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Diversification and Cooperation Strategies in a Decarbonizing World (English)

Fossil fuel importers can apply various climate and trade taxes to encourage fossil fuel–dependent countries to cooperate on climate mitigation, and fossil fuel–dependent countries can respond with alternative diversification and cooperation strategies. This paper runs macroeconomic model simulations of alternative strategies that the global community and fossil fuel–dependent countries can pursue to encourage and enable their participation in a global low-carbon transition. The following are the findings from the simulations. (i) Fuel importers’ unilateral carbon taxes capture fossil fuel–dependent countries’ resource rents and accelerate their emission-intensive diversification. (ii) Border taxes on the carbon content of imports from fossil fuel–dependent countries do not induce comprehensive cooperation, but broader trade sanctions do. (iii) Cooperative wellhead carbon taxes can achieve cooperation without trade wars. (iv) Lower-income fossil fuel–dependent countries with large untapped reserves need additional incentives and enablers to cooperate and diversify into low-carbon assets. (v) Incentives to cooperate are misaligned between different fossil fuel–dependent countries and between owners of different fuels. (vi) The strategies that maximize consumption and growth in fossil fuel–dependent countries reduce the value of assets in extractive and heavy industries. (vii) Asset diversification is a robust, long-term strategy but faces the tragedy of the horizon.

Details

  • Author

    Peszko,Grzegorz, Van Der Mensbrugghe,Dominique, Golub,Alexander Alexandrovich

  • Document Date

    2020/07/02

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS9315

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2020/07/03

  • Disclosure Status

    Disclosed

  • Doc Name

    Diversification and Cooperation Strategies in a Decarbonizing World

  • Keywords

    carbon tax; climate policy; asset diversification; unilateral carbon tax; carbon content; state-owned oil company; consumption; gulf cooperation council; climate action; oil and gas reserve; consumption do; oil and gas export; Research Support; Environment and Natural Resources; Oil & Gas; carbon tax revenue; domestic carbon; carbon price; domestic climate policy; heavy industry; import tax; rate of growth; carbon dioxide emission; combustion of fuel; terms of trade; fossil fuel subsidy; real exchange rate; fossil fuel producer; fossil fuel export; value of asset; resource rent; least developed country; wealth of nation; oil producing nation; climate mitigation efforts; global temperature increase; cost of import; lack of resource; partial equilibrium model; global energy system; impact of investments; fossil fuel use; impact of policy; traditional fossil fuel; thermal power plant; climate mitigation policies; commodity price volatility; cost of energy; exports of oil; emissions from fuel; fossil fuel industry; uniform tax rate; oil export revenue; Computable General Equilibrium; global market share; energy price subsidy; fossil fuel reserve; climate policy strategy; nationally determine contribution; sustainable development path; demand for coal; fossil fuel depletion; adjustment of price; environment and development; Environment and Trade; consumption of fossil; policy scenario; macroeconomic model; carbon emission; unilateral policies; trade sanctions; trade measure; diversification strategy; external policy; stranded asset; discount rate; comparative advantage

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Citation

Peszko,Grzegorz Van Der Mensbrugghe,Dominique Golub,Alexander Alexandrovich

Diversification and Cooperation Strategies in a Decarbonizing World (English). Policy Research Working Paper,no. WPS 9315 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/705881593750058987/Diversification-and-Cooperation-Strategies-in-a-Decarbonizing-World