Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions

Corrado Di Maria, Sjak A. Smulders, Edwin van derWerf
2008 Social Science Research Network  
Absolute abundance and relative scarcity: Announced policy, resource extraction, and carbon emissions Nota di lavoro // Fondazione Eni Enrico Mattei: Sustainable development, No. 92.2008 Provided in Cooperation with: Fondazione Eni Enrico Mattei (FEEM) Suggested Citation: Di Maria, Corrado; Smulders, Sjak; van der Werf, Edwin (2008) : Absolute abundance and relative scarcity: Announced policy, resource extraction, and carbon emissions, Nota di lavoro // Fondazione Eni Enrico Mattei: Sustainable
more » ... Mattei: Sustainable development, No. 92.2008 This Version is available at: http://hdl.handle.net/10419/53201 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Summary We study the effectiveness of climate change policy in a model with multiple nonrenewable resources that differ in their carbon content. We find that, when allowing some time between announcement and implementation of a cap on carbon dioxide emissions, emissions from non-renewable energy sources increase at the time of announcement. There are two channels behind this effect. First, since a binding constraint on emissions restricts energy use during some period of time, more must be extracted during other periods. Second, since low carbon energy sources are relatively more valuable when the policy is implemented, it is optimal to conserve them ahead of enforcement. This might induce a switch to high-carbon resources before the policy is implemented. Abstract We study the effectiveness of climate change policy in a model with multiple non-renewable resources that differ in their carbon content. We find that, when allowing some time between announcement and implementation of a cap on carbon dioxide emissions, emissions from non-renewable energy sources increase at the time of announcement. There are two channels behind this effect. First, since a binding constraint on emissions restricts energy use during some period of time, more must be extracted during other periods. Second, since low carbon energy sources are relatively more valuable when the policy is implemented, it is optimal to conserve them ahead of enforcement. This might induce a switch to high-carbon resources before the policy is implemented. * We would like to thank Michael Caputo, Emiliya Lazarova, Charles Mason, Nicolas Querou, Heinz Welsch and Cees Withagen for useful comments and discussions. 2 announcement and implementation, it begs the question how carbon dioxide emissions in this period respond to the announcement of future climate policy. Such concerns, however, have not entered the policy makers agendas, and there has been no attempt to implement climate change policy in an expedite way. The first commitment period of the Kyoto Protocol started on January 1, 2008, when agents had been aware for over ten years that a policy on greenhouse gas emissions was likely to come into force. In this paper we study how emissions are affected by such an announcement, in the phase between the announcement itself and the policy's implementation. We use a model à la Hotelling (1931) in which utility is derived from consuming a final good (say energy), which is produced using two non-renewable resources differing in their carbon content (say coal and natural gas). We abstract from physical capital and focus on the optimal extraction path of the resources and the associated optimal emission path, following the announcement. (lxxxiv) This paper was presented at the 13th Coalition Theory Network Workshop organised by the Fondazione Eni Enrico Mattei (FEEM), held in Venice, Italy
doi:10.2139/ssrn.1313696 fatcat:jlpptjg5ing65ojrti7uvm3uji