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Buying versus leasing fuel deposits for preservation

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  • Eichner, Thomas
  • Kollenbach, Gilbert
  • Schopf, Mark

Abstract

In a two-period model with two groups of countries that extract, trade and consume fossil fuel, a climate coalition fights against climate damage by purchasing or leasing deposits to prevent their extraction, and seeks to manipulate the fuel prices in its favor. The deposit-purchase policy is inefficient since it leaves the first-period climate damage externality non-internalized, which is in stark contrast to the efficiency of the deposit-purchase policy in static models. However, for a proper subset of economies the deposit-lease policy turns out to be efficient. It internalizes the climate damage externalities and makes strategic action in the fuel markets ineffective. Finally, we compare the deposit-lease policy and the deposit-purchase policy. If strategic action pays in the fuel markets and the coalition imports fuel, a transition from the deposit-purchase policy to the deposit-lease policy increases [decreases] total welfare if the climate damage is large [small].

Suggested Citation

  • Eichner, Thomas & Kollenbach, Gilbert & Schopf, Mark, 2018. "Buying versus leasing fuel deposits for preservation," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181597, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc18:181597
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    Cited by:

    1. Dulong, Angelika von & Hagen, Achim & Mendelevitch, Roman & Eisenack, Klaus, 2023. "Buy coal and gas? Interfuel carbon leakage on deposit markets with market power," Energy Economics, Elsevier, vol. 117(C).

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    More about this item

    Keywords

    fossil fuel; deposit; deposit-lease policy; deposit-purchase policy; fuel cap;
    All these keywords.

    JEL classification:

    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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