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Market power rents and climate change mitigation: a rationale for coal taxes?

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  • Richter, Phillip M.
  • Mendelevitch, Roman
  • Jotzo, Frank

Abstract

In this paper we investigate the introduction of an export tax on steam coal levied by an individual country (Australia), or a group of major exporting countries. The policy motivation would be twofold: generating tax revenues against the background of improved terms-of-trade, while CO2 emissions are reduced. We construct and numerically apply a two-level game consisting of an optimal policy problem at the upper level, and an equilibrium model of the international steam coal market (based on COALMOD-World) at the lower level. We find that a unilaterally introduced Australian export tax on steam coal has little impact on global emissions and may be welfare reducing. On the contrary, a tax jointly levied by a "climate coalition" of major coal exporters may well leave these better off while significantly reducing global CO2 emissions from steam coal by up to 200 Mt CO2 per year. Comparable production-based tax scenarios consistently yield higher tax revenues but may be hard to implement against the opposition of disproportionally affected local stakeholders depending on low domestic coal prices.

Suggested Citation

  • Richter, Phillip M. & Mendelevitch, Roman & Jotzo, Frank, 2017. "Market power rents and climate change mitigation: a rationale for coal taxes?," Working Papers 249511, Australian National University, Centre for Climate Economics & Policy.
  • Handle: RePEc:ags:ancewp:249511
    DOI: 10.22004/ag.econ.249511
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    Cited by:

    1. Michael Lazarus & Harro van Asselt, 2018. "Fossil fuel supply and climate policy: exploring the road less taken," Climatic Change, Springer, vol. 150(1), pages 1-13, September.
    2. Sen, Suphi & von Schickfus, Marie-Theres, 2020. "Climate policy, stranded assets, and investors’ expectations," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).
    3. Franziska Holz & Clemens Haftendorn & Roman Mendelevitch & Christian von Hirschhausen, 2016. "A Model of the International Steam Coal Market (COALMOD-World)," Data Documentation 85, DIW Berlin, German Institute for Economic Research.
    4. Suphi Sen & Marie-Theres von Schickfus, 2017. "Will Assets be Stranded or Bailed Out? Expectations of Investors in the Face of Climate Policy," ifo Working Paper Series 238, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Barbe, Andre, 2016. "The Effects of Restricting Coal Consumption," Conference papers 332698, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    6. Mark Schopf, 2016. "Unilateral Supply Side Policies and the Green Paradox," Working Papers Dissertations 28, Paderborn University, Faculty of Business Administration and Economics.
    7. Kim Collins & Roman Mendelevitch, 2015. "Leaving Coal Unburned: Options for Demand-Side and Supply-Side Policies," DIW Roundup: Politik im Fokus 87, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    Environmental Economics and Policy; Resource /Energy Economics and Policy;

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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