Quantifying Intertemporal Emissions Leakage
Quantifying Intertemporal Emissions Leakage
Carbon leakage occurs when attempts to reduce greenhouse gas emissions drive markets to respond in ways that allow emissions to expand elsewhere. Much attention has been paid to carbon leakage across space, particularly the emissions response of trading partners with weaker climate policies. However, carbon leakage can also occur over time, as the owners of fossil energy resources can modify the timing of their extraction in response to changes in future expectations; importantly, this form of leakage is absent in most major climate policy models. This chapter presents and parameterizes a model of oil markets reflecting the different sources, costs, and carbon intensities. In this framework, all kinds of climate policies—carbon pricing, innovating clean energy alternatives, energy efficiency improvements, and clean energy blend mandates, as well as carbon capture and storage—can reduce cumulative emissions over time, as higher cost / higher emitting oil reserves are left in the ground. Given the same cumulative emissions target, the effects of alternative climate policies on the speed of extraction (a measure of the green paradox) and on the rate of intertemporal leakage (a measure of the potential error of conventional emissions reduction forecasts) are compared. With plausible parameters, a green backstop technology policy induces similar extraction horizons as an emissions tax and possibly less intertemporal leakage. Energy efficiency improvements and blend mandates can significantly delay emissions but may have high intertemporal leakage rates if implemented quickly.
Keywords: Carbon leakage, green paradox, emissions tax, backstop, energy efficiency, blend mandate, oil
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