Buy Coal, Cap Gas! Markets for Fossil Fuel Deposits When Fuel Emission Intensities Differ

29 Pages Posted: 2 Oct 2020

See all articles by Angelika Vogt

Angelika Vogt

Humboldt University of Berlin

Achim Hagen

Humboldt University of Berlin

Klaus Eisenack

Humboldt-University Berlin, Resource Economics Group

Date Written: July 15, 2020

Abstract

Climate policies can target either the demand or the supply of fossil fuels. While demand-side policies have been analyzed in the literature and applied in policy-making, supply-side policies, e.g. deposit policies, are a promising option and a recent research focus. In this paper we study deposit markets for two fuels that differ in emission intensity. We find that, with strategic action on the deposit markets, deposit policies are inefficient due to price manipulations within and between both deposit markets. Regarding the political economy of deposit policies, they generate more welfare for all countries if applied to both fuels as opposed to one or none. Further, for perfectly segmented fuel markets, importing countries do not purchase deposits of a sufficiently clean fuel. If fuels are substitutes and strongly differ in emission intensity, countries do not buy deposits of a relatively clean fuel. Finally, deposit markets can induce countries selling deposits to choose a cleaner fuel mix.

Keywords: Fossil Fuel, Climate Policy, Deposit Market, Carbon Leakage

JEL Classification: Q31, Q38

Suggested Citation

Vogt, Angelika and Hagen, Achim and Eisenack, Klaus, Buy Coal, Cap Gas! Markets for Fossil Fuel Deposits When Fuel Emission Intensities Differ (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=3640313 or http://dx.doi.org/10.2139/ssrn.3640313

Angelika Vogt (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Achim Hagen

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, Berlin 10999
Germany

Klaus Eisenack

Humboldt-University Berlin, Resource Economics Group ( email )

Berlin, 10099
Germany

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