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Buy coal for preservation and act strategically on the fuel market

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  • Pethig, Rüdiger
  • Eichner, Thomas

Abstract

In Harstad's (2012) model, climate damage only hits one group of countries, called the coalition, and the coalition's climate policy consists of capping own fuel de- mand and supply combined with the purchase of fossil fuel deposits for preserva- tion. Harstad's Theorem 1 states that if the deposit market clears the coalition's strategic fuel-cap policy implements the first-best. The present paper reconstructs that efficiency result and argues that the deposit market equilibrium as defined in Harstad (2012) fails to be attained, unless the non-coalition countries act cooper- atively on the deposit market. Without such cooperation, the coalition's strategic action on the fuel market distorts the allocation to its own favor.

Suggested Citation

  • Pethig, Rüdiger & Eichner, Thomas, 2016. "Buy coal for preservation and act strategically on the fuel market," VfS Annual Conference 2016 (Augsburg): Demographic Change 145658, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145658
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    More about this item

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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