Cut demand or cut supply? Rethinking climate policy

Effective climate policy requires combining demand-side carbon pricing with supply-side extraction taxes to prevent emissions leakage across globally traded fossil fuel markets.

• Portfolio over either/or: Kellogg's paper argues optimal climate policy combines demand-side carbon pricing with supply-side extraction taxes, not one tool alone.
• Leakage is the core problem: Because oil, gas, and coal trade globally, unilateral demand-side pricing lowers world fuel prices, letting other countries burn more, offsetting reductions.

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