Volkswirtschaftliche Diskussionsbeiträge, Universität Siegen, Fachbereich Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht 178-15
In Harstad´s (2012) model, climate damage only hits one group of countries, called the coalition, and the coalition´s climate policy consists of capping own fuel demand and supply combined with the purchase of fossil fuel deposits for preservation. Harstad´s Theorem 1 states that if the deposit market clears the coalition´s strategic fuel-cap policy implements the first-best. The present paper reconstructs that efficiency result and argues that the deposit market equilibrium as defined in Harstad (2012) fails to be attained, unless the non-coalition countries act cooperatively on the deposit market. Without such cooperation, the coalition´s strategic action on the fuel market distorts the allocation to its own favor.