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Buy Coal! A Case for Supply-Side Environmental Policy

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  • Bård Harstad

Abstract

Free-riding is at the core of environmental problems. If a climate coalition reduces its emissions, world prices change and nonparticipants typically emit more; they may also extract the dirtiest type of fossil fuel and invest too little in green technology. The coalition's second-best policy distorts trade and is not time consistent. However, suppose that the countries can trade the rights to exploit fossil-fuel deposits: As soon as the market clears, the above-mentioned problems vanish and the first-best is implemented. In short, the coalition's best policy is to simply buy foreign deposits and conserve them.

Suggested Citation

  • 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.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/665405
    DOI: 10.1086/665405
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