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Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source

Author

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  • Julien Xavier Daubanes
  • Fanny Henriet
  • Katheline Schubert

Abstract

We examine an open economy’s strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard theoretical approach to carbon leakage, we show that unilateral CO2 reduction policies generate a higher leakage rate in the presence of more than one carbon energy source and may turn counterproductive, ultimately increasing world emissions. We establish testable conditions as to whether a unilateral tax on domestic CO2 emissions increases the domestic exploitation of gas and whether such a strategy increases global emissions. We also characterize this strategy’s implications for climate policy in the rest of the world. Finally, we present an illustrative application of our results to the United States.

Suggested Citation

  • Julien Xavier Daubanes & Fanny Henriet & Katheline Schubert, 2021. "Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(3), pages 543-575.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/711897
    DOI: 10.1086/711897
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    Cited by:

    1. Dulong, Angelika von & Hagen, Achim & Mendelevitch, Roman & Eisenack, Klaus, 2023. "Buy coal and gas? Interfuel carbon leakage on deposit markets with market power," Energy Economics, Elsevier, vol. 117(C).
    2. Benlemlih, Mohammed & Li, Yiwei & Assaf, Cynthia, 2022. "Executive compensation and environmental performance: Evidence from CEO inside debt," Energy Economics, Elsevier, vol. 116(C).
    3. Li, Xiaoyang & Huang, Guohe & Wang, Shuguang & Zhang, Xiaoyue & Luo, Bin, 2025. "Synergistic Management of Water, energy, and carbon: A case Study from Shandong Province, China," Applied Energy, Elsevier, vol. 381(C).
    4. Thomas Eichner & Rüdiger Pethig, 2021. "Unilateral Phase-Out of Coal to Power in an Emissions Trading Scheme," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(2), pages 379-407, October.
    5. Lai, Aolin & Wang, Qunwei & Cui, Lianbiao, 2022. "Can market segmentation lead to green paradox? Evidence from China," Energy, Elsevier, vol. 254(PC).
    6. Hart, Rob & Gars, Johan, 2022. "The black paradox," European Economic Review, Elsevier, vol. 148(C).

    More about this item

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F18 - International Economics - - Trade - - - Trade and Environment

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