IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v32y2010i2p418-422.html
   My bibliography  Save this article

Optimal fossil-fuel taxation with backstop technologies and tenure risk

Author

Listed:
  • Strand, Jon

Abstract

The paper derives the global welfare-optimizing time path for a tax on fossil fuels causing a negative stock externality (climate change), under increasing marginal extraction cost, and in the presence of an unlimited backstop resource causing no externality. In a basic competitive case, the optimal tax equals the Pigou rate, equivalent to the present discounted value of marginal damage costs. We consider two separate types of tenure insecurity for resource owners, and their impact on the tax implementing the optimal policy. When insecure control is with respect to future ownership to the resource, competitive extraction is higher than otherwise, and the efficiency-implementing tax exceeds the Pigou rate. When tenure insecurity instead implies possible expropriation ("holdup") of investment in extraction capacity, it deters extraction, and the optimal tax is lower than the Pigou rate.

Suggested Citation

  • Strand, Jon, 2010. "Optimal fossil-fuel taxation with backstop technologies and tenure risk," Energy Economics, Elsevier, vol. 32(2), pages 418-422, March.
    • Handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:418-422
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140-9883(09)00112-1
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, vol. 79(2), pages 297-313, February.
    2. Boyan Jovanovic, 2007. "Bubbles in Prices of Exhaustible Resources," NBER Working Papers 13320, National Bureau of Economic Research, Inc.
    3. Hans-Werner Sinn, 2007. "Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note," NBER Working Papers 13453, National Bureau of Economic Research, Inc.
    4. Farzin, Y H & Tahvonen, O, 1996. "Global Carbon Cycle and the Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 48(4), pages 515-536, October.
    5. Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, vol. 18(2), pages 115-136, June.
    6. Mads Greaker & Lise-Lotte Pade, 2008. "Optimal CO2 abatement and technological change. Should emission taxes start high in order to spur R&D?," Discussion Papers 548, Statistics Norway, Research Department.
    7. Geroski, Paul A & Ulph, Alistair M & Ulph, David T, 1987. "A Model of the Crude Oil Market in Which Market Conduct Varies," Economic Journal, Royal Economic Society, vol. 97(388a), pages 77-86, Supplemen.
    8. Zhang, Lei, 1997. "Neutrality and Efficiency of Petroleum Revenue Tax: A Theoretical Assessment," Economic Journal, Royal Economic Society, vol. 107(443), pages 1106-1120, July.
    9. Robert T. Deacon & Henning Bohn, 2000. "Ownership Risk, Investment, and the Use of Natural Resources," American Economic Review, American Economic Association, vol. 90(3), pages 526-549, June.
    10. Farzin, Y. H., 1996. "Optimal pricing of environmental and natural resource use with stock externalities," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 31-57, October.
    11. Franz Wirl, 1995. "The exploitation of fossil fuels under the threat of global warming and carbon taxes: A dynamic game approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 5(4), pages 333-352, June.
    12. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    13. repec:bla:econom:v:51:y:1984:i:23:p:235-52 is not listed on IDEAS
    14. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
    15. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," NBER Working Papers 13454, National Bureau of Economic Research, Inc.
    16. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    17. Bergstrom, Theodore C, 1982. "On Capturing Oil Rents with a National Excise Tax," American Economic Review, American Economic Association, vol. 72(1), pages 194-201, March.
    18. Liski, Matti & Tahvonen, Olli, 2004. "Can carbon tax eat OPEC's rents?," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 1-12, January.
    19. Costello, Christopher J. & Kaffine, Daniel, 2008. "Natural resource use with limited-tenure property rights," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 20-36, January.
    20. Sinn, Hans-Werner, 1981. "The theory of exhaustible resources," Munich Reprints in Economics 19910, University of Munich, Department of Economics.
    21. Konrad Kai A. & Olsen Trond E. & Schob Ronnie, 1994. "Resource Extraction and the Threat of Possible Expropriation: The Role of Swiss Bank Accounts," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 149-162, March.
    22. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
    23. Long, Ngo Van, 1975. "Resource extraction under the uncertainty about possible nationalization," Journal of Economic Theory, Elsevier, vol. 10(1), pages 42-53, February.
    24. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-937, October.
    25. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-868, Supplemen.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. van der Ploeg, Frederick & Rohner, Dominic, 2012. "War and natural resource exploitation," European Economic Review, Elsevier, vol. 56(8), pages 1714-1729.
    2. Benjamin Jones & Michael Keen & Jon Strand, 2013. "Fiscal implications of climate change," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(1), pages 29-70, February.
    3. Wirl, Franz, 2014. "Taxes versus permits as incentive for the intertemporal supply of a clean technology by a monopoly," Resource and Energy Economics, Elsevier, vol. 36(1), pages 248-269.
    4. Wirl, Franz, 2012. "Global warming: Prices versus quantities from a strategic point of view," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 217-229.
    5. Wirl, Franz, 2011. "Taxing incumbent monopoly to foster entry," Energy Economics, Elsevier, vol. 33(3), pages 388-398, May.
    6. Partha Sen, 2016. "Unilateral Emission Cuts and Carbon Leakages in a Dynamic North–South Trade Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(1), pages 131-152, May.
    7. Partha Sen, 2018. "Unilateral Policies, Competitiveness and the ‘Green Paradox’ in a Dynamic North–South Model," Arthaniti: Journal of Economic Theory and Practice, , vol. 17(2), pages 113-139, December.
    8. Partha Sen, 2013. "Unilateral Emission Cuts And Carbon Leakages In A North-South Trade Model," Working papers 232, Centre for Development Economics, Delhi School of Economics.
    9. Renaud Coulomb & Fanny Henriet, 2014. "The Grey Paradox: How Oil Owners Can Benefit From Carbon Regulation," Working Papers hal-00818350, HAL.
    10. Laurini, Márcio Poletti, 2017. "The spatio-temporal dynamics of ethanol/gasoline price ratio in Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 1-12.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mr. Jon Strand, 2008. "Importer and Producer Petroleum Taxation: A Geo-Political Model," IMF Working Papers 2008/035, International Monetary Fund.
    2. Christian Beermann, 2015. "Climate Policy and the Intertemporal Supply of Fossil Resources," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 62.
    3. Xiao-Bing Zhang, 2024. "A Dynamic Game of Strategic Carbon Taxation and Energy Pricing with Green Technology Innovation," Dynamic Games and Applications, Springer, vol. 14(4), pages 1027-1055, September.
    4. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 360-394, August.
    5. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, vol. 79(2), pages 297-313, February.
    6. Julien Daubanes & André Grimaud, 2010. "Taxation of a Polluting Non-renewable Resource in the Heterogeneous World," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(4), pages 567-588, December.
    7. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
    8. Wie, Jiegen & Wennlock, Magnus & Johansson, Daniel J.A. & Sterner, Thomas, 2011. "The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation," RFF Working Paper Series dp-11-26, Resources for the Future.
    9. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," CESifo Working Paper Series 2087, CESifo.
    10. Grimaud, André & Lafforgue, Gilles & Magné, Bertrand, 2011. "Climate change mitigation options and directed technical change: A decentralized equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(4), pages 938-962.
    11. Amundsen, Eirik S. & Schob, Ronnie, 1999. "Environmental taxes on exhaustible resources," European Journal of Political Economy, Elsevier, vol. 15(2), pages 311-329, June.
    12. Strand, Jon, 2013. "Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 202-218.
    13. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2008. "A dynamic model of food and clean energy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1181-1203, April.
    14. Ngo Van LONG, 2014. "The Green Paradox under Imperfect Substitutability between Clean and Dirty Fuels," Cahiers de recherche 02-2014, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    15. Jon Strand, 2010. "Taxes versus Cap-and-Trade in Climate Policy when only some Fuel Importers Abate," CESifo Working Paper Series 3233, CESifo.
    16. Quentin Grafton, R. & Kompas, Tom & Van Long, Ngo, 2012. "Substitution between biofuels and fossil fuels: Is there a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 328-341.
    17. Ronnie Schöb, 2003. "The Double Dividend Hypothesis of Environmental Taxes: A Survey," CESifo Working Paper Series 946, CESifo.
    18. Thomas Eichner & Rüdiger Pethig, 2011. "Carbon Leakage, The Green Paradox, And Perfect Future Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, August.
    19. Frederick van der Ploeg & Cees Withagen, 2015. "Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 285-303.
    20. Alfred Endres, 2008. "Ein Unmöglichkeitstheorem für die Klimapolitik?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(3), pages 350-382, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:418-422. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eneco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.