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Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions

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Author Info
Corrado Di Maria (University College Dublin)
Sjak Smulders (Tilburg University)
Edwin van der Werf (University of Oldenburg)

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Abstract

We study the effectiveness of climate change policy in a model with multiple non-renewable resources that differ in their carbon content. We find that, when allowing some time between announcement and implementation of a cap on carbon dioxide emissions, emissions from non-renewable energy sources increase at the time of announcement. There are two channels behind this effect. First, since a binding constraint on emissions restricts energy use during some period of time, more must be extracted during other periods. Second, since low carbon energy sources are relatively more valuable when the policy is implemented, it is optimal to conserve them ahead of enforcement. This might induce a switch to high-carbon resources before the policy is implemented.

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Publisher Info
Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.92.

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Date of creation: Nov 2008
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Handle: RePEc:fem:femwpa:2008.92

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Related research
Keywords: Climate Policy; Non-renewable Resources; Announcement Effects; Scarcity; Order of Extraction;

Find related papers by JEL classification:
Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply
Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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  1. Lewis, Tracy R, 1982. "Sufficient Conditions for Extracting Least Cost Resource First," Econometrica, Econometric Society, vol. 50(4), pages 1081-83, July. [Downloadable!] (restricted)
  2. Parry, Ian & Toman, Michael, 2000. "Early Emissions Reduction Programs: An Application to CO2 Policy," Discussion Papers dp-00-26, Resources For the Future. [Downloadable!]
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  3. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-34, December.
  4. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, vol. 48(3), pages 663-73, April. [Downloadable!] (restricted)
  5. Makris, Miltiadis, 2001. "Necessary conditions for infinite-horizon discounted two-stage optimal control problems," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1935-1950, December. [Downloadable!] (restricted)
  6. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May. [Downloadable!] (restricted)
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  7. 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, vol. 30(12), pages 2875-2904, December. [Downloadable!] (restricted)
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  8. Peter W. Kennedy, 2002. "Optimal early action on greenhouse gas emissions," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 16-35, February. [Downloadable!] (restricted)
  9. 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. [Downloadable!]
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