Abstract

The countries that have ratified the Kyoto Protocol have pledged to limit global warming by reducing the demand for fossil fuels. But what about supply? Ifsuppliers do not react, demand reductions by a subset of countries are ineffective.They simply depress the world price of carbon and induce the environmental sinnersto consume what the Kyoto countries have economized on. Even worse, if suppliersfeel threatened by a gradual greening of economic policies in the Kyoto countriesthat would damage their future prices; they will extract their stocks more rapidly,thus accelerating global warming. The paper discusses the remaining policy optionsagainst global warming from an intertemporal supply-side perspective.

Keywords: global warming, carbon taxes, Pareto optimality

JEL Classification:

[H230] Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies

[O130] Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products

[Q320] Exhaustible Resources and Economic Development

[Q540] Climate; Natural Disasters; Global Warming