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Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions

  • Corrado Di Maria

    (University College Dublin)

  • Sjak Smulders

    (Tilburg University)

  • Edwin van der Werf

    (University of Oldenburg)

We study the effectiveness of climate change policy in a model with multiple non-renewable resources that differ in their carbon content. We find that, when allowing some time between announcement and implementation of a cap on carbon dioxide emissions, emissions from non-renewable energy sources increase at the time of announcement. There are two channels behind this effect. First, since a binding constraint on emissions restricts energy use during some period of time, more must be extracted during other periods. Second, since low carbon energy sources are relatively more valuable when the policy is implemented, it is optimal to conserve them ahead of enforcement. This might induce a switch to high-carbon resources before the policy is implemented.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.92.

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Date of creation: Nov 2008
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Handle: RePEc:fem:femwpa:2008.92
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  1. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-34, December.
  2. Amigues, J.-P. & Favard, P. & Gaudet, G. & Moreaux, M., 1996. "On The Optimal Order of Natural Resourse Use When the Capacity of the Inexhaustible Substitute is Limited," Papers 96.431, Toulouse - GREMAQ.
  3. Parry, Ian & Toman, Michael, 2000. "Early Emissions Reduction Programs: An Application to CO2 Policy," Discussion Papers dp-00-26, Resources For the Future.
  4. CHAKRAVORTY Ujjayant & MOREAUX Michel & TIDBALL Mabel, 2006. "Ordering the Extraction of Polluting Nonrenewable Resources," LERNA Working Papers 06.19.212, LERNA, University of Toulouse.
  5. Chakravorty, Ujjayant & Magne, Bertrand & Moreaux, Michel, 2006. "A Hotelling model with a ceiling on the stock of pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2875-2904, December.
  6. Chakravorty, Ujjayant & Krulce, Darrell L, 1994. "Heterogeneous Demand and Order of Resource Extraction," Econometrica, Econometric Society, vol. 62(6), pages 1445-52, November.
  7. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, vol. 48(3), pages 663-73, April.
  8. Lewis, Tracy R, 1982. "Sufficient Conditions for Extracting Least Cost Resource First," Econometrica, Econometric Society, vol. 50(4), pages 1081-83, July.
  9. Peter W. Kennedy, 2002. "Optimal early action on greenhouse gas emissions," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 16-35, February.
  10. Makris, Miltiadis, 2001. "Necessary conditions for infinite-horizon discounted two-stage optimal control problems," Journal of Economic Dynamics and Control, Elsevier, vol. 25(12), pages 1935-1950, December.
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