Buy coal? New analysis shows purchasing fossil fuel deposits best way to fight climate change

Apr 11, 2012

Environmental policy has historically been driven by a demand-side mindset – attempting to limit consumption of precious fossil fuels through pollution permits, taxation, and multi-national climate change treaties. However, new research from the Kellogg School of Management at Northwestern University suggests that actually buying coal, oil and other dirty fossil fuel deposits still in the ground could be a far better way to fight climate change.

The new study, "Buy Coal! A Case for Supply-Side Environmental Policy," suggests that the single best policy for a multi-national climate coalition is to purchase the extraction rights of dirty fossil fuels in non-participating countries (also called "third countries"), and then conserve rather than exploit the deposits. According to the study's author, Bard Harstad, this would be a radical departure from the traditional view that focuses on reducing the demand for fuel.

"One of the biggest challenges for multi-national climate agreements is the role of non-participating countries. If a climate coalition reduces demand for fossil fuel, the world price of oil goes down and non-participating countries find it profitable to consume and pollute more. Similarly, if the coalition seeks to reduce the supply or extraction of , the world price increases and these countries find it optimal to supply more," said Harstad, associate professor of managerial economics & decision sciences and Max McGraw Chair in Management & Environment at the Kellogg School of Management. "Thus, both on the demand-side and the supply-side the result is carbon leakage, which is an increase in pollution abroad relative to the emission-reduction at home. To limit carbon leakage, the coalition may set up tariffs or other border measures, but this will distort trade."

"In my analysis, I show that by letting coalition countries buy extraction rights in third countries – and preserve rather than exploit the fuel deposits – climate coalitions can circumvent the traditional problems of a demand-side policy," he said.

Harstad explained further that the most intuitive benefit from this policy is that emission is reduced if one buys and conserves deposits. Furthermore, the coalition finds it cheapest to buy the marginal deposits (ie, deposits that are not very profitable to exploit, but still quite polluting when consumed). After selling its marginal deposits, a non-participating country's level of supply will be less sensitive to changes in the world fuel price. Consequently, there is no longer carbon leakage on the supply-side, and the coalition can limit its own supply without fearing that the non-participants will increase theirs.

"This does the trick," Harstad noted. After purchasing marginal extraction rights, the coalition implements its ideal policy simply by reducing its supply, not its demand. Fossil fuel prices are then equalized across countries. Also, the resulting fossil fuel price seems high enough to motivate even non-participating countries to invest effectively in new technologies, such as renewable energy sources. For these reasons, the policy is socially optimal in the analysis, even if some countries do not participate.

Most importantly, Harstad said, "The analysis shows that progress on international climate policy is best achieved by simply utilizing the existing market for extraction rights."

Multi-national companies are already trading extraction rights. "Climate coalitions should, as well," he concluded.

The study will appear in a forthcoming issue of the .

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Jotaf
not rated yet Apr 11, 2012
Direct link to the paper: http://www.kellog...sits.pdf
ryggesogn2
1 / 5 (3) Apr 11, 2012
Of course in an emergency, real or perceived, all property can be nationalized.
All the more reason for AGWites to support rule of law and free markets.
Vendicar_Decarian
0.3 / 5 (36) Apr 11, 2012
Or more likely the contract will be unilaterally changed so that non-production of the resource will cause the forfeiture of the assignment of extraction rights.

"Of course in an emergency, real or perceived, all property can be nationalized." - RyggTard
Caliban
not rated yet Apr 11, 2012
A ridiculous method to achieve the stated end. The scenario the researcher outlines is, of course, already happening --and to the delight of anyone with heavily vested interest in Big Fossil.

Here's my scenario: use the tax dollars currently subsidizing
Big Fossil, along with a few more, and fund the search for a non-polluting, free-or-nearly-free, renewable, scalable energy source. Or, alternatively, create a massive cash prize for the first entity to discover it, and then Nationalize the hell out of it, so that, on a cost-plus basis, revenues in excess of operating costs can be used to fund other programs for all, like Free education, National Pensions, National Health-- things that contribute to the overall quality of life of all people, instead of just going into the pockets of a Corporocratic ruling class.

Since it would be bought and paid for by the People, it would rightly belong to them, so rigsuckin', et alia, should have no complaints about stolen property rights.

StarGazer2011
1 / 5 (3) Apr 11, 2012
Energy poverty for all, not just the poor! Imagine the happiness and green goodness as tens of thousand of people freeze to death because eco-priests have made the choice that those people should die as human sacrifices to their post normalist speculative nonsense.

@Caliban: What do 'the people' have to do with 'the government'? Theyre separate, you dont own your government (more the opposite really).
Howhot
5 / 5 (2) Apr 11, 2012
Well that makes sense. Just buy up the mining rights and hold onto them. Compared to battles in the courts and the environmental impact studies, it may actually be cheaper too.

We need to get the miners working some alternative; like wind-mills on the mountains or something.

Vendicar_Decarian
0.1 / 5 (35) Apr 11, 2012
Because as we all know, consuming energy at a higher rate gives us more of it.

"Energy poverty for all, not just the poor!" - StarTard

Vendicar_Decarian
0.1 / 5 (35) Apr 12, 2012
"Just buy up the mining rights and hold onto them." - HowHot

And the corrupt power brokers re-define the contract to require extraction of the resource.

Game over.