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Flattening the carbon extraction path in unilateral cost-effective action

Internalizing the global negative externality of carbon emissions requires flattening the extraction path of world fossil energy resources (= world carbon emissions). We consider governments having sign-unconstrained emission taxes at their disposal and seeking to prevent world emissions from exceeding some binding aggregate emission ceiling in the medium term. Such a ceiling policy can be carried out either in full cooperation of all (major) carbon emitting countries or by a sub-global climate coalition. Unilateral action has to cope with carbon leakage and high costs which makes a strong case for choosing a policy that implements the ceiling in a cost-effective way. In a two-country two-period general equilibrium model with a non-renewable fossil- energy resource we characterize the unilateral cost-effective ceiling policy and compare it with its fully cooperative counterpart. We show that with full cooperation there exists a cost-effective ceiling policy in which only first-period emissions are taxed at a rate that is uniform across countries. In contrast, the cost-effective ceiling policy of a sub-global climate coalition is characterized by emission regulation in both periods. That policy may consist either of positive tax rates in both periods or of negative tax rates (= subsidies) in both periods or of a positive rate in the first and a negative rate in the second period. The share of the total stock of energy resources owned by the sub-global climate coalition turns out to be a decisive determinant of the sign and magnitude of unilateral cost-effective taxes.

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Paper provided by Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 151-11.

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Length: 27 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:sie:siegen:151-11
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Web page: http://www.uni-siegen.de/fb5/vwl/research/diskussionsbeitraege/
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  1. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
  2. Rick van der Ploeg & Cees Withagen, 2010. "Is There Really a Green Paradox?," OxCarre Working Papers 035, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. Di Maria, C. & van der Werf, E.H., 2005. "Carbon Leakage Revisited : Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
  4. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2005. "A Hotelling Model with a Ceiling on the Stock of Pollution," IDEI Working Papers 368, Institut d'Économie Industrielle (IDEI), Toulouse.
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  7. Bohm Peter, 1993. "Incomplete International Cooperation to Reduce CO2 Emissions: Alternative Policies," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 258-271, May.
  8. Rauscher, Michael, 1994. "On Ecological Dumping," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 822-40, Supplemen.
  9. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
  10. Thomas Eichner & Rüdiger Pethig, 2009. "Carbon leakage, the green paradox and perfect future markets," Volkswirtschaftliche Diskussionsbeiträge 136-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  11. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  12. Golombek Rolf & Hoel Michael, 2004. "Unilateral Emission Reductions and Cross-Country Technology Spillovers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-27, September.
  13. Matthias Kalkuhl & Ottmar Edenhofer, 2010. "Prices vs. Quantities and the Intertemporal Dynamics of the Climate Rent," CESifo Working Paper Series 3044, CESifo Group Munich.
  14. Jota Ishikawa & Kazuharu Kiyono, 2006. "Greenhouse-Gas Emission Controls In An Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 431-450, 05.
  15. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
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