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Climate policies in a fossil fuel producing country – demand versus supply side policies

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In absence of joint global climate action, several jurisdictions unilaterally restrict their domestic demand for fossil fuels. Another policy option for fossil fuel producing countries, not much analysed, is to reduce own supply of fossil fuels. We explore analytically and numerically how domestic demand and supply side policies affect global emissions, contingent on market behaviour. Next, in the case of Norway, we find the cost-effective combination of the two types of policies. Our numerical results indicate that given a care for global emissions, and a desire for domestic action, about 2/3 of the emission reductions should come through supply side measures.

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Energy Specializations: Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Environment – Policy and Regulation; Energy and the Environment – Environmental Market Design; Energy and the Environment – Climate Change and Greenhouse Gases; Natural Gas – Policy and Regulation; Petroleum – Policy and Regulation

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q35: Hydrocarbon Resources, Q40: Energy: General, Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, Q54: Climate; Natural Disasters and Their Management; Global Warming

Keywords: Climate policies, Carbon leakages, Oil extraction, Supply side climate policies, Demand side climate policies

DOI: 10.5547/01956574.38.1.tfae

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Published in Volume 38, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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