Cost-Effective Climate Policy in a Small Country

Unilateral action to curb CO2 emissions in a small country or a group of countries has only a limited effect on global CO2 emissions. However, it could be a first step toward a broader climate treaty. So far, unilateral commitments have been aimed at reducing national consumption of fossil fuels. A country that produces and consumes fossil fuels can also influence the global CO2 emissions by reducing its production. The estimated cost of reducing national CO2 emissions in Norway, through a reduction in fossil fuel consumption, is presented in a report from the Environmental Tax Committee (1992). In this paper, that cost is compared with an estimated cost of reducing fossil fuel production. The calculation reveals that it could be less costly to reduce the production than the consumption, given that the effect on global CO2 emissions is identical.