Analyzing the Impact of Kyoto Protocol and Paris Agreement on CO2 Emissions: Using DiD and PSM Methods

Global warming is an important issue for all people in the world. Once greenhouse gases (GHGs) are generated, they accumulate in the atmosphere for a very long period. For this reason, the scope of their impact is not only limited to the present generation, but also will continue to affect coming generations. Due to these long lasting effects, global warming must be dealt with seriously in order to achieve environmental and economic sustainability. Among the six dominant greenhouse gases (GHGs) mentioned by the UNFCCC, carbon dioxide emissions (CO2) are the main contributor to the bulk of accumulated GHG emissions and showing the highest growth rates over time. These national climate action plans, communicated by 189 participating countries to date, will not be sufficient to meet the level required to stay well below 2°C. In order to achieve the long term goals contained in the Agreement, governments will regularly set or update their emissions reductions targets. Hence, the international community has taken some measures to solve this problem it includes the Kyoto Protocol and the Paris Agreement.

In this paper, we empirically investigate the impact of the Kyoto Protocol and Paris Agreement on CO2 emissions using a sample of 139 countries.To analyze the effect of the Kyoto Protocol on the emission of CO2, the period 2005-2012 are considered and in Paris agreement the years of 2014-2017 are included. We propose the use of a difference-in-difference (DiD) regression and a propensity score matching (PSM) methods to address the endogeneity of the policy variable, namely Kyoto and Paris commitments. Countries are matched according to observable characteristics to create a suitable counterfactual. We correspondingly estimated a panel data model for the whole sample and the matched sample and compared the results to those obtained using a Covariates variable. The model proposed to estimate the effects of the Kyoto Protocol on CO2 emissions includes GDP, Foreign direct investment (FDI), The proportion of urban population to total (UP), The share of value added in industry (AVI) as main drivers of emissions. A differences-in-difference estimator has been proposed, in which rather than evaluating the effect on the outcome variable, evaluating the effect on the change in the outcome variable before and after the intervention is done. Our inference in difference in difference method is based on the differences between committed and non-committed countries over two time periods: a pre-treatment period of 2014-2015 and a post-treatment year of 2016-2017.

As the coefficient for facing future commitments from Kyoto protocol and Paris Agreement is statistically significant, we conclude that the Kyoto protocol and Paris agreement effect are due to pre-ratification differences in emissions. In Kyoto protocol the results of the difference in difference method indicate that countries that face emission commitments emit on average 1.89 percent less CO2 compared to the control group of countries, which face similar conditions in terms of GDP, FDI, and AVI and UP, but do not have to cut emissions. In propensity score matching result illustrate CO2 emissions has reduced by 1.76 percent. Similar to other studies estimating the Kyoto effect, we also obtain that ratifying Kyoto has a negative and significant effect on emissions. In particular, our results show that a country with emission commitments emits on average 1.8 percent less CO2 than a country without reduction commitments. The results of the difference in difference method indicate that countries with emission commitments from the Paris agreement has reduced on average about 1.21 percent less CO2 than similar countries that did not ratify the agreement and according to the PSM method, in the commitment countries in Paris agreement, it has dropped by 1.45 percent.

According to the result, the impact of the Kyoto Protocol and the Paris Agreement based on two approaches are different, but it is obviously clear that these international agreements have been successful in reducing CO2 emissions. Yet, in order to stabilize global warming at 2 degrees Celsius, much more serious measures would have to be taken. Although emissions from the developed countries with reduction commitments have declined and some countries achieved their targets, the decline in emissions is unlikely to be enough to stabilize levels of GHGs in the atmosphere. The main policy recommendation derived from this study is that policy makers should actively work towards finding a way of extending the international agreement to a wider range of countries, including the so-called new industrialized nations, which indeed should be renamed ‘already’ industrialized countries.