Kyoto Protocol (COP-3, 1997) - Clarity Desk Hub IAS

🗂️ Background

The Kyoto Protocol was:

Adopted in Kyoto, Japan (1997) at COP-3
Entered into force in 2005
Parties: 192
India ratified in 2002
USA never ratified
Canada withdrew in 2012

📌 Very important UPSC fact
👉 Kyoto is the only global climate treaty that imposed legally binding emission reduction targets.

🎯 Core Objective of the Kyoto Protocol

The goal was the same as UNFCCC—but with teeth:

To reduce greenhouse gas concentrations to a level that would prevent dangerous anthropogenic interference with the climate system.

The key difference:

UNFCCC → framework, non-binding
Kyoto Protocol → binding commitments (only for developed countries)

⚖️ Legal Philosophy: Common but Differentiated Responsibilities (CBDR)

Kyoto operationalised the principle of CBDR..

What does CBDR mean?

Common → Climate change is a shared problem; all countries must act
Differentiated → Responsibility depends on historical contribution and capacity

Historical logic behind CBDR

Developed countries (US, UK, France, Japan, Russia):
👉 Emissions since the Industrial Revolution
Developing countries (China, India, Brazil):
👉 Significant emissions mainly after the 1950s

📌 Therefore:

Developed countries must do more
Developing countries can act, but voluntarily

🧪 Greenhouse Gases Covered under Kyoto

Kyoto set reduction targets for six gases:

Carbon dioxide (CO₂)
Methane (CH₄)
Nitrous oxide (N₂O)
Sulphur hexafluoride (SF₆)
Hydrofluorocarbons (HFCs)
Perfluorocarbons (PFCs)

📌 These gases were selected based on global warming potential (GWP).

📉 Emission Reduction Target

Target: ~5% reduction
Baseline year: 1990
Deadline: 2012
Applicable only to developed countries

👉 This applied during the first commitment period (2008–2012).

🏛️ Classification of Countries under Kyoto

Understanding this classification is very important for UPSC.

🔹 Annex I Countries

Developed countries + Economies in Transition (EITs)
Examples: US, UK, Russia, Japan, Ukraine, Eastern Europe

🔹 Annex II Countries (Subset of Annex I)

Wealthy developed countries
Additional obligation:
- Provide financial and technical support to developing countries and EITs

🔹 Annex B Countries (Subset of Annex I)

Countries with binding emission reduction targets
Two phases:
- First commitment period: 2008–2012
- Second commitment period: 2013–2020

📌 Annex B = Annex I + legally binding targets

🔹 Non-Annex I Countries

Mostly developing countries
No binding emission targets
Includes India, China, Brazil

🔹 LDCs

Least Developed Countries
No binding targets
Priority access to finance and technology

🔄 Commitment Periods under Kyoto

🟢 First Commitment Period (2008–2012)

Over 35 countries had binding targets
Countries failing targets faced:
- Penalty: 30% extra reduction obligation in the next period

🔵 Second Commitment Period (2013–2020)

(Doha Amendment, 2012)

Agreed at COP-18 (Doha)
Extended Kyoto commitments
But participation collapsed:
- Canada withdrew
- Japan, Russia, New Zealand refused new targets

📌 Result:

Second period had very few major emitters
Effectiveness dropped sharply

❌ Doha Amendment: A Legal Failure

Required 144 ratifications
Entered into force on 31 December 2020
Ended on 31 December 2020 itself

👉 Entered into force after it had already expired

📌 This makes the second commitment period an abject failure.

🧨 Why Did Kyoto Fail? (Critical Analysis)

1️⃣ US Non-Participation

USA (largest historical emitter) never ratified
This fatally weakened the regime

2️⃣ Withdrawal by Major Economies

Canada exited due to economic costs
Japan & Russia cited competitive disadvantage

3️⃣ Exemption of Emerging Emitters

China and India had no binding targets
Developed countries saw this as unfair competition

4️⃣ Rigid, Top-Down Design

Fixed targets imposed externally
No flexibility based on national circumstances

5️⃣ Shift in Global Reality

By 2010s, emissions growth shifted to developing economies
Kyoto’s structure became outdated

🔁 After Kyoto: What Next?

Post-Kyoto negotiations began at Lima (2014)
Clear signal from USA, China, India:
👉 No treaty with legally binding emission cuts

📌 This led to a paradigm shift → Paris Agreement

Bottom-up
Nationally Determined Contributions (NDCs)
Universal participation

🔄 Flexible Market Mechanisms under the Kyoto Protocol

Under the Kyoto Protocol, countries with binding emission targets (Annex B) were expected to:

Primarily reduce emissions domestically, but
Partly meet targets using three market-based mechanisms

The Three Mechanisms

Clean Development Mechanism (CDM)
Emission Trading (Carbon Trading)
Joint Implementation (JI)

👉 Think of them as flexibility tools, not substitutes for domestic action.

🎯 Why Were Flexible Mechanisms Introduced?

Kyoto recognised a practical reality:

Cutting emissions is cheaper in some countries than others

Expected Benefits

🌱 Stimulate green investment in developing countries
🏭 Bring the private sector into climate mitigation
🚀 Enable technology leap-frogging (skipping dirty tech for clean tech)
💰 Reduce overall cost of compliance for developed countries

🗒️Clean Development Mechanism (CDM)

What is CDM?

CDM allows a developed country (Annex B) to:

Invest in an emission-reduction project in a developing country
Earn Certified Emission Reductions (CERs)

📌 1 CER = 1 tonne of CO₂ equivalent

How CDM Works (Simple Example)

A developed country has a Kyoto quota of 100 tonnes
It emits 110 tonnes → exceeds by 10 tonnes
To avoid penalties:
- It funds a solar/wind/biogas project in a developing country (e.g., India)
- Earns 10 CERs
- Uses these CERs to offset excess emissions

👉 Result:

Developed country meets its target
Developing country gets finance + clean technology

Why CDM Appealed to Developing Countries

No binding emission cuts
Foreign investment inflow
Clean infrastructure development

📌 India and China became major suppliers of CERs.

🗒️Emission Trading (Carbon Trading / Cap-and-Trade)

Carbon Credit – The Basic Unit

Carbon credit = permission to emit 1 tonne of CO₂
Credits can be generated by:
- Afforestation
- Renewable energy
- Methane capture
- Carbon sequestration
- Buying from exchanges

What is Carbon Trading?

Countries emitting less than their quota → sell excess credits
Countries exceeding their quota → buy credits

👉 Emissions become a tradable commodity

Types of Carbon Trading

🔹 Emission Trading (Cap-and-Trade)

“Sell unused quotas”
Countries with spare allowances sell to over-emitters

🔹 Offset Trading (Baseline-and-Credit)

“Create credits”
By investing in projects that reduce emissions below a baseline

📌 Developing countries like India typically became net sellers of credits.

India Example

Carbon credits were traded on exchanges
Multi-Commodity Exchange of India (MCX) launched carbon credit futures in 2009

🗒️Joint Implementation (JI)

What is JI?

Similar to CDM, but:
- Both host and investor countries are Annex B

Key Feature

Emission-reduction project in another developed country
Generates Emission Reduction Units (ERUs)
1 ERU = 1 tonne of CO₂

Why JI Was Used

Cost-effective compliance
Technology transfer within developed economies
Common in Economies in Transition (Eastern Europe)

⚠️ Issues with Flexible Market Mechanisms

1️⃣ No Proven Emission Reduction

No clear evidence that carbon markets actually reduced global emissions
Often led to accounting adjustments, not real cuts

2️⃣ Failure of Major Carbon Markets

Two biggest mechanisms performed poorly:

EU Emissions Trading System (EU-ETS)
CDM

3️⃣ Over-Allocation of Allowances

Under EU-ETS, industries were given more quotas than needed
Result of intense industrial lobbying
Emission permits lost scarcity → price collapse

4️⃣ Flood of Cheap CDM Credits

Massive CER supply from China and India
Carbon prices crashed
Emissions became cheap to pollute

👉 Industries preferred buying credits over investing in clean technology.

5️⃣ Corruption and Non-Transparency

Carbon markets benefited:
- Consultants
- Brokers
- NGOs
Allegations of:
- Fake projects
- Inflated baselines
- Weak verification

🚫 Non-Compliance and Penalties under Kyoto

Kyoto had a compliance mechanism, but it was weak.

If a Country:

Failed to report emissions properly → barred from JI
Exceeded its cap and did nothing:
- Must cut excess + 30% more in the next period
- Could be banned from emissions trading

📌 In practice, enforcement was politically weak.

❌ Overall Criticism of Kyoto’s Market Approach

1️⃣ “Buy Your Way Out” Problem

Countries could purchase compliance
Ignored long-term structural transformation

2️⃣ CBDR Led to Emission Growth

Many countries were allowed to increase emissions
Climate change worsened despite compliance on paper

3️⃣ Exclusion of Major Emitters

China and India had no binding targets
Later became top global emitters
Undermined political legitimacy

🌍 Carbon Tax

A carbon tax places a direct tax on each unit of greenhouse gas (GHG) emission.

Core Logic

If polluting costs money, polluters will pollute less
Firms and countries will reduce emissions whenever abatement is cheaper than paying the tax

👉 In simple terms:
“Pollute less, pay less.”

Why Carbon Tax Is Being Proposed

Carbon trading markets have shown serious flaws
A tax is:
- Simpler
- More transparent
- Less prone to manipulation

📌 However, carbon tax faces strong political resistance:

Fear of higher energy prices
Corporate lobbying
Electoral costs for governments

🌐 (Proposed) Differential Global Carbon Tax (DGCT)

The Differential Global Carbon Tax (DGCT) extends the idea of carbon tax to the global level, inspired by the principle of Common but Differentiated Responsibilities (CBDR).

Key Principle

Countries with higher per capita emissions should pay more
Countries with lower per capita emissions should receive compensation

👉 Responsibility is based on lifestyle emissions, not just national totals.

How DGCT Would Work

A global per capita emissions benchmark is fixed
Countries above the global average:
- Pay into a transition fund
Countries below the global average:
- Receive funds to support clean energy transition

📌 This ensures:

Climate justice
Equity
Collective global transition

⚡ (Proposed) Finance Energy Transition (FET)

Finance Energy Transition (FET) is a refined operational model similar to DGCT.

Key Numbers (Illustrative)

Current global average emissions: ~4.97 tonnes per capita
Countries above this level: ~68 payer countries
Countries below this level: ~135 beneficiary countries
Estimated annual transfer: ~$570 billion

Distribution Logic

Payers: Amount depends on how much above the global average they emit
Receivers: Funds depend on how much below the global average they are and their emission-reduction effort

👉 This creates a built-in incentive to climb down the emissions ladder.

🌍 Why Is a Differential Global Carbon Tax Needed?

This is the ethical heart of the argument.

1️⃣ Climate Injustice

The global South emits less per capita
But suffers disproportionately from climate impacts

📌 Example:
The Tamil Nadu water crisis (2019) illustrates how climate stress hits vulnerable regions first.

2️⃣ Unequal Historical Responsibility

Global North:
- High historical emissions
- High present per capita emissions
Global South:
- Low historical responsibility
- Yet bears the costs

👉 Equal burden-sharing would be deeply unjust.

3️⃣ Limitations of Carbon Trading

Price volatility
Market manipulation
Weak emission reduction outcomes

📌 Hence, carbon tax emerges as a more predictable and fair instrument.

⚖️ Is DGCT a Globally Just Policy?

Let us examine this critically.

Who Pays?

USA and China → largest absolute contributors (high emissions)

Who Benefits Most?

India → largest beneficiary
- Per capita emissions: ~1.73 tonnes
- Large population + low emissions

Interesting Outcome

Some high-income but low-emission countries (France, Sweden, Switzerland) also benefit

👉 This proves that DGCT:

Rewards low-carbon behaviour
Not simply income level

📌 DGCT has been described as a “Global Green Robin Hood Tax”.

⚖️ Carbon Tax vs Carbon Trading (Cap-and-Trade)

This comparison is very important for UPSC.

Aspect	Carbon Tax	Carbon Trading (Cap-and-Trade)
Policy Type	Price instrument	Quantity instrument
What is fixed	Price of carbon	Quantity of emissions
Emissions outcome	Uncertain	Certain
Cost outcome	Certain	Uncertain
Market volatility	Low	High
Investment predictability	High	Low
Administrative complexity	Lower	Higher

Investment Perspective

Carbon tax → stable prices → easier planning
Carbon trading → fluctuating prices → risky investments

📌 Many economists recommend a hybrid model:

Emission cap plus
Price floor and ceiling for stability

🇮🇳 India’s Experience: A De Facto Carbon Tax

India does not officially call it a carbon tax, but functionally, it exists.

Clean Energy Cess

Introduced in Budget 2010–11
₹50 per tonne on coal → later ₹100
Applied to domestic and imported coal

GST Compensation Cess

After GST introduction:
- Clean Energy Cess abolished
- New GST Compensation Cess of ₹400 per tonne on coal
Proceeds used for clean energy purposes