It is often assumed in the economic literature that the Kyoto Protocol will be implemented through a cost-efficient, comprehensive emissions trading system. However, the general experience from implementation of environmental policies suggests that governments will adopt a more differentiated...

Carbon leakage is an important concern because it can reduce the environmental effectiveness of the Kyoto Protocol. The Clean Development Mechanism (CDM), one of the flexibility mechanisms allowed under the protocol, has the potential to reduce carbon leakage significantly because it reduces the...