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Leading the unwilling: Unilateral strategies to prevent arctic oil exploration
HEC Montreal, Dept Appl Econ, CIRANO, 3000 Ch Cote St Catherine, Montreal, PQ H3T 2A7, Canada;HEC Montreal, Dept Appl Econ, CRE, 3000 Ch Cote St Catherine, Montreal, PQ H3T 2A7, Canada.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics. Oslo Business Sch, Oslo, Norway.
2018 (English)In: Resources and Energy Economics, ISSN 0928-7655, E-ISSN 1873-0221, Vol. 54, p. 125-149Article in journal (Refereed) Published
Abstract [en]

Arctic oil extraction is inconsistent with the 2 degrees C target. We study unilateral strategies by climate-concerned Arctic countries to deter extraction by others. Contradicting common theoretical assumptions about climate-change mitigation, our setting is one where countries may fundamentally disagree about whether mitigation by others is beneficial. This is because Arctic oil extraction requires specific R&D, hence entry by one country expands the extraction-technology market, decreasing costs for others. This means that, on the one hand, countries that extract Arctic oil gain if others do so as well. On the other hand, as countries may disagree about how harmful climate change is, they may disagree whether an equilibrium where all enter is better or worse than an equilibrium where all stay out. Less environmentally-concerned countries (preferring maximum entry) have a first-mover advantage but, because they rely on entry by others, entry in equilibrium is determined by the preferences of those who are moderately concerned about the environment. Furthermore, using a pooling strategy, an environmentally-concerned country can deter entry by credibly "pretending" to be environmentally adamant, and thus be expected to not follow. A rough calibration suggests a country like Norway, or prospects of a green future U.S. administration, could be pivotal in determining whether the Arctic will be explored.

Place, publisher, year, edition, pages
2018. Vol. 54, p. 125-149
Keywords [en]
Arctic region, Oil exploration, Climate change, Geopolitics, Unilateral action
National Category
Economics and Business Environmental Sciences Environmental Engineering Political Science (excluding Public Administration Studies and Globalisation Studies)
Identifiers
URN: urn:nbn:se:uu:diva-373214DOI: 10.1016/j.reseneeco.2018.08.002ISI: 000454377600008OAI: oai:DiVA.org:uu-373214DiVA, id: diva2:1278034
Available from: 2019-01-11 Created: 2019-01-11 Last updated: 2019-01-11Bibliographically approved

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