Introduction to Economics                     Lesson 02/2007



Kyoto is a city in Japan.  It is the former Imperial capital, very old, with many historical and beautiful buildings and monuments, for which reason it is reputed to have been spared major destruction by the allies during WW2.   It is situated on Honshu, the main island of Japan, near to Osaka.  It is the nation’s seventh biggest city. 

In 1997 Kyoto hosted an international conference, the third session of the Conference of the Parties of the U.N Framework Convention on Climate Change, which gave birth to a major international treaty, the so-called Kyoto Protocol. [A protocol is a set of rules or guidelines, agreed or widely accepted to be used in a particular circumstance or situation.]   Depending on your point of view, the Kyoto Protocol bodes well to become either one of the greatest boons or the greatest banes to humanity of the 21C.



The goal of the Kyoto Protocol is to cause a reversal in the rising emissions by developed nations of so-called anthropogenic [or man made] greenhouse gases into the atmosphere, in order to achieve the ultimate objective of the Convention, namely preventing dangerous anthropogenic interference with the climate system.

The Protocol identifies 6 gases or groups of gases considered to be particularly likely to be dangerous; carbon dioxide [CO2], methane [CH4], nitrous oxide [N2O], hydrofluorocarbons [HFCs], perfluorocarbons [PFCs] and sulphur hexafluoride [SF6].  By a complicated, arbitrary procedure each member nation’s emission of such gases is calculated and combined by use of the concept of a CO2- equivalent to arrive ultimately at a single CO2-equivalent figure for each member nation. 

Depending on the perceived level of development of the particular member nation concerned, targets and a timetable for change are set, which are required to be met.  The Protocol seeks an overall reduction of 5% in total emissions from the 1990 level, to be measured on an average over the years 2008-2012.  But some countries are merely required to stablize at their existing level and some even permitted to increase the level of their emissions.  This last group includes Australia, which is permitted an increase of 8%.

Some examples of other nations’ targets include a reduction of 8% by the European Union as a whole, albeit distributed unequally between members, 7% for the USA, the world’s biggest emitter of greenhouse gases, with one of the highest per capita levels, 6% for Canada and Japan, stabilization at existing levels for Russia and New Zealand and permitted increases of 10% for Iceland and 1% for Norway.

Amongst the member nations of the EU, reductions have been set for Luxembourg [28%], Germany [27%], and the UK [12.5 %], France is required to stabilize, and increases permitted for Portugal [27%], Greece [25%] and Ireland [13%].

To come into effect the Protocol required firstly, ratification by 55 parties to the Convention and secondly ratification by developed countries responsible for 55% of total emissions.  The first requirement was met in 2002 when Iceland became the 55th party to ratify whilst the second was satisfied in 2004 when Russia, with 17% of the world’s emissions ratified.  As a consequence, the Protocol came into effect on 16 February 2007.  However neither the USA or Australia have ratified it.

Pursuant to the Convention, the Parties thereto, both developed and developing, are required, singularly and in cooperation, to limit emissions, to research and prepare for climate change and to promote general awareness of the concept The Protocol is intended to encourage and facilitate the parties to the Convention to achieve its goals.  In particular it requires developed nations to accept a greater and more equitable share of the burden and encourages them to assist the developing nations, particularly with financial and technical aid, to enable them to help achieve the Convention’s overall goal.


Currently Australians per head are the world’s greatest emitters of greenhouse gases although the country’s total volume of emissions places it overall only in tenth place.   The federal government has declined to ratify the Protocol although it claims Australia’s reduction of emissions to date is in line with the voluntary obligations set for it by the Protocol for the initial voluntary period. 

The government cites a number of reasons for its refusal to ratify; the developing nations, particularly the 2 economic powerhouses of China and India, are causing major increases in the level of emissions, but are exempt from the Protocol’s mandatory requirements.   And any realistic application of the mandatory requirements is likely to devastate the nation’s economy, its level of employment and its standard of living.  Some members of the government have also expressed doubts about the scientific bases of global warming and climate change.

The federal opposition supports the Protocol and has announced its intention, if elected, to ratify and implement its provisions.  It claims that this will be a painless exercise for Australia, since it picks up on the government’s own claim that Australia is, to date, up to its required level of voluntary reductions.  This claim however, is in turn, based on a somewhat optimistic and imaginative accounting of the significance of the changed policy on land clearing in Australia.       



A consequence of the Convention and of the Protocol is that various governments have begun to ration and control the emission of greenhouse gases and, in effect, to issue licences permitting individuals, firms, industries, regions and so forth to emit such volume as permitted by the licence.  Given transferability, markets have been created or sprung up for the buying and selling of such quotas.  Similar trading can also occur between nations.

Apart from licences, markets in credits are also arising.  Trees for example are a natural absorber or ‘sink’ for carbon dioxide.  A broker can pay a farmer for instance to grow trees, which will not be harvested but be used to receive, in effect, carbon credits.  These credits can then be sold to those who need them, to offset the purchasers own greenhouse gas emissions, or to sell them on.

The potential size of such markets is huge and existing markets are growing very rapidly.  There has effectively been created a major new industry.  Under the Australian Constitution, the environment remains largely a State responsibility.  NSW has already introduced its own carbon trading scheme and plans are afoot to expand it to include the other States and the Territories.  The Prime Minister however is opposed to the concept and sees no merit in the proposal. 



Fundamental to any appreciation of the Protocol and the Convention is an understanding of the Precautionary Principal and the role that it has played.  The Precautionary Principal is a measure now widely employed in the making of public policy.  Basically it proposes that where a threat of harm to an individual or community exists or arises, precautionary measures should be taken, even if cause and effect are not clearly established or understood.  Where a threat of harm exists, the onus of proof should be reversed; rather than having to prove the potential for harm, opponents of a precautionary measure should have to prove that it is not necessary.  As it is sometimes expressed  “When in doubt, throw it out.”  

With respect to global warming and climate change, the Convention and the Protocol have accepted and employed the precautionary principal.  This is a major change from the practice of the recent past.  To understand more fully the significance of the change and the arguments for and against it we would need to revisit the lesson on the subject of risk.  Suffice to say at this stage, that it is a matter of much contention.  



Despite suggestions to the contrary, there are many sceptics of global warming or climate change and critics of the Kyoto Protocol, both professional and lay people. They raise a number of concerns and arguments such as;

·         The concept of a recent rise in temperature being sudden and unique, and hence the result of an anthropogenic cause, is a myth.  Evidence suggests that the Earth has gone through many such warm periods, during the last of which Greenland was inhabited, before being abandoned, due to the increasing cold of the Little Ice Age, in the 1400s.  The nadir of the Little Ice Age was probably 1680, when the Thames at London froze a metre deep, since when the Earth has been gradually warming.

·         Despite emissions and the volume of CO2 in the atmosphere continuing to rise, statistics suggest global temperatures have been falling since 1998.  Hence the change of terminology from ‘global warming’ to ‘climate change’. Rather than warming, some leading climatologists are suggesting the onset of another ice age.

·         When the mandatory reduction period set down in the Protocol commences in 2008, reduction targets will generally be revised drastically upward for most countries, to at least 20%.  This is because optimistic expectations of reductions during the preliminary voluntary period prior to 2008 have not been met

·         If reductions in greenhouse emissions are to occur at a level sufficient to eliminate any additions to the atmosphere, the reality is that either the population of the Earth must be reduced by 80% or the standard of living of the existing population reduced back to the primitive, at which stage a large proportion of the existing population will die off anyway.


                                                                                             David Sharp

                                                                                                 27 February 2007   







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