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Buy coal and act strategically on the fuel market

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  • Eichner, Thomas
  • Pethig, Rüdiger

Abstract

A coalition of given size fights climate change by a policy of purchasing fossil fuel deposits, and it seeks to manipulate the fuel price in its favor. Assuming that non-signatories are price takers in the fuel market, Harstad (2012) designs a policy of trading deposits that attains efficiency despite the coalition’s option to act strategically in the fuel market. The deposit transactions constituting that policy include the trade of deposits which the non-signatories would have exploited and the coalition will exploit. The present paper shows that in a proper subset of economies a simpler policy is (also) efficient that consists of deposit purchases for preservation only. In these economies the coalition is unable to raise its welfare above the level in the benchmark case of fuel price taking. In the economies, where the efficient policy requires deposit transactions for exploitation, the coalition is better off and the non-signatories are worse off than in case of price taking.

Suggested Citation

  • Eichner, Thomas & Pethig, Rüdiger, 2017. "Buy coal and act strategically on the fuel market," European Economic Review, Elsevier, vol. 99(C), pages 77-92.
    • Handle: RePEc:eee:eecrev:v:99:y:2017:i:c:p:77-92
    DOI: 10.1016/j.euroecorev.2017.04.001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Benchekroun, Hassan & van der Meijden, Gerard & Withagen, Cees, 2020. "OPEC, unconventional oil and climate change - On the importance of the order of extraction," Journal of Environmental Economics and Management, Elsevier, vol. 104(C).
    2. Dulong, Angelika von & Hagen, Achim & Mendelevitch, Roman & Eisenack, Klaus, 2023. "Buy coal and gas? Interfuel carbon leakage on deposit markets with market power," Energy Economics, Elsevier, vol. 117(C).
    3. Nyambuu, Unurjargal & Semmler, Willi, 2020. "Climate change and the transition to a low carbon economy – Carbon targets and the carbon budget," Economic Modelling, Elsevier, vol. 84(C), pages 367-376.
    4. Thomas Eichner & Gilbert Kollenbach & Mark Schopf, 2023. "Demand- Versus Supply-Side Climate Policies with a Carbon Dioxide Ceiling," The Economic Journal, Royal Economic Society, vol. 133(652), pages 1371-1406.
    5. Kai A. Konrad & Raisa Sherif, 2022. "Climate Experts’ Views on Hydrocarbon Energy Phase-Out," Working Papers tax-mpg-rps-2022-10, Max Planck Institute for Tax Law and Public Finance.
    6. Hassan Benchekroun & Gerard C. van der Meijden & Cees A. Withagen, 2017. "OPEC, Shale Oil, and Global Warming - On the Importance of the Order of Extraction," CESifo Working Paper Series 6746, CESifo.
    7. Vogt, Angelika & Hagen, Achim & Eisenack, Klaus, 2020. "Buy coal, cap gas! Markets for fossil fuel deposits when fuel emission intensities differ," Working Paper Series 304708, Humboldt University Berlin, Department of Agricultural Economics.
    8. Kollenbach, Gilbert & Schopf, Mark, 2022. "Unilaterally optimal climate policy and the green paradox," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).

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    More about this item

    Keywords

    Climate coalition; Fossil fuel; Deposits; Extraction; Fuel caps;
    All these keywords.

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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