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Carbon Tax and OPEC’s Rents Under a Ceiling Constraint

  • Rémy Dullieux
  • Lionel Ragot
  • Katheline Schubert

We study the Markov-perfect Nash equilibrium (MPNE) of a game between oil-importing countries, who seek to maintain the atmospheric carbon concentration under a given ceiling, and oil-exporting countries. The oil-importing countries set a carbon tax and the oil-exporting countries control the producer price. We obtain implicit feedback rules and explicit non-linear time paths of extraction, carbon tax, and producer price. Consumers are always able to reap some share of the scarcity and monopoly rents, whereas producers partially pre-empt the carbon tax only if the marginal damage under the ceiling is small. We compare the MPNE to the efficient, open-loop, and cartel-without-tax equilibria.

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File URL: http://hdl.handle.net/10.1111/j.1467-9442.2011.01678.x
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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 113 (2011)
Issue (Month): 4 (December)
Pages: 798-824

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Handle: RePEc:bla:scandj:v:113:y:2011:i:4:p:798-824
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  1. repec:adr:anecst:y:2006:i:81:p:06 is not listed on IDEAS
  2. Rowat, Colin, 2007. "Non-linear strategies in a linear quadratic differential game," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3179-3202, October.
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  5. Franz Wirl, 1995. "The exploitation of fossil fuels under the threat of global warming and carbon taxes: A dynamic game approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(4), pages 333-352, June.
  6. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, vol. 79(2), pages 297-313, February.
  7. Liski, Matti & Tahvonen, Olli, 2004. "Can carbon tax eat OPEC's rents?," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 1-12, January.
  8. Dockner Engelbert J. & Van Long Ngo, 1993. "International Pollution Control: Cooperative versus Noncooperative Strategies," Journal of Environmental Economics and Management, Elsevier, vol. 25(1), pages 13-29, July.
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