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Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration

Author

Listed:
  • Justin Leroux

    (Department of Applied Economics HEC Montréal & CIRANO & CRÉ)

  • Daniel Spiro

    (Oslo Business School, Oslo Akershus University College of Applied Sciences & CREE)

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. Arctic extraction requires specific R&D, hence entry by one country expands the extraction-technology market, decreasing costs for others. Less environmentally-concerned countries (preferring maximum entry) have a first-mover advantage but, being reliant on entry by others, can be deterred if environmentally-concerned countries (preferring no entry) credibly coordinate on not following. Furthermore, using a pooling strategy, an environmentally-concerned country can deter entry by credibly “pretending” to be environmentally adamant, thus expected to not follow. A rough calibration, accounting for recent developments in U.S. politics, 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.

Suggested Citation

  • Justin Leroux & Daniel Spiro, 2017. "Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration," Working Papers 201705, Oslo Metropolitan University, Oslo Business School.
    • Handle: RePEc:oml:wpaper:201705
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    2. Lassi Ahlvik & Jørgen Juel Andersen & Jonas Hveding Hamang & Torfinn Harding, 2022. "Quantifying supply-side climate policies," Working Papers No 01/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.

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    More about this item

    Keywords

    arctic region; oil exploration; climate change; geopolitics; unilateral action;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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