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Energy Prices and Carbon Taxes under Uncertainty about Global Warming

Author

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  • Franz Wirl

Abstract

This paper extends the strategic interactions between producers of fossil fuels concerned about their profits and a taxing government concerned about the consumers’ welfare for uncertainty: global warming follows an Itô -process. Stochasticity requires to differentiate between reversible and irreversible emissions in contrast to the deterministic version. The unconstrained (= reversible) case allows for a closed form solution but not the more realistic and constrained case. Nevertheless interesting analytical properties (e.g. about when to stop emissions, implicit conservation due to monopolistic supply) are derived and complemented by a numerical example. Copyright Springer Science+Business Media, Inc. 2007

Suggested Citation

  • Franz Wirl, 2007. "Energy Prices and Carbon Taxes under Uncertainty about Global Warming," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(3), pages 313-340, March.
    • Handle: RePEc:kap:enreec:v:36:y:2007:i:3:p:313-340
    DOI: 10.1007/s10640-006-9022-2
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    Citations

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    Cited by:

    1. Wirl, Franz, 2011. "Taxing incumbent monopoly to foster entry," Energy Economics, Elsevier, vol. 33(3), pages 388-398, May.
    2. Leizarowitz, Arie & Tsur, Yacov, 2012. "Renewable resource management with stochastic recharge and environmental threats," Journal of Economic Dynamics and Control, Elsevier, vol. 36(5), pages 736-753.
    3. L. Lambertini, 2014. "On the Interplay between Resource Extraction and Polluting Emissions in Oligopoly," Working Papers wp976, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Leizarowitz, Arie & Tsur, Yacov, 2009. "Resource Management with Stochastic Recharge and Environmental Threats," Discussion Papers 52784, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    5. Gallaway, Terrel & Olsen, Reed N. & Mitchell, David M., 2010. "The economics of global light pollution," Ecological Economics, Elsevier, vol. 69(3), pages 658-665, January.
    6. 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.
    7. Zhang, Xiao-Bing & Zhu, Lei, 2017. "Strategic carbon taxation and energy pricing under the threat of climate tipping events," Economic Modelling, Elsevier, vol. 60(C), pages 352-363.
    8. Zhang, Xiao-Bing, 2014. "Strategic Carbon Taxation and Energy Pricing: The Role of Innovation," Working Papers in Economics 589, University of Gothenburg, Department of Economics.
    9. Yiğit Sağlam, 2019. "Welfare Implications of Water Scarcity: Higher Prices of Desalination," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(4), pages 995-1022, August.

    More about this item

    Keywords

    asymmetric; dynamic game; irreversibility; preemption; rent contest; stochastic; stock externalities; Q4; D81; C61; H23;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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