Summary: International climate policy has assigned the leading role in emissions abatement to the industrialized countries who have assumed historical responsibility for the greenhouse gas problem. Developing countries that remain uncommitted may nevertheless face adverse impacts on their economies caused by international spillovers from abatement in the developed world. In this context, the United Nations Framework Convention on Climate Change guarantees compensation from the industrialized countries to the developing world for induced economic costs under Articles 4.8 and 4.9. In this paper, we shed some light on the difficulties involved in establishing a measurement of bilateral spillover effects that is sufficiently robust to be used in the climate policy debate as a reference point for computing transfer payments. We argue that the decomposition procedure suggested by Harrison, Horridge and Pearson (2000) can reduce arbitrariness in the measurement of bilateral spillovers. Application of the procedure to decompose the economic implications of the Kyoto Protocol at the cross-country level, however, reveals fundamental problems to the issue of compensation. At the bilateral level, developing countries may benefit from abatement in one industrialized country, and be worse off from abatement in another industrialized country. This poses the question if developing countries which are compensated for adverse spillovers should in turn pay for positive spillovers.