The Gas Trap: Outcompeting Coal vs. Renewables

Harstad, BÃ¥rd and Katinka Holtsmark

No 20036, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze a fundamental dilemma and time-inconsistency problem facing a climate coalition producing natural gas. In the short term, it is tempting to export more to outcompete coal. When this policy is anticipated, however, investments in renewables fall and emissions ultimately increase. When the coalition cannot pre-commit, its policies will be counterproductive. We discuss the robustness of this result and possible solutions. If the coalition can invest directly in renewables, for instance, the incentive to maintain a high price on exports can mitigate the temptation to reduce the price to outcompete coal. Under certain conditions, the commitment outcome can be implemented.

Keywords: Climate change; Carbon leakage; Green transition; Supply-side environmental policy; Renewable energy; Time inconsistency (search for similar items in EconPapers)
JEL-codes: F18 H23 Q55 (search for similar items in EconPapers)
Date: 2025-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP20036 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:20036

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP20036

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().