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This briefing paper examines the perceived tensions between climate change mitigation efforts under the Kyoto Protocol and the economic competitiveness of firms and sectors. It distinguishes between the 'non-Party problem,' where firms in participating countries face disadvantages against those in non-participating nations, and the 'implementation problem,' where differing national strategies within participating regions create internal competitive imbalances. Using Canada and the EU as case studies, the document argues that while these concerns are politically significant, their actual economic impacts may be limited by flexibility mechanisms, sub-national actions in non-participating countries, and potential technological innovations driven by regulation.