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Think Globally, Act Locally? Stock vs Flow Regulation of a Fossil Fuel

  • Amigues, Jean-Pierre
  • Chakravorty, Ujjayant
  • Moreaux, Michel

Regulation of environmental externalities like global warming from the burning of fossil fuels (e.g., coal and oil) is often done by capping both emission flows and stocks. For example, the European Union and states in the Northeastern United States have introduced caps on flows of carbon emissions while the stated goal of the Intergovernmental Panel on Climate Change (IPCC) which provides the science behind the current global climate negotiations is to stabilize the atmospheric stock of carbon. Flow regulation is often local or regional in nature, while stock regulation is global. How do these multiple pollution control efforts interact when a nonrenewable resource creates pollution? In this paper we show that local and global pollution control efforts, if uncoordinated, may exacerbate environmental externalities. For example, a stricter cap on emission flows may actually increase the global pollution stock and hasten the date when the global pollution cap is reached.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 584.

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Date of creation: Nov 2009
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Handle: RePEc:ide:wpaper:21619
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  1. Ujjayant Chakravorty & Bertrand Magne & Michel Moreaux, 2003. "A Hotelling Model with a Ceiling on the Stock of Pollution," Emory Economics 0321, Department of Economics, Emory University (Atlanta).
  2. repec:dgr:kubcen:2005119 is not listed on IDEAS
  3. 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.
  4. List, John A. & Mason, Charles F., 2001. "Optimal Institutional Arrangements for Transboundary Pollutants in a Second-Best World: Evidence from a Differential Game with Asymmetric Players," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 277-296, November.
  5. Arthur Caplan & Emilson Silva, 2002. "An Efficient Mechanism to Control Correlated Externalities: Redistributive Transfers and the Coexistence of Regional and Global Pollution Permit Markets," Working Papers 2002-23, Utah State University, Department of Economics.
  6. Jeffrey A. Frankel, 2009. "An Elaborated Global Climate Policy Architecture: Specific Formulas and Emission Targets for All Countries in All Decades," NBER Working Papers 14876, National Bureau of Economic Research, Inc.
  7. Sjak Smulders & Edwin van der Werf, 2008. "Climate policy and the optimal extraction of high- and low-carbon fossil fuels," Canadian Journal of Economics, Canadian Economics Association, vol. 41(4), pages 1421-1444, November.
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