Buy coal? Deposit markets prevent carbon leakage

Bard Harstad

No 16119, NBER Working Papers from National Bureau of Economic Research, Inc

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 is not time-consistent. This paper derives conditions for when trading fossil fuel deposits increase efficiency. In isolation, a bilateral transaction may occur too often or too seldom compared to the optimum. However, when the market clears, the above-mentioned problems vanish, the first-best is implemented, and the coalition finds it optimal to rely entirely on supply-side policies, which are simple to implement in practice.

JEL-codes: F55 H23 Q54 Q58 (search for similar items in EconPapers)
Date: 2010-06
Note: EEE PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as “Buy Coal! A Case for Supply-Side Environmental Policy,” Journal of Political Economy 120 (1): 77-115

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Working Paper: Buy Coal! Deposit Markets Prevent Carbon Leakage (2010)
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