Reaching national Kyoto targets in Germany and sustainable development

Within this paper, we analyze the fulfillment of the Kyoto emissions reduction commitment particularly in Germany and its implication on the long-term paths of all macro-variables. Germany, like all other industrial or Annex-B countries, must reduce its emissions by 2010 according to what we call a "Kyoto Forever" scenario. We specifically investigate tradable permits as reduction measures in a national overlapping generations (OLG) model, where we change the discounting technique by using generation adjusted discounting (GAD) in comparison to conventional OLG discounting. We show that within our model framework Germany is able to develop along growing paths of, for example, gross domestic product (GDP) in sharp contrast to conventional results of OLG simulations. At the same time, current generations must share higher burdens in terms of lower GDP, per capita consumption and employment which can be initially interpreted as contemporary costs for reaching sustainable paths and, second, contributions for internalizing external effects. However, all costs in terms of lower macro-variables for current living generations are re-compensated through higher future values. This effect can be interpreted as an intergenerational application of full cost bearance, or, in other words, the "polluter pays" principle which is oriented towards sustainability of greenhouse gases abatement.