Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source

Julien Daubanes (), Fanny Henriet and Katheline Schubert

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Abstract: We examine an open economy's strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard theoretical approach to carbon leakage, we show that unilateral CO2 reduction policies generate a higher leakage rate in the presence of more than one carbon energy source and may turn counterproductive, ultimately increasing world emissions. We establish testable conditions as to whether a unilateral tax on domestic CO2 emissions increases the domestic exploitation of gas and whether such a strategy increases global emissions. We also characterize this strategy's implications for climate policy in the rest of the world. Finally, we present an illustrative application of our results to the United States.

Keywords: Unilateral climate policy; Carbon emission reduction; Shale gas; Gas-coal substitution; Coal exports; Carbon leakage; US policy; Counter-productive policy (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
Note: View the original document on HAL open archive server: https://hal.science/hal-03093955v1
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Citations: View citations in EconPapers (2)

Published in Journal of the Association of Environmental and Resource Economists, 2021, 8 (3), pp.543-575. ⟨10.1086/711897⟩

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Journal Article: Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source (2021)
Working Paper: Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source (2021)
Working Paper: Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03093955

DOI: 10.1086/711897

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