Abstract
Deposit markets, as a form of supply-side climate policies, are a promising option for emission reduction. However, it is not clear whether adverse carbon leakage effects on deposit markets with two fuels could render deposit policies obsolete. In this paper we study deposit markets for two fuels that differ in emission intensity. We find that, in the presence of market power, deposit markets lead to carbon leakage between both, countries and fuels. Regarding the political economy of deposit policies, they generate more welfare for all countries if applied to both fuels as opposed to one or none. Moreover, deposit markets can induce countries selling deposits to choose a cleaner fuel mix regardless of their emission reduction incentive. We further find that if fuels are substitutes and strongly differ in emission intensity, countries do not buy deposits of a relatively clean fuel. For perfectly segmented fuel markets, importing countries do not purchase deposits of a sufficiently clean fuel.
Due to the restrictions related to the Covid-19 pandemic, we will be able to host up to 20 participants in the seminar room. It will be possible to attend the seminar via streaming.