However, new research from the Kellogg School of Management at Northwestern University suggests that actually buying coal, oil and other dirty fossil fuel deposits still in the ground could be a far better way to fight climate change.
The new study, "Buy Coal! A Case for Supply-Side Environmental Policy," suggests that the single best policy for a multi-national climate coalition is to purchase the extraction rights of dirty fossil fuels in non-participating countries (also called "third countries"), and then conserve rather than exploit the deposits. According to the study's author, Bard Harstad, this would be a radical departure from the traditional view that focuses on reducing the demand for fuel.
"One of the biggest challenges for multi-national climate agreements is the role of non-participating countries. If a climate coalition reduces demand for fossil fuel, the world price of oil goes down and non-participating countries find it profitable to consume and pollute more. Similarly, if the coalition seeks to reduce the supply or extraction of fossil fuels, the world price increases and these countries find it optimal to supply more," said Harstad, associate professor of managerial economics & decision sciences and Max McGraw Chair in Management & Environment at the Kellogg School of Management. "Thus, both on the demand-side and the supply-side the result is carbon leakage, which is an increase in pollution abroad relative to the emission-reduction at home. To limit carbon leakage, the coalition may set up tariffs or other border measures, but this will distort trade."
"In my analysis, I show that by letting coalition countries buy extraction rights in third countries – and preserve rather than exploit the fuel deposits – climate coalitions can circumvent the traditional problems of a demand-side policy," he said.
Harstad explained further that the most intuitive benefit from this policy is that emission is reduced if one buys and conserves deposits. Furthermore, the coalition finds it cheapest to buy the marginal deposits (ie, deposits that are not very profitable to exploit, but still quite polluting when consumed). After selling its marginal deposits, a non-participating country's level of supply will be less sensitive to changes in the world fuel price. Consequently, there is no longer carbon leakage on the supply-side, and the coalition can limit its own supply without fearing that the non-participants will increase theirs.
"This does the trick," Harstad noted. After purchasing marginal extraction rights, the coalition implements its ideal policy simply by reducing its supply, not its demand. Fossil fuel prices are then equalized across countries. Also, the resulting fossil fuel price seems high enough to motivate even non-participating countries to invest effectively in new technologies, such as renewable energy sources. For these reasons, the policy is socially optimal in the analysis, even if some countries do not participate.
Most importantly, Harstad said, "The analysis shows that progress on international climate policy is best achieved by simply utilizing the existing market for extraction rights."
Multi-national companies are already trading extraction rights. "Climate coalitions should, as well," he concluded.
The study will appear in a forthcoming issue of the Journal of Political Economy.
To set up an interview with Professor Harstad, contact Betsy Berger at 847-467-3108 or email@example.com. To learn more about the Kellogg School of Management at Northwestern University, visit www.kellogg.northwestern.edu.
About the Journal of Political Economy
One of the oldest and most prestigious journals in economics, the Journal of Political Economy has since 1892 presented significant research and scholarship in economic theory and practice. The journal aims to publish highly selective, widely cited articles of current relevance that will have a long-term impact on economics research. www.journals.uchicago.edu/jpe
WAKE-UP provides new treatment option for stroke patients | International study led by UKE
17.05.2018 | Universitätsklinikum Hamburg-Eppendorf
First form of therapy for childhood dementia CLN2 developed
25.04.2018 | Universitätsklinikum Hamburg-Eppendorf
The more electronics steer, accelerate and brake cars, the more important it is to protect them against cyber-attacks. That is why 15 partners from industry and academia will work together over the next three years on new approaches to IT security in self-driving cars. The joint project goes by the name Security For Connected, Autonomous Cars (SecForCARs) and has funding of €7.2 million from the German Federal Ministry of Education and Research. Infineon is leading the project.
Vehicles already offer diverse communication interfaces and more and more automated functions, such as distance and lane-keeping assist systems. At the same...
A research team led by physicists at the Technical University of Munich (TUM) has developed molecular nanoswitches that can be toggled between two structurally different states using an applied voltage. They can serve as the basis for a pioneering class of devices that could replace silicon-based components with organic molecules.
The development of new electronic technologies drives the incessant reduction of functional component sizes. In the context of an international collaborative...
At the LASYS 2018, from June 5th to 7th, the Laser Zentrum Hannover e.V. (LZH) will be showcasing processes for the laser material processing of tomorrow in hall 4 at stand 4E75. With blown bomb shells the LZH will present first results of a research project on civil security.
At this year's LASYS, the LZH will exhibit light-based processes such as cutting, welding, ablation and structuring as well as additive manufacturing for...
There are videos on the internet that can make one marvel at technology. For example, a smartphone is casually bent around the arm or a thin-film display is rolled in all directions and with almost every diameter. From the user's point of view, this looks fantastic. From a professional point of view, however, the question arises: Is that already possible?
At Display Week 2018, scientists from the Fraunhofer Institute for Applied Polymer Research IAP will be demonstrating today’s technological possibilities and...
So-called quantum many-body scars allow quantum systems to stay out of equilibrium much longer, explaining experiment | Study published in Nature Physics
Recently, researchers from Harvard and MIT succeeded in trapping a record 53 atoms and individually controlling their quantum state, realizing what is called a...
25.05.2018 | Event News
02.05.2018 | Event News
13.04.2018 | Event News
25.05.2018 | Event News
25.05.2018 | Machine Engineering
25.05.2018 | Life Sciences