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Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration

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  • Justin Leroux
  • Daniel Spiro

Abstract

Arctic oil extraction is inconsistent with the 2°C target. We study unilateral strategies by climate-concerned Arctic countries to deter extraction by others. Contradicting common theoretical assumptions about climate-change mitigation, our setting is one where countries may fundamentally disagree about whether mitigation by others is beneficial. This is because Arctic oil extraction requires specific R&D, hence entry by one country expands the extraction-technology market, decreasing costs for others. This means that, on the one hand, countries that extract Arctic oil gain if others do so as well. On the other hand, as countries may disagree about how harmful climate change is, they may disagree whether an equilibrium where all enter is better or worse than an equilibrium where all stay out. Less environmentally-concerned countries (preferring maximum entry) have a first-mover advantage but, because they rely on entry by others, entry in equilibrium is determined by the preferences of those who are moderately concerned about the environment. Furthermore, using a pooling strategy, an environmentally-concerned country can deter entry by credibly “pretending” to be environmentally adamant, and thus be expected to not follow. A rough calibration, suggests a country like Norway, or prospects of a green future U.S. administration, could be pivotal in determining whether the Arctic will be explored. This Working Paper was published in Resource and Energy Economics. Read the article on Resource and Energy Economics website Ce cahier scientifique CIRANO est maintenant publié dans la revue Resource and Energy Economics. Consulter l'article sur le site de la revue Resource and Energy Economics

Suggested Citation

  • Justin Leroux & Daniel Spiro, 2018. "Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration," CIRANO Working Papers 2018s-26, CIRANO.
  • Handle: RePEc:cir:cirwor:2018s-26
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    More about this item

    Keywords

    Arctic Region; Oil Exploration; Climate Change; Geopolitics; Unilateral Action;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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