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Leading the unwilling: Unilateral strategies to prevent arctic oil exploration

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  • Leroux, Justin
  • Spiro, Daniel
Abstract
Arctic oil extraction is inconsistent with the 2 °C target. We study unilateral strategies by climate-concerned Arctic countries to deter extraction by others. Contradicting common theoretical assumptions about climate-change mitigation, our setting is one where countries may fundamentally disagree about whether mitigation by others is beneficial. This is because Arctic oil extraction requires specific R&D, hence entry by one country expands the extraction-technology market, decreasing costs for others. This means that, on the one hand, countries that extract Arctic oil gain if others do so as well. On the other hand, as countries may disagree about how harmful climate change is, they may disagree whether an equilibrium where all enter is better or worse than an equilibrium where all stay out. Less environmentally-concerned countries (preferring maximum entry) have a first-mover advantage but, because they rely on entry by others, entry in equilibrium is determined by the preferences of those who are moderately concerned about the environment. Furthermore, using a pooling strategy, an environmentally-concerned country can deter entry by credibly “pretending” to be environmentally adamant, and thus be expected to not follow. A rough calibration suggests a country like Norway, or prospects of a green future U.S. administration, could be pivotal in determining whether the Arctic will be explored.

Suggested Citation

  • Leroux, Justin & Spiro, Daniel, 2018. "Leading the unwilling: Unilateral strategies to prevent arctic oil exploration," Resource and Energy Economics, Elsevier, vol. 54(C), pages 125-149.
    • Handle: RePEc:eee:resene:v:54:y:2018:i:c:p:125-149
    DOI: 10.1016/j.reseneeco.2018.08.002
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    3. Bergholt, Drago & Røisland, Øistein & Sveen, Tommy & Torvik, Ragnar, 2023. "Monetary policy when export revenues drop," Journal of International Money and Finance, Elsevier, vol. 137(C).

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    More about this item

    Keywords

    Arctic region; Oil exploration; Climate change; Geopolitics; Unilateral action;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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