflation, unemployment and consumption and saving trends. International reactions towards the protocol varied.

The problem of global warming is a pressing one that should be more firmly addressed. Developing countries should not consider themselves in isolation from the commitments of the protocol. Rather, they should prepare themselves to adapt to the commitments and economic impact of the protocol.
Developing countries have to make full use of the privileges provided by the protocol. According to the protocol, developed countries have to transfer environmentally friendly technology to developing ones. The protocol provides developing countries with flexible mechanisms such as the clean development mechanism and the emission trading system.

On the other hand, the commitment of developed countries to reduce emissions will increase oil prices. This will, in turn, negatively affect petroleum-producing countries, which have had to accept the fact that there is a shift in the long term towards the use of technology that consumes less energy. This will eventually lead to a regress in the importance of oil, and that would affect the revenues of these countries, which underscores the importance of diversification of resources.

The expected inflation that developed countries will suffer from in the short term would help increase the competitiveness of the products of developing countries. The economic impact of the Kyoto protocol will include developed as well as developing countries, which necessitates coordination between them to make the ultimate use of the protocol.