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Buy Coal to Solve Free Riding
Bård Harstad
Energy - Video

The World Congress of Environmental and Resource Economists at the end of June 2014 is an unmissable event for those working in the field, because of the incredible networking opportunities it offers, for the insights into latest research, for the keynote speakers, and for the awards, delivered during the ceremony. Waiting for this year's edition, let's have a look back at the 2013 Erik Kempe Award delivered by Thomas Aronsson, Christa Brunnschweiler and Michael Hoel - to Bård Harstad during the 2013 EAERE conference in Toulouse.

Bård Harstad received the 2013 Erik Kempe Award for his novel and insightful contribution to the study of international environmental policy in his paper “Buy Coal! A Case for Supply-Side Environmental Policy"*. At a theoretical level, he has presented mechanisms of relevance for a successful climate policy by exploring the role of a market for extraction rights. In light of the difficulties in forming climate coalitions in practice, and the problems that such coalitions typically face, the paper is also of clear practical policy relevance by pointing at a new approach for solving a very challenging social problem. As such, Harstad has contributed both to the academic literature and to policymaking by providing insights of clear practical relevance for the design of policies to combat the climate change problem.

In this short video he explains the logic behind his theory, and possibly why the jury chose this paper for the award.

Abstract of the paper: Free-riding is at the core of environmental problems. If a climate coalition reduces its emissions, world prices change and nonparticipants typically emit more; they may also extract the dirtiest type of fossil fuel and invest too little in green technology. The coalition's second-best policy distorts trade and is not time consistent. However, suppose that the countries can trade the rights to exploit fossil-fuel deposits: as soon as the market clears, the above-mentioned problems vanish and the first-best is implemented. In short, the coalition's best policy is to simply buy foreign deposits and conserve them.

*Published in Journal of Political Economy 120, 77-115, 2012.










Bård Harstad, University of Oslo