Buy coal for preservation and act strategically on the fuel market

摘要

In Harstadu2019s (2012) model, climate damage only hits one group of countries, called the coalition, and the coalitionu2019s climate policy consists of capping own fuel de- mand and supply combined with the purchase of fossil fuel deposits for preserva- tion. Harstadu2019s Theorem 1 states that if the deposit market clears the coalitionu2019s strategic fuel-cap policy implements the ufb01rst-best. The present paper reconstructs that eufb03ciency result and argues that the deposit market equilibrium as deufb01ned in Harstad (2012) fails to be attained, unless the non-coalition countries act cooper- atively on the deposit market. Without such cooperation, the coalitionu2019s strategic action on the fuel market distorts the allocation to its own favor.