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Diversification and Cooperation Strategies in a Decarbonizing World

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  • Peszko,Grzegorz
  • Van Der Mensbrugghe,Dominique
  • Golub,Alexander Alexandrovich

Abstract

Fossil fuel importers can apply various climate and trade taxes to encourage fossil fuel–dependent countries to cooperate on climate mitigation, and fossil fuel–dependent countries can respond with alternative diversification and cooperation strategies. This paper runs macroeconomic model simulations of alternative strategies that the global community and fossil fuel–dependent countries can pursue to encourage and enable their participation in a global low-carbon transition. The following are the findings from the simulations. (i) Fuel importers’ unilateral carbon taxes capture fossil fuel–dependent countries’ resource rents and accelerate their emission-intensive diversification. (ii) Border taxes on the carbon content of imports from fossil fuel–dependent countries do not induce comprehensive cooperation, but broader trade sanctions do. (iii) Cooperative wellhead carbon taxes can achieve cooperation without trade wars. (iv) Lower-income fossil fuel–dependent countries with large untapped reserves need additional incentives and enablers to cooperate and diversify into low-carbon assets. (v) Incentives to cooperate are misaligned between different fossil fuel–dependent countries and between owners of different fuels. (vi) The strategies that maximize consumption and growth in fossil fuel–dependent countries reduce the value of assets in extractive and heavy industries. (vii) Asset diversification is a robust, long-term strategy but faces the tragedy of the horizon.

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  • Peszko,Grzegorz & Van Der Mensbrugghe,Dominique & Golub,Alexander Alexandrovich, 2020. "Diversification and Cooperation Strategies in a Decarbonizing World," Policy Research Working Paper Series 9315, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9315
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    Cited by:

    1. Alexander Golub & Jon Anda & Anil Markandya & Michael Brody & Aldin Celovic & Angele Kedaitiene, 2022. "Climate alpha and the global capital market," Working Papers 2022.19, Fondazione Eni Enrico Mattei.
    2. Andreas Breitenfellner & Mathias Lahnsteiner & Thomas Reininger & Jakob Schriefl, 2021. "Green transition: what have CESEE EU member states achieved so far?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q4/21, pages 61-76.
    3. Zauresh Atakhanova, 2021. "Kazakhstan’s oil boom, diversification strategies, and the service sector," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 34(3), pages 399-409, October.
    4. Golub, A. & Potashnikov, V., 2022. "Theoretical analysis of development traps: On the example of Russia," Journal of the New Economic Association, New Economic Association, vol. 54(2), pages 56-74.
    5. Antoine GODIN & Guilherme MAGACHO & Achilleas MANTES & Devrim YILMAZ & Etienne ESPAGNE, 2021. "Developing Countries’ Macroeconomic Exposure to the Low-carbon Transition," Working Paper 987d9eb7-8fce-4eb0-8cb7-d, Agence française de développement.
    6. Igor Makarov, 2022. "Does resource abundance require special approaches to climate policies? The case of Russia," Climatic Change, Springer, vol. 170(1), pages 1-21, January.
    7. S. V. Chepel’, 2022. "Investment, Technological, and Social Aspects in Modeling the Transition to Low-Carbon Development: The Case of Uzbekistan," Studies on Russian Economic Development, Springer, vol. 33(5), pages 571-581, October.
    8. Lukas Folkens & Petra Schneider, 2022. "Responsible Carbon Resource Management through Input-Oriented Cap and Trade (IOCT)," Sustainability, MDPI, vol. 14(9), pages 1-17, May.

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    Keywords

    Climate Change Mitigation and Green House Gases; International Trade and Trade Rules; Energy and Environment; Energy Demand; Energy and Mining; Oil&Gas;
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