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Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source

Author

Listed:
  • Julien Daubanes

    (UNIGE - Université de Genève = University of Geneva)

  • Fanny Henriet

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Katheline Schubert

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract
We examine an open economy's strategy to reduce its carbon emissions by replacing its consumption of coal—very carbon intensive—with gas—less so. Unlike the standard theoretical approach to carbon leakage, we show that unilateral CO2 reduction policies generate a higher leakage rate in the presence of more than one carbon energy source and may turn counterproductive, ultimately increasing world emissions. We establish testable conditions as to whether a unilateral tax on domestic CO2 emissions increases the domestic exploitation of gas and whether such a strategy increases global emissions. We also characterize this strategy's implications for climate policy in the rest of the world. Finally, we present an illustrative application of our results to the United States.

Suggested Citation

  • Julien Daubanes & Fanny Henriet & Katheline Schubert, 2021. "Unilateral CO2 Reduction Policy with More Than One Carbon Energy Source," PSE-Ecole d'économie de Paris (Postprint) hal-03093955, HAL.
    • Handle: RePEc:hal:pseptp:hal-03093955
    DOI: 10.1086/711897
    Note: View the original document on HAL open archive server: https://hal.science/hal-03093955v1
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    2. Benlemlih, Mohammed & Li, Yiwei & Assaf, Cynthia, 2022. "Executive compensation and environmental performance: Evidence from CEO inside debt," Energy Economics, Elsevier, vol. 116(C).
    3. Thomas Eichner & Rüdiger Pethig, 2021. "Unilateral Phase-Out of Coal to Power in an Emissions Trading Scheme," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(2), pages 379-407, October.
    4. Lai, Aolin & Wang, Qunwei & Cui, Lianbiao, 2022. "Can market segmentation lead to green paradox? Evidence from China," Energy, Elsevier, vol. 254(PC).
    5. Hart, Rob & Gars, Johan, 2022. "The black paradox," European Economic Review, Elsevier, vol. 148(C).

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    More about this item

    Keywords

    Unilateral climate policy; Carbon emission reduction; Shale gas; Gas-coal substitution; Coal exports; Carbon leakage; US policy; Counter-productive policy;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • F18 - International Economics - - Trade - - - Trade and Environment

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