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Taxation of nuclear rents: Benefits, drawbacks, and alternatives

Author

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  • Morbee, J.
  • Himpens, P.
  • Proost, S.

Abstract

This paper studies the taxation of nuclear energy using a stylized model of the electricity sector, with one dominant nuclear producer and a competitive fringe of non-nuclear plants. First, we find that the optimal nuclear tax is different depending on the time horizon: the optimal short-run tax has the same order of magnitude as the nuclear taxes imposed in Belgium and Germany, while in the long run the optimal tax may be negative, i.e. a subsidy. Second, government credibility is important: when a government cannot credibly commit, the mere possibility of a short-run tax could severely harm incentives for future investments in lifetime-extending refurbishment or new plants. Third, when there is natural scarcity in nuclear potential, other policies like inviting multiple competitive bidders for lifetime extension franchises or for investments in new plants, may be more efficient ways to increase government revenue.

Suggested Citation

  • Morbee, J. & Himpens, P. & Proost, S., 2015. "Taxation of nuclear rents: Benefits, drawbacks, and alternatives," Energy Economics, Elsevier, vol. 51(C), pages 622-632.
    • Handle: RePEc:eee:eneeco:v:51:y:2015:i:c:p:622-632
    DOI: 10.1016/j.eneco.2015.06.007
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    Cited by:

    1. Sven-Olof Fridolfsson and Thomas P. Tangeras, 2015. "Nuclear Capacity Auctions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).

    More about this item

    Keywords

    Electricity market; Nuclear rent; Taxation; Lifetime extension; Investment;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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