Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration

35 Pages Posted: 20 Sep 2017

See all articles by Justin Leroux

Justin Leroux

HEC Montreal - Institute of Applied Economics; CIRANO

Daniel Spiro

Uppsala University, Dept. of Economics

Date Written: September 04, 2017

Abstract

Arctic oil extraction is inconsistent with the 2°C target. We study unilateral strategies by climate-concerned Arctic countries to deter extraction by others. Contradicting common theoretical assumptions about climate-change mitigation, our setting is one where countries may fundamentally disagree about whether mitigation by others is beneficial. Arctic extraction requires specific R&D, hence entry by one country expands the extraction-technology market, decreasing costs for others. Less environmentally-concerned countries (preferring maximum entry) have a first-mover advantage but, being reliant on entry by others, can be deterred if environmentally-concerned countries (preferring no entry) credibly coordinate on not following. Furthermore, using a pooling strategy, an environmentally-concerned country can deter entry by credibly “pretending” to be environmentally adamant, thus expected to not follow. A rough calibration, accounting for recent developments in U.S. politics, suggests a country like Norway, or prospects of a green future U.S. administration, could be pivotal in determining whether the Arctic will be explored.

Keywords: arctic region, oil exploration, climate change, geopolitics, unilateral action

JEL Classification: D820, F500, O330, Q300, Q540

Suggested Citation

Leroux, Justin and Spiro, Daniel, Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration (September 04, 2017). CESifo Working Paper Series No. 6629, Available at SSRN: https://ssrn.com/abstract=3039311 or http://dx.doi.org/10.2139/ssrn.3039311

Justin Leroux

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

CIRANO ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Daniel Spiro (Contact Author)

Uppsala University, Dept. of Economics ( email )

Box 513
Uppsala, 751 20
Sweden

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