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Climate policy in the shadow of national security

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  • Kruse-Andersen, Peter K.

Abstract

Historical events underscore that heavy reliance on foreign fossil fuel supply may come at a national security cost. The present study derives the optimal policy of a net fossil fuel importing economy with a binding climate target, when fossil fuel imports are associated with national security costs. The study shows that optimal carbon taxes are differentiated across fossil fuels and that domestic fossil fuel production should be subsidized. Further, carbon capture and storage should be taxed, while no subsidies should be granted to green energy production. These results contrast the typical climate policy recommendation of uniform carbon taxation.

Suggested Citation

  • Kruse-Andersen, Peter K., 2023. "Climate policy in the shadow of national security," Economics Letters, Elsevier, vol. 222(C).
    • Handle: RePEc:eee:ecolet:v:222:y:2023:i:c:s0165176522003974
    DOI: 10.1016/j.econlet.2022.110923
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    References listed on IDEAS

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    1. Mary Amiti & Stephen J. Redding & David E. Weinstein, 2020. "Who's Paying for the US Tariffs? A Longer-Term Perspective," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 541-546, May.
    2. Hoel, Michael, 1996. "Should a carbon tax be differentiated across sectors?," Journal of Public Economics, Elsevier, vol. 59(1), pages 17-32, January.
    3. Barrett, Scott, 1997. "The strategy of trade sanctions in international environmental agreements," Resource and Energy Economics, Elsevier, vol. 19(4), pages 345-361, November.
    4. Peter Kjær Kruse-Andersen & Peter Birch Sørensen, 2021. "Opimal Unilateral Climate Policy with Carbon Leakage at the Extensive and the Intensive Margin," CESifo Working Paper Series 9185, CESifo.
    5. Ang, B.W. & Choong, W.L. & Ng, T.S., 2015. "Energy security: Definitions, dimensions and indexes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 1077-1093.
    6. Kruse-Andersen, Peter Kjær & Sørensen, Peter Birch, 2022. "Optimal energy taxes and subsidies under a cost-effective unilateral climate policy: Addressing carbon leakage," Energy Economics, Elsevier, vol. 109(C).
    7. William Nordhaus, 2015. "Climate Clubs: Overcoming Free-Riding in International Climate Policy," American Economic Review, American Economic Association, vol. 105(4), pages 1339-1370, April.
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    Cited by:

    1. Dertwinkel-Kalt, Markus & Wey, Christian, 2023. "Why Germany's Gas Price Brake Encourages Moral Hazard and Raises Gas Prices," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277575, Verein für Socialpolitik / German Economic Association.
    2. Markus Dertwinkel-Kalt & Christian Wey, 2022. "Why “Energy Price Brakes” Encourage Moral Hazard, Raise Energy Prices, and Reinforce Energy Savings," CESifo Working Paper Series 10163, CESifo.

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    More about this item

    Keywords

    Climate policy; National security; Energy security; Environmental taxes and subsidies;
    All these keywords.

    JEL classification:

    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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