Unilateral mitigation of climate damage via purchase of fossil fuel deposits

Rüdiger Pethig and Thomas Eichner

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: In a multi-country model with interconnected markets for fossil fuel and deposits some countries fight climate damage by purchasing and preserving fossil fuel deposits, which would be exploited otherwise. We analyze the effectiveness of such a deposit policy, when that policy stands alone or is combined with fuel cap policies. If the stand-alone deposit policy is non-strategic, it implements the first-best allocation; otherwise, it distorts the allocation in the coalition s favor. Following Harstad (2012), we then analyze the policy mix consisting of the deposit policy, a fuel-supply-cap policy and a fuel-demand-cap policy. The fuel-supply-cap policy turns out to be redundant and so is the fuel-demand-cap policy, if it is nonstrategic. Whenever the coalition acts strategically on one of the markets or on both, it distorts the allocation in its own favor and is better off than in the efficient price-taking scenario which contrasts the efficiency result of Harstad.

JEL-codes: F55 H23 Q54 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113010

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