Buying versus leasing fuel deposits for preservation

Thomas Eichner, Gilbert Kollenbach and Mark Schopf

VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association

Abstract: In a two-period model with two groups of countries that extract, trade and consume fossil fuel, a climate coalition fights against climate damage by purchasing or leasing deposits to prevent their extraction, and seeks to manipulate the fuel prices in its favor. The deposit-purchase policy is inefficient since it leaves the first-period climate damage externality non-internalized, which is in stark contrast to the efficiency of the deposit-purchase policy in static models. However, for a proper subset of economies the deposit-lease policy turns out to be efficient. It internalizes the climate damage externalities and makes strategic action in the fuel markets ineffective. Finally, we compare the deposit-lease policy and the deposit-purchase policy. If strategic action pays in the fuel markets and the coalition imports fuel, a transition from the deposit-purchase policy to the deposit-lease policy increases [decreases] total welfare if the climate damage is large [small].

Keywords: fossil fuel; deposit; deposit-lease policy; deposit-purchase policy; fuel cap (search for similar items in EconPapers)
JEL-codes: F55 H23 Q54 Q58 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ene and nep-env
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Related works:
Journal Article: Buying versus Leasing Fuel Deposits for Preservation (2021)
Working Paper: Buying versus leasing fuel deposits for preservation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc18:181597

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