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Flattening the Carbon Extraction Path in Unilateral Cost-Effective Action

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  • Thomas Eichner
  • Rüdiger Pethig

Abstract

Internalizing the global negative externality of carbon emissions requires flattening the extraction path of world fossil energy resources (= world carbon emissions). We consider governments having sign-unconstrained emission taxes at their disposal and seeking to prevent world emissions from exceeding some binding aggregate emission ceiling in the medium term. Such a ceiling policy can be carried out either in full cooperation of all (major) carbon emitting countries or by a sub-global climate coalition. Unilateral action has to cope with carbon leakage and high costs which makes a strong case for choosing a policy that implements the ceiling in a cost-effective way. In a two-country two-period general equilibrium model with a non-renewable fossil-energy resource we characterize the unilateral cost-effective ceiling policy and compare it with its fully cooperative counterpart. We show that with full cooperation there exists a cost-effective ceiling policy in which only first-period emissions are taxed at a rate that is uniform across countries. In contrast, the cost-effective ceiling policy of a sub-global climate coalition is characterized by emission regulation in both periods. That policy may consist either of positive tax rates in both periods or of negative tax rates (= subsidies) in both periods or of a positive rate in the first and a negative rate in the second period. The share of the total stock of energy resources owned by the sub-global climate coalition turns out to be a decisive determinant of the sign and magnitude of unilateral cost-effective taxes.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3546.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3546

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Keywords: unilateral climate policy; intertemporal climate policy; non-renewable energy resources; emission taxes;

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References

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  1. Thomas Eichner & Rüdiger Pethig, 2011. "Carbon Leakage, The Green Paradox, And Perfect Future Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, 08.
  2. Golombek Rolf & Hoel Michael, 2004. "Unilateral Emission Reductions and Cross-Country Technology Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 3(2), pages 1-27, September.
  3. van der Ploeg, Frederick & Withagen, Cees, 2012. "Is there really a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 342-363.
  4. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics, University of Munich, Department of Economics 19638, University of Munich, Department of Economics.
  5. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
  6. Chakravorty, Ujjayant & Magne, Bertrand & Moreaux, Michel, 2006. "A Hotelling model with a ceiling on the stock of pollution," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(12), pages 2875-2904, December.
  7. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
  8. Di Maria, C. & Werf, E.H. van der, 2005. "Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change," Discussion Paper, Tilburg University, Center for Economic Research 2005-68, Tilburg University, Center for Economic Research.
  9. Copeland, Brian R. & Taylor, M. Scott, 2005. "Free trade and global warming: a trade theory view of the Kyoto protocol," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 205-234, March.
  10. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, CESifo, vol. 57(1), pages 79-102, March.
  11. Matthias Kalkuhl & Ottmar Edenhofer, 2010. "Prices vs. Quantities and the Intertemporal Dynamics of the Climate Rent," CESifo Working Paper Series 3044, CESifo Group Munich.
  12. Jota Ishikawa & Kazuharu Kiyono, 2006. "Greenhouse-Gas Emission Controls In An Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 431-450, 05.
  13. Bohm Peter, 1993. "Incomplete International Cooperation to Reduce CO2 Emissions: Alternative Policies," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 258-271, May.
  14. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  15. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
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Citations

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Cited by:
  1. Hendrik Ritter & Mark Schopf, 2013. "Unilateral Climate Policy: Harmful or even Disastrous?," Working Papers CIE 62, University of Paderborn, CIE Center for International Economics.
  2. repec:pdn:wpaper:62 is not listed on IDEAS
  3. Rick Van der Ploeg & Gerard van der Meijden & Cees Withagen, 2014. "International Capital Markets, Oil Producers and the Green Paradox," Economics Series Working Papers, University of Oxford, Department of Economics OxCarre Research Paper 13, University of Oxford, Department of Economics.
  4. Thomas Eichner & Rüdiger Pethig, 2011. "Unilateral reduction of medium-term carbon emissions via taxing emissions and consumption," Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 152-11, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  5. Mark Schopf & Hendrik Ritter, 2012. "Reassessing the Green Paradox," FEMM Working Papers 120013, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  6. Kollenbach, Gilbert, 2013. "Endogenous Growth with a Ceiling on the Stock of Pollution," MPRA Paper 50641, University Library of Munich, Germany.

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