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Unilateral mitigation of climate damage via purchase of fossil fuel deposits

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  • Pethig, Rüdiger
  • Eichner, Thomas

Abstract

In a multi-country model with interconnected markets for fossil fuel and deposits some countries fight climate damage by purchasing and preserving fossil fuel deposits, which would be exploited otherwise. We analyze the effectiveness of such a deposit policy, when that policy stands alone or is combined with fuel cap policies. If the stand-alone deposit policy is non-strategic, it implements the first-best allocation; otherwise, it distorts the allocation in the coalition s favor. Following Harstad (2012), we then analyze the policy mix consisting of the deposit policy, a fuel-supply-cap policy and a fuel-demand-cap policy. The fuel-supply-cap policy turns out to be redundant and so is the fuel-demand-cap policy, if it is nonstrategic. Whenever the coalition acts strategically on one of the markets or on both, it distorts the allocation in its own favor and is better off than in the efficient price-taking scenario which contrasts the efficiency result of Harstad.

Suggested Citation

  • Pethig, Rüdiger & Eichner, Thomas, 2015. "Unilateral mitigation of climate damage via purchase of fossil fuel deposits," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113010, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:113010
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    1. Eichner, Thomas & Pethig, Rüdiger, 2013. "Self-enforcing environmental agreements and international trade," Journal of Public Economics, Elsevier, vol. 102(C), pages 37-50.
    2. Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl, 2017. "Climate policies in a fossil fuel producing country demand versus supply side policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    3. Hoel Michael, 1994. "Efficient Climate Policy in the Presence of Free Riders," Journal of Environmental Economics and Management, Elsevier, vol. 27(3), pages 259-274, November.
    4. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-737, September.
    5. Kazuharu Kiyono & Jota Ishikawa, 2013. "Environmental Management Policy Under International Carbon Leakage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1057-1083, August.
    6. 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

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