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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 Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 151-11.

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Length: 27 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:sie:siegen:151-11

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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. Di Maria, C. & Werf, E.H. van der, 2005. "Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
  2. 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.
  3. Ujjayant Chakravorty & Bertrand Magne & Michel Moreaux, 2006. "A Hotelling model with a ceiling on the stock of pollution," Working Papers 25547, Institut National de la Recherche Agronomique, France.
  4. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
  5. Thomas Eichner & Rüdiger Pethig, 2009. "Carbon leakage, the green paradox and perfect future markets," Volkswirtschaftliche Diskussionsbeiträge 136-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  6. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  7. Copeland,B.R. & Taylor,M.S., 2000. "Free trade and global warming : a trade theory view of the Kyoto protocol," Working papers 4, Wisconsin Madison - Social Systems.
  8. Golombek Rolf & Hoel Michael, 2004. "Unilateral Emission Reductions and Cross-Country Technology Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, September.
  9. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  10. 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.
  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. 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.
  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. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
  15. 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, vol. 47(2), pages 431-450, 05.
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Citations

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Cited by:
  1. Thomas Eichner & Rüdiger Pethig, 2011. "Unilateral reduction of medium-term carbon emissions via taxing emissions and consumption," Volkswirtschaftliche Diskussionsbeiträge 152-11, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  2. Hendrik Ritter & Mark Schopf, 2013. "Unilateral Climate Policy: Harmful or even Disastrous?," FEMM Working Papers 130010, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  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 OxCarre Research Paper 13, University of Oxford, Department of Economics.
  4. repec:pdn:wpaper:62 is not listed on IDEAS
  5. 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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