International Capital Markets, Oil Producers and the Green Paradox
AbstractIn partial equilibrium a rapidly rising carbon tax encourages oil producers to extract fossil fuels more quickly, giving rise to the Green Paradox. General equilibrium analysis for a closed economy shows that a rapidly rising carbon tax negatively affects the interest rate, which tends to weaken the Green Paradox. However, in a two-country world with an oil-importing and an oil-exporting region the Green Paradox may be amplified in general equilibrium if exporters are relatively patient. On the contrary, if oil exporters are relatively impatient, the Green Paradox might be reversed. Furthermore, general equilibrium effects tend to weaken the link between a capital asset tax and the time profile of resource extraction so that the capital asset tax becomes less useful as an instrument to offset the Green Paradox effect associated with the announcement of a future carbon tax. Taking exploration costs into account, we show that the effect of both policy instruments on cumulative extraction is of opposite sign as the effect on current extraction. Moreover, if the change in current extraction is amplified or reversed in general equilibrium, so will be the change in cumulative extraction.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number OxCarre Research Paper 130.
Date of creation: 31 Jan 2014
Date of revision:
Green Paradox; Hotelling rule; oil importers; oil producers; investment; capital markets; carbon tax; asset holding tax;
Other versions of this item:
- Gerard van der Meijden & Frederick van der Ploeg & Cees Withagen, 2014. "International Capital markets, Oil Producers and the Green Paradox," OxCarre Working Papers 130, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
- Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-ENE-2014-04-11 (Energy Economics)
- NEP-ENV-2014-04-11 (Environmental Economics)
- NEP-GER-2014-04-11 (German Papers)
- NEP-RES-2014-04-11 (Resource Economics)
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.:
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