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Buy coal? Deposit markets prevent carbon leakage

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  • Bård Harstad

Abstract

If a coalition of countries implements climate policies, nonparticipants tend to consume more, pollute more, and invest too little in renewable energy sources. In response, the coalition's equilibrium policy distorts trade and is not time-consistent. This paper derives conditions for when trading fossil fuel deposits increase efficiency. In isolation, a bilateral transaction may occur too often or too seldom compared to the optimum. However, when the market clears, the above-mentioned problems vanish, the first-best is implemented, and the coalition finds it optimal to rely entirely on supply-side policies, which are simple to implement in practice.

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  • Bård Harstad, 2010. "Buy coal? Deposit markets prevent carbon leakage," NBER Working Papers 16119, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16119
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    Cited by:

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    2. van der Werf, Edwin & Di Maria, Corrado, 2012. "Imperfect Environmental Policy and Polluting Emissions: The Green Paradox and Beyond," International Review of Environmental and Resource Economics, now publishers, vol. 6(2), pages 153-194, March.
    3. Eichner, Thomas & Pethig, Rüdiger, 2017. "Trade in fossil fuel deposits for preservation and strategic action," Journal of Public Economics, Elsevier, vol. 147(C), pages 50-61.
    4. Kalkuhl, Matthias & Brecha, Robert J., 2013. "The carbon rent economics of climate policy," Energy Economics, Elsevier, vol. 39(C), pages 89-99.
    5. Bård Harstad, 2012. "Buy Coal! A Case for Supply-Side Environmental Policy," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 77-115.

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    More about this item

    JEL classification:

    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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