Buy Coal! Deposit Markets Prevent Carbon Leakage

Bard Harstad

No 2992, CESifo Working Paper Series from CESifo

Abstract: If a coalition of countries implements climate policies, nonparticipants tend to consume more, pollute more, and invest too little in renewable energy sources. In response, the coalition’s equilibrium policy distorts trade and it is not time consistent. By adding a market for the right to exploit fossil fuel deposits, I show that these problems vanish and the first best is implemented. When the market for deposits clears, the coalition relies entirely on supply-side policies, which is simple to implement in practice. The result illustrates that efficiency can be obtained without Coasian negotiations ex post, if key inputs are tradable ex ante.

Keywords: Coase; climate change; carbon leakage; supply v demand side policies; trade policies; the green paradox; and environmental agreements (search for similar items in EconPapers)
JEL-codes: F55 H23 Q54 Q58 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Buy coal? Deposit markets prevent carbon leakage (2010)
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