Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration

• Main Authors: Leroux, Justin, Spiro, Daniel
• Format: Report
• Language: English
• Published: Munich: Center for Economic Studies and ifo Institute (CESifo) 2017
• Subjects: ddc:330; D82; F50; O33; Q30; Q54; arctic region; oil exploration; climate change; geopolitics; unilateral action; Arctic; Norway; Climate change
• Online Access: http://hdl.handle.net/10419/171093

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.