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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 it is not time consistent. By adding a market for the right to exploit fossil fuel deposits, I show that these problems vanish and the first best is implemented. When the market for deposits clears, the coalition relies entirely on supply-side policies, which is simple to implement in practice. The result illustrates that efficiency can be obtained without Coasian negotiations ex post, if key inputs are tradable ex ante.

Suggested Citation

  • Bård Harstad, 2010. "Buy Coal! Deposit Markets Prevent Carbon Leakage," CESifo Working Paper Series 2992, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2992
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:jeeman:v:85:y:2017:i:c:p:1-20 is not listed on IDEAS
    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. Eichner, Thomas & Pethig, Rüdiger, 2017. "Self-enforcing environmental agreements and trade in fossil energy deposits," Journal of Environmental Economics and Management, Elsevier, vol. 85(C), pages 1-20.
    5. Kalkuhl, Matthias & Brecha, Robert J., 2013. "The carbon rent economics of climate policy," Energy Economics, Elsevier, vol. 39(C), pages 89-99.
    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.

    More about this item

    Keywords

    Coase; climate change; carbon leakage; supply v demand side policies; trade policies; the green paradox; and environmental agreements;

    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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