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Climate Policy and the Optimal Extraction of High- and Low-Carbon Fossil Fuels

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Author Info

  • Smulders, J.A.
  • Werf, E.H. van der

    (Tilburg University, Center for Economic Research)

Abstract

We 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 Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-119.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:2005119

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Web page: http://center.uvt.nl

Related research

Keywords: Climate policy; non-renewable resources; input substitution;

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References

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  1. 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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RePEc Biblio mentions

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  1. > Environmental and Natural Resource Economics > Resource Economics
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Cited by:
  1. Vogt-Schilb, Adrien & Meunier, Guy & Hallegatte, Stephane, 2013. "Should marginal abatement costs differ across sectors ? the effect of low-carbon capital accumulation," Policy Research Working Paper Series 6415, The World Bank.
  2. Smulders, Sjak & Withagen, Cees, 2012. "Green growth -- lessons from growth theory," Policy Research Working Paper Series 6230, The World Bank.
  3. Frederick van der Ploeg & Cees Withagen, 2010. "Is there really a Green Paradox?," Tinbergen Institute Discussion Papers 10-020/3, Tinbergen Institute, revised 27 Aug 2012.
  4. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2008. "A dynamic model of food and clean energy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1181-1203, April.
  5. Hoel, Michael & Jensen, Svenn, 2012. "Cutting costs of catching carbon—Intertemporal effects under imperfect climate policy," Resource and Energy Economics, Elsevier, vol. 34(4), pages 680-695.
  6. Ujjayant Chakravorty & Michel Moreaux & Mabel Tidball, 2008. "Ordering the Extraction of Polluting Nonrenewable Resources," American Economic Review, American Economic Association, vol. 98(3), pages 1128-44, June.
  7. Michielsen, T.O., 2011. "Brown Backstops versus the Green Paradox (Revision of CentER DP 2011-076)," Discussion Paper 2011-110, Tilburg University, Center for Economic Research.
  8. Thomas Michielsen, 2013. "Brown Backstops Versus the Green Paradox," OxCarre Working Papers 108, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  9. Adrien Vogt-Schilb & Guy Meunier & Stéphane Hallegatte, 2013. "Should marginal abatement costs differ across sectors? The effect of low-carbon capital accumulation," Working Papers hal-00850682, HAL.
  10. Andreas A. Renz & Christoph Weber, 2012. "A Hotelling Model for Fixed-Cost Driven Power Generation," EWL Working Papers 1206, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jan 2013.
  11. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2012. "Cycles in nonrenewable resource prices with pollution and learning-by-doing," Journal of Economic Dynamics and Control, Elsevier, vol. 36(10), pages 1448-1461.
  12. Daiju Narita, 2010. "Climate Policy, Technology Choice, and Multiple Equilibria in A Developing Economy," Kiel Working Papers 1590, Kiel Institute for the World Economy.
  13. Jean-Pierre Amigues & Ujjayant Chakravorty & Michel Moreaux, 2009. "Think Globally, Act Locally? Stock vs Flow Regulation of a Fossil Fuel," LERNA Working Papers 09.30.306, LERNA, University of Toulouse.
  14. Amigues, Jean-Pierre & Chakravorty, Ujjayant & Moreaux, Michel, 2010. "The Effect of Local and Global Pollution Mandates on a Nonrenewable Resource," Working Papers 2010-2, University of Alberta, Department of Economics, revised 01 Oct 2010.

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