Diversification and Cooperation Strategies in a Decarbonizing World
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 strate...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/705881593750058987/Diversification-and-Cooperation-Strategies-in-a-Decarbonizing-World http://hdl.handle.net/10986/34056 |
| Summary: | 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. |
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