Leading the unwilling: Unilateral strategies to prevent arctic oil exploration
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...
| Published in: | Resource and Energy Economics |
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| Main Authors: | , |
| Format: | Article in Journal/Newspaper |
| Language: | English |
| Published: |
Elsevier
2019
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| Subjects: | |
| Online Access: | https://hdl.handle.net/10642/6873 https://doi.org/10.1016/j.reseneeco.2018.08.002 |
| Summary: | 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. This is because Arctic oil extraction requires specific R&D, hence entry by one country expands the extraction-technology market, decreasing costs for others. This means that, on the one hand, countries that extract Arctic oil gain if others do so as well. On the other hand, as countries may disagree about how harmful climate change is, they may disagree whether an equilibrium where all enter is better or worse than an equilibrium where all stay out. Less environmentally-concerned countries (preferring maximum entry) have a first-mover advantage but, because they rely on entry by others, entry in equilibrium is determined by the preferences of those who are moderately concerned about the environment. Furthermore, using a pooling strategy, an environmentally-concerned country can deter entry by credibly “pretending” to be environmentally adamant, and thus be expected to not follow. A rough calibration 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. Leroux gratefully acknowledges financial support from FRQSC Grant #164435. Spiro gratefully acknowledges financial support from the Research council of Norway through Oslo Centre for Research on Environmentally Friendly Energy (CREE). publishedVersion |
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