We study optimal climate policy for a “policy bloc” of countries facing a market where emissions offsets can be purchased from a non-policy “fringe” of countries (such as for the CDM). Policy-bloc firms benefit from free quota allocations whose quantity is updated according to firms’...

In absence of joint global climate action, several jurisdictions unilaterally restrict their domestic demand for fossil fuels. Another policy option for fossil fuel producing countries, not much explored, is to reduce own supply of fossil fuels. We explore analytically and numerically how...