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Dynamic climate policy with both strategic and non-strategic agents : taxes versus quantities

Author

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  • Karp, Larry
  • Siddiqui, Sauleh
  • Strand, Jon

Abstract

This paper studies a dynamic game where each of two large blocs, of fossil fuel importers and exporters respectively, sets either taxes or quotas to exercise power in fossil-fuel markets. The main novel feature is the inclusion of a"fringe"of non- strategic (emerging and developing) countries which both consume and produce fossil fuels. Cumulated emissions over time from global fossil fuel consumption create climate damages which are considered by both the strategic importer and the non-strategic countries. Markov perfect equilibria are examined under the four combinations of trade policies and compared with the corresponding static games where climate damages are given (not stock-related). The main results are that taxes always dominate quota policies for both the strategic importer and exporter and that"fringe"countries bene?t from a tax policy as compared with a quota policy for the strategic importer, as the import fuel price then is lower, and the strategic importer's fuel consumption is also lower, thus causing fewer climate damages.

Suggested Citation

  • Karp, Larry & Siddiqui, Sauleh & Strand, Jon, 2013. "Dynamic climate policy with both strategic and non-strategic agents : taxes versus quantities," Policy Research Working Paper Series 6679, The World Bank.
    • Handle: RePEc:wbk:wbrwps:6679
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    References listed on IDEAS

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    6. Strand, Jon, 2013. "Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 202-218.
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    Cited by:

    1. Michael Finus & Bianca Rundshagen, 2016. "Game Theory and Environmental and Resource Economics—In Honour of Alfred Endres, Part Two," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 1-4, September.
    2. Nachtigall, Daniel, 2017. "Prices versus quantities: The impact of fracking on the choice of climate policy instruments in the presence of OPEC," Discussion Papers 2017/6, Free University Berlin, School of Business & Economics.
    3. Karolina Ryszka & Cees Withagen, 2016. "Unilateral Climate Policies: Incentives and Effects," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(2), pages 471-504, February.
    4. Gerard van der Meijden & Karolina Ryszka & Cees Withagen, 2015. "Double Limit Pricing," Tinbergen Institute Discussion Papers 15-136/VIII, Tinbergen Institute, revised 30 Jan 2017.
    5. Daniel Nachtigall, 2017. "Prices versus Quantities: The Impact of Fracking on the Choice of Climate Policy Instruments in the Presence of OPEC," Working Papers 2017001, Berlin Doctoral Program in Economics and Management Science (BDPEMS).

    More about this item

    Keywords

    Economic Theory&Research; Climate Change Economics; Markets and Market Access; Debt Markets; Emerging Markets;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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