TY  - JOUR
AU  - Harstad,Bård
TI  - Buy coal? Deposit markets prevent carbon leakage
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16119
PY  - 2010
Y2  - June 2010
UR  - http://www.nber.org/papers/w16119
L1  - http://www.nber.org/papers/w16119.pdf
N1  - Author contact info:
Bård Harstad
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-5166
Fax: 847/467-1220
E-Mail: harstad@kellogg.northwestern.edu
AB  - 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.
ER  -