This study investigates the environmental and economic impacts of the Kyoto Protocol on Annex I parties through an impact assessment by combining the propensity score matching and the difference-in-difference methods. We establish a country-level panel data set including CO2 emissions, gross domestic product (GDP), and other socioeconomic data for 1997–2008 and 2005–2008. Based on the impact evaluation, we conduct the simulation predicting the impacts of the Protocol to capture the differences of marginal damage cost of carbon emissions between the actual and counterfactual situations. The results suggest that participating as an Annex I party has a significant positive impact on CO2 emission reductions, but a negative impact on the GDP of the participants in the long run. The predicted marginal benefit of the Protocol based on the marginal damage cost of carbon emissions shows that the marginal benefit of emission reductions mitigates a limited portion of the GDP loss. Future global climate change frameworks should focus on balancing the impact on economic and environmental performance in order to ensure sustainable development, especially for developing countries that have low capacity to mitigate emissions.
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