Climate Change: How Feasible are Market Based Solutions?

Abstract

Using data from the International Energy Agency, this paper uses a STIRPAT model to examine the effect of fuel price changes on CO2 emissions from oil, natural gas, and coal. Estimations are run for 16 OECD countries using data from 1980-2012. Overall, the results show that the emissions from fossil fuels are highly inelastic to price changes. Given that historic data show little or no responsiveness to price changes, and that significant cuts in emissions will be required in order to stem the continuing problem of climate change, relatively large price increases will be needed in most developed countries.