Advanced Search
MyIDEAS: Login to save this paper or follow this series

Too Little Oil, Too Much Coal: Optimal Carbon Tax and when to Phase in Oil, Coal and Renewables

Contents:

Author Info

  • Frederick Van der Ploeg
  • Cees A. Withagen

Abstract

Our main message is that it is optimal to use less coal and more oil once one takes account of coal being a backstop which emits much more CO2 than oil. The way of achieving this is to have a steeply rising carbon tax during the initial oil-only phase, a less-steeply rising carbon tax during the intermediate phase where oil and coal are used alongside each other and the following coal-only phase, and a flat carbon tax during the final renewables-only phase. The “laissez-faire” outcome uses coal forever or starts with oil until it is no longer cost-effective to do so and then switches to coal. We also analyze the effects on the optimal transition times and carbon tax of a carbon-free, albeit expensive backstop (solar or wind energy). Subsidizing renewables to just below the cost of coal does not affect the oil-only phase. The gain in green welfare dominates the welfare cost of the subsidy if the subsidy gap is small and the global warming challenge is acute. Without a carbon tax a prohibitive coal tax leads to less oil left in situ and substantially delays introduction of renewables, but curbs global warming substantially as coal is never used. Finally, we characterize under general conditions what the optimal sequencing oil and coal looks like.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-07/cesifo1_wp3526.pdf
Download Restriction: no

Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3526.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:ces:ceswps:_3526

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo.de
More information through EDIRC

Related research

Keywords: Hotelling rule; non-renewable resource; dirty backstop; coal; global warming; carbon tax; renewables; tax on coal; subsidy on renewables; transition times; Herfindahl rule;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2010. "The Environment and Directed Technical Change," Working Papers, Fondazione Eni Enrico Mattei 2010.93, Fondazione Eni Enrico Mattei.
  2. Rick van der Ploeg & Cees Withagen, 2010. "Is There Really a Green Paradox?," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 035, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, 08.
  4. Valentina Bosetti & Carlo Carraro & Romain Duval & Alessandra Sgobbi & Massimo Tavoni, 2009. "The Role of R&D and Technology Diffusion in Climate Change Mitigation: New Perspectives Using the Witch Model," Working Papers, Fondazione Eni Enrico Mattei 2009.14, Fondazione Eni Enrico Mattei.
  5. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics, University of Munich, Department of Economics 19638, University of Munich, Department of Economics.
  6. John Livernois & Patrick Martin, 2001. "Price, scarcity rent, and a modified r per cent rule for non-renewable resources," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 34(3), pages 827-845, August.
  7. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, CESifo, vol. 57(1), pages 79-102, March.
  8. Michael Hoel, 2008. "Bush Meets Hotelling: Effects of Improved Renewable Energy Technology on Greenhouse Gas Emissions," CESifo Working Paper Series 2492, CESifo Group Munich.
  9. Sinn, Hans-Werner, . "Das grüne Paradoxon ; Plädoyer für eine illusionsfreie Klimapolitik," Monographs in Economics, University of Munich, Department of Economics, University of Munich, Department of Economics, number 19627, April.
  10. Ujjayant Chakravorty & Michel Moreaux & Mabel Tidball, 2008. "Ordering the Extraction of Polluting Nonrenewable Resources," American Economic Review, American Economic Association, American Economic Association, vol. 98(3), pages 1128-44, June.
  11. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, Econometric Society, vol. 48(3), pages 663-73, April.
  12. 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 515-36, October.
  13. Hoel, Michael, 1983. "Monopoly resource extractions under the presence of predetermined substitute production," Journal of Economic Theory, Elsevier, Elsevier, vol. 30(1), pages 201-212, June.
  14. Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, Elsevier, vol. 18(2), pages 115-136, June.
  15. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  16. Groth, Christian & Schou, Poul, 2007. "Growth and non-renewable resources: The different roles of capital and resource taxes," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 80-98, January.
  17. Lewis, Tracy R, 1982. "Sufficient Conditions for Extracting Least Cost Resource First," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1081-83, July.
  18. Chakravorty, Ujjayant & Krulce, Darrell L, 1994. "Heterogeneous Demand and Order of Resource Extraction," Econometrica, Econometric Society, Econometric Society, vol. 62(6), pages 1445-52, November.
  19. Gerard Gaudet & Michel Moreaux & Stephen W. Salant, 2001. "Intertemporal Depletion of Resource Sites by Spatially Distributed Users," American Economic Review, American Economic Association, American Economic Association, vol. 91(4), pages 1149-1159, September.
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 in new window

Cited by:
  1. Antoine d'Autume, 2012. "The user cost of natural resources and the optimal exploitation of two non-renewable polluting resources," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 12037, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Michielsen, T.O., 2011. "Brown Backstops versus the Green Paradox (Revision of CentER DP 2011-076)," Discussion Paper, Tilburg University, Center for Economic Research 2011-110, Tilburg University, Center for Economic Research.
  3. Mohajan, Haradhan, 2011. "Optimal Environmental Taxes Due to Health Effect," MPRA Paper 50672, University Library of Munich, Germany, revised 17 Apr 2011.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_3526. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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