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Energy Prices and Carbon Taxes under Uncertainty about Global Warming

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  • Franz Wirl

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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

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File URL: http://hdl.handle.net/10.1007/s10640-006-9022-2
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 36 (2007)
Issue (Month): 3 (March)
Pages: 313-340

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Handle: RePEc:kap:enreec:v:36:y:2007:i:3:p:313-340

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: asymmetric; dynamic game; irreversibility; preemption; rent contest; stochastic; stock externalities; Q4; D81; C61; H23;

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Cited by:
  1. 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.
  2. Wirl, Franz, 2011. "Taxing incumbent monopoly to foster entry," Energy Economics, Elsevier, vol. 33(3), pages 388-398, May.
  3. 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.
  4. 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.
  5. 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.

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