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Petrodollar Recycling, Oil Monopoly, and Carbon Taxes

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  • Waldemar Marz
  • Johannes Pfeiffer

Abstract

We identify a new general equilibrium transmission channel of climate policy on oil extraction, assuming an oil monopolist who accounts for the implications of oil supply on her capital asset returns. Policy-induced adjustments in asset holdings lead to postponement of extraction under a wide range of reasonable parameter settings: present extraction can drop considerably for a moderately high carbon tax. For endogenous exploration, a decrease in first-period extraction and in cumulative extraction at the same time is also possible. This contrasts with the literature on supply-side effects of climate policy which neglects these capital market implications. Concerns about carbon taxes arising from impeding climate-damaging supply reactions are alleviated, while taxing asset returns may induce acceleration of extraction.

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  • Waldemar Marz & Johannes Pfeiffer, 2015. "Petrodollar Recycling, Oil Monopoly, and Carbon Taxes," ifo Working Paper Series 204, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:ifowps:_204
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    Cited by:

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    2. Malik Curuk & Suphi Sen, 2023. "Climate Policy and Resource Extraction with Variable Markups and Imperfect Substitutes," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(4), pages 1091-1120.
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    4. Espinola-Arredondo, Ana & Muñoz-García, Félix & Duah, Isaac, 2019. "Anticipatory effects of taxation in the commons: When do taxes work, and when do they fail?," Ecological Economics, Elsevier, vol. 166(C), pages 1-1.
    5. Waldemar Marz, 2019. "Complex dimensions of climate policy: the role of political economy, capital markets, and urban form," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 85.
    6. Hussain, Jafar & Lee, Chien-Chiang & Chen, Yongxiu, 2022. "Optimal green technology investment and emission reduction in emissions generating companies under the support of green bond and subsidy," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    7. Kollenbach, Gilbert & Schopf, Mark, 2022. "Unilaterally optimal climate policy and the green paradox," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
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    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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