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Effective Climate Policy Needs Non-Combustion Uses for Hydrocarbons

handle: 10419/236482
A central issue that is discussed in climate policy is the fear of owners of stocks of fossil hydrocarbon deposits that high CO2 taxes and bans on the combustion use of hydrocarbons will turn their stocks into stranded assets. They might react by extracting and selling their reserves today: a rush to burn results. We show how the stranded-asset problem could be avoided or strongly moderated. We analyze a simple intertemporal equilibrium with a given stock of fossil hydrocarbons. In this framework the following properties hold: For a climate-neutral solution to the rush-to-burn problem it is important to maintain existing and generate new markets for climate-neutral products from fossil hydrocarbons in the future, where we give examples for such products. Subsidies for such products (or for their innovation) reduce the rush-to-burn problem. In contrast, the creation of substitutes for fossil hydrocarbon-based climate-neutral products, or subsidies for such products reduce the market for products made from fossil hydrocarbons. This can aggravate the stranded-assets problem and thus can have a climate-damaging effect.
- University of Bergen Norway
- Max Planck Society Germany
- Economic Policy Institute United States
- Max Planck Institute for Tax Law and Public Finance Germany
- Center for Economic Studies Germany
green paradox, Q54, ddc:330, rush to burn, Q35, catalytic pyrolysis, plastics, hydro-carbons
green paradox, Q54, ddc:330, rush to burn, Q35, catalytic pyrolysis, plastics, hydro-carbons
citations This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).2 popularity This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.Average influence This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).Average impulse This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.Average
