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Optimal fossil-fuel taxation with backstop technologies and tenure risk

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  • 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.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 2 (March)
Pages: 418-422

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:2:p:418-422

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Exhaustible resources Optimal emissions taxes Pigou taxation Backstop technology Insecure ownership;

References

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Citations

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Cited by:
  1. Renaud Coulomb & Fanny Henriet, 2014. "The Grey Paradox: How Oil Owners Can Benefit From Carbon Regulation," PSE Working Papers hal-00818350, HAL.
  2. Benjamin Jones & Michael Keen & Jon Strand, 2013. "Fiscal implications of climate change," International Tax and Public Finance, Springer, vol. 20(1), pages 29-70, February.
  3. Frederick van der Ploeg & Dominic Rohner, 2010. "War and natural resource exploitation," IEW - Working Papers 481, Institute for Empirical Research in Economics - University of Zurich.
  4. 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.
  5. Wirl, Franz, 2011. "Taxing incumbent monopoly to foster entry," Energy Economics, Elsevier, vol. 33(3), pages 388-398, May.
  6. repec:hal:wpaper:hal-00818350 is not listed on IDEAS
  7. 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.

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