The Gas Trap: Outcompeting Coal vs. Renewables

Bard Harstad and Katinka Holtsmark

No 32718, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F18 H23 Q55 (search for similar items in EconPapers)
Date: 2024-07
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Working Paper: The Gas Trap: Outcompeting Coal vs. Renewables (2024)
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