The objective of the paper is to analyze the Kyoto Protocol and its implications for Canada as a net oil exporter and China as a net oil importer. Section I of the paper provides an overview of the Kyoto Protocol. Section II reviews the literature. In Section III, we develop a model to analyze the impact of Kyoto Protocol on the oil exporter and importer and the implications for Canada and China are reported in Section IV Section V focused on the Clean Development Mechanism (CDM) and its implications for multinationals and for China. We found that implementation of the Kyoto Protocol would reduce the oil producer price, the oil supply, the oil profit as well as the oil revenue for Canada as an exporter. For an oil importer, China, implementation of the Kyoto Protocol would increase the oil consumer price and the price of the final good. The output of the final good and consumer surplus would fall. However, the total economic surplus consisting of the consumer surplus and the value of the emission permit would increase. CMD represents tremendous business opportunities for multinationals. Being a potentially major beneficiary of CMD, China should take more active steps to prepare and attract such investments.
