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The Optimal Path of Energy and CO2 Taxes for Intertemporal Resource Allocation

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  • Conrad, Klaus
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    Abstract

    Instead of carrying out a detailed technical analysis of the properties of an optimal path of the tax, we fourthly introduce in our base model the aspect that part of energy is wasted due to inefficient use of it. More effort in order to reduce the waste contributes to the conservation of the stock of fossil energy and prolongs the time span the CO2-fill capacity is exhausted. We show how the tax has to be modified to become a first-best instrument which is then in addition also an incentive to raise efforts (e.g. R&D expenditure on energy saving equipment). And fifthly, we take into account that fossil fuel is also the source of another air pollutant, SO2. The impact of SO2 on the environment (e.g. acid rain) can be mitigated by investing in abatement measures. We therefore introduce in addition to the energy tax a SO2 tax to cope with the damage from the accumulation of two stock pollutants. Although one could expect a complicated mix of tax interactions, the tax rules turn out to be very simple.

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    File URL: https://ub-madoc.bib.uni-mannheim.de/1009/1/602.pdf
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    Bibliographic Info

    Paper provided by Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre in its series Discussion Papers with number 602.

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    Date of creation: 2001
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    Handle: RePEc:mnh:vpaper:1009

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    1. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
    2. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
    3. Conrad, Jon M. & Olson, Lars J., 1990. "The Economics Of A Stock Pollutant: Aldicarb On Long Island," Working Papers 6328, Cornell University, Department of Applied Economics and Management.
    4. C. G. Plourde, 1972. "A Model of Waste Accumulation and Disposal," Canadian Journal of Economics, Canadian Economics Association, vol. 5(1), pages 119-25, February.
    5. Ploeg, F. van der & Withagen, C.A.A.M., 1991. "Pollution control and the Ramsey problem," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3107039, Tilburg University.
    6. Toman, Michael & Withagen, Cees, 1998. "Accumulative Pollution, "Clean Technology," and Policy Design," Discussion Papers dp-98-43, Resources For the Future.
    7. Olli Tahvonen, 1995. "Dynamics of pollution control when damage is sensitive to the rate of pollution accumulation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(1), pages 9-27, January.
    8. Olli Tahvonen, 1997. "Fossil Fuels, Stock Externalities, and Backstop Technology," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 855-74, November.
    9. 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.
    10. Michael Toman & Karen Palmer, 1997. "How should an accumulative toxic substance be banned?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 83-102, January.
    11. Keeler, Emmett & Spence, Michael & Zeckhauser, Richard, 1972. "The optimal control of pollution," Journal of Economic Theory, Elsevier, vol. 4(1), pages 19-34, February.
    12. Klaus Conrad, 2000. "An econometric model of production with endogenous improvement in energy efficiency, 1970-1995," Applied Economics, Taylor & Francis Journals, vol. 32(9), pages 1153-1160.
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