Should Someone Pay Canada To Keep Its Oil In The Ground?

Jul 3, 2013

Yes, economists love the idea of taxing carbon to reduce greenhouse gas emissions. (See our story from last week.) But there's a potential problem with a carbon tax.

Say a bunch of countries start taxing carbon. It works! Fossil fuel demand falls in those countries. But falling demand drives down prices for fossil fuels in parts of the world where no carbon tax exists. That, in turn, drives up consumption. Gah.

So here's another idea. Countries that want to cut global emissions should just buy up rights to oil and coal deposits around the planet, then leave those deposits in the ground forever.

That's the argument Bard Harstad, a Norwegian economist, makes in a recent paper (title: Buy Coal! A Case For Supply-Side Environmental Policy).

There is, sort of, some precedent for this. A few years back, for example, Norway agreed to pay Indonesia up to $1 billion if Indonesia would refrain from cutting down its forests. And, as we reported earlier this year, Ecuador has been threatening to drill for oil in a rainforest preserve unless the world pays up.

But, for Harstad's idea to work, rich countries that wanted to cut global emissions would probably have to pay other rich countries to leave their coal and oil in the ground. Politically, that would be a much tougher sell than paying Indonesia to keep its forests in tact.

Harstad himself told the FT that the politics could be a problem:

"It sounds weird," Mr Harstad said in an interview with the Financial Times, conceding that some people might have "digestion problems" with the idea of paying a wealthy country such as Canada to stop extracting its oil.

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