Annex I commitments: adverse economic impacts on developing countries: myth or reality?

This document examines the claim that legally binding commitments undertaken by Annex I Parties to reduce greenhouse gas (GHG) emissions would result in adverse economic impacts on developing countries. This is examined through the case of the Indian economy. The impact of a range of carbon taxes on trade between India and the US (a major trading partner) is analysed, using a partial, static framework. This study reveals that impacts on India of commitments of Annex I countries to comply with emissions reduction targets prima facie are marginal. However, economies importing capital intensive products from Annex I countries are likely to have adverse second-order impacts. In such a scenario, there is a case for increased south–south trade with increased flows from countries with a large industrial base. Higher costs in Annex I countries will have a two-fold effect on developing economies in the long-term: more rapid evolution of their indigenous industrial base and positive environmental transitions that accompany development.