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Growth and the Optimal Carbon Tax: When to Switch from Exhaustible Resources to Renewables?

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  • van der Ploeg, Frederick
  • Withagen, Cees

Abstract

Optimal climate policy is studied in a Ramsey growth model. A developing economy weighs global warming less, hence is more likely to exhaust fossil fuel and exacerbate global warming. The optimal carbon tax is higher for a developed economy. We analyze the optimal time of transition from fossil fuel to renewables, amount of fossil fuel to leave in situ, and carbon tax. Subsidizing a backstop without an optimal carbon tax induces more fossil fuel to be left in situ and a quicker phasing in of renewables, but fossil fuel is depleted more quickly. Global warming need thus not be alleviated.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8215.

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Date of creation: Jan 2011
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Handle: RePEc:cpr:ceprdp:8215

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Related research

Keywords: carbon tax; exhaustible resources; global warming; Green Paradox; growth; intergenerational inequality aversion; renewables; second best;

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References

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  1. Bovenberg, A.L. & Smulders, J.A., 1994. "Transitional impact of environmental policy in an endogenous growth model," Discussion Paper 1994-50, Tilburg University, Center for Economic Research.
  2. Withagen, Cees, 1994. "Pollution and exhaustibility of fossil fuels," Resource and Energy Economics, Elsevier, vol. 16(3), pages 235-242, August.
  3. Golosov, Mikhail & Hassler, John & Krusell, Per & Tsyvinski, Aleh, 2011. "Optimal taxes on fossil fuel in general equilibrium," CEPR Discussion Papers 8527, C.E.P.R. Discussion Papers.
  4. van der Ploeg, Frederick & Withagen, Cees, 2012. "Is there really a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 342-363.
  5. Snorre Kverndokk, 1994. "Depletion of Fossil Fuels and the impact of Global Warming," Discussion Papers 107, Research Department of Statistics Norway.
  6. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," NBER Working Papers 13454, National Bureau of Economic Research, Inc.
  7. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  8. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2010. "The Environment and Directed Technical Change," Working Papers 2010.93, Fondazione Eni Enrico Mattei.
  9. 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," OECD Economics Department Working Papers 664, OECD Publishing.
  10. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  11. Frederick Ploeg & Cees Withagen, 1991. "Pollution control and the Ramsey problem," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 215-236, June.
  12. Geoffrey Heal, 1976. "The Relationship Between Price and Extraction Cost for a Resource with a Backstop Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 371-378, Autumn.
  13. Tsur, Yacov & Zemel, Amos, 2005. "Scarcity, growth and R&D," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 484-499, May.
  14. Withagen, C.A.A.M., 1994. "Pollution and exhaustibility of fossil fuels resource," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3107033, Tilburg University.
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Cited by:
  1. Frederick van der Ploeg & Cees Withagen, 2011. "Too Much Coal, Too Little Oil," OxCarre Working Papers 056, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Haradhan Kumar Mohajan, 2011. "Optimal Environmental Taxes Due to Health Effect," KASBIT Journal of Management & Social Science, Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 4, pages 1-19, December.
  3. Kögel, Tomas, 2011. "The social cost of carbon on an optimal balanced growth path," Economics Discussion Papers 2011-35, Kiel Institute for the World Economy.

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