Flattening the carbon extraction path in unilateral cost-effective action

Thomas Eichner and Rüdiger Pethig

Journal of Environmental Economics and Management, 2013, vol. 66, issue 2, 185-201

Abstract: Internalizing the global negative externality of carbon emissions requires the flattening of the extraction path of world fossil energy resources (=world carbon emissions). We consider governments with 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 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. 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.

Keywords: Unilateral climate policy; Intertemporal climate policy; Non-renewable energy resources; Emission taxes (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Flattening the Carbon Extraction Path in Unilateral Cost-Effective Action (2011)
Working Paper: Flattening the carbon extraction path in unilateral cost-effective action (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:66:y:2013:i:2:p:185-201

DOI: 10.1016/j.jeem.2012.12.006

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