Climate Policy and the Optimal Extraction of High- and Low-Carbon Fossil Fuels
AbstractWe study how restricting CO2 emissions affcts resource prices and depletion over time.We use a Hotelling-style model with two nonrenewable fossil fuels that differ in their carbon content (e.g. coal and natural gas) and that are imperfect substitutes in final good production.We study both an unexpected constraint and an anticipated constraint.Both shocks induce intertemporal substitution of resource use.When emissions are unexpectedly restricted, it is cost-effective to use high-carbon resources relatively more (less) intensively on impact if this resource is relatively scarce (abundant).If the emission constraint is anticipated, it is cost-effective to use relatively more (less) of the low-carbon input before the constraint becomes binding, in order to conserve relatively more (less) of the high-carbon input for the period when climate policy is active in case the high-carbon resource is relatively scarce (abundant).
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-119.
Date of creation: 2005
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Web page: http://center.uvt.nl
Climate policy; non-renewable resources; input substitution;
Other versions of this item:
- Sjak Smulders & Edwin van der Werf, 2008. "Climate policy and the optimal extraction of high- and low-carbon fossil fuels," Canadian Journal of Economics, Canadian Economics Association, vol. 41(4), pages 1421-1444, November.
- Edwin van der Werf & Sjak Smulders, 2007. "Climate Policy and the Optimal Extraction of High- and Low-Carbon Fossil Fuels," Working Papers 2007.83, Fondazione Eni Enrico Mattei.
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-14 (All new papers)
- NEP-ENE-2005-12-14 (Energy Economics)
- NEP-ENV-2005-12-14 (Environmental Economics)
- NEP-RES-2005-12-14 (Resource Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Withagen, Cees, 1994. "Pollution and exhaustibility of fossil fuels," Resource and Energy Economics, Elsevier, vol. 16(3), pages 235-242, August.
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