Buy Coal! A Case for Supply-Side Environmental Policy

By Bård Harstad

Published in

Journal of Political Economy 120 (1), pages 77-115

DOI: 10.1086/665405


Free-riding is at the core of environmental problems. If a climate coalition reduces its emissions, world prices change and nonparticipants typically emit more; they may also extract the dirtiest type of fossil fuel and invest too little in green technology. The coalition’s second-best policy distorts trade and is not time consistent. However, suppose that the countries can trade the rights to exploit fossil-fuel deposits: As soon as the market clears, the above-mentioned problems vanish and the first-best is implemented. In short, the coalition’s best policy is to simply buy foreign deposits and conserve them.

Fulltext (pdf)

By Bård Harstad
Published Sep. 12, 2013 2:37 PM