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Petrodollar recycling, oil monopoly, and carbon taxes

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  • Marz, Waldemar
  • Pfeiffer, Johannes

Abstract

Besides affecting oil rents, climate policy can have far-reaching capital market implications. We identify a new general equilibrium transmission channel of climate policy on oil extraction by an oil monopolist who accounts for the influence of oil supply on returns on own petrodollar-financed capital assets. Climate-policy-induced adjustments in capital asset holdings by the exporting country lead to postponement of extraction under a wide range of reasonable parameter settings: for the reference calibration present extraction drops by 1.28 percent for an ad valorem tax corresponding to 100$ per ton of carbon, while it increases by 0.52 percent for a competitive oil market. This contrasts with the literature on supply-side effects of climate policy which neglects these capital market implications. Concerns about carbon taxes arising from unintended climate-damaging supply reactions are alleviated.

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  • Marz, Waldemar & Pfeiffer, Johannes, 2020. "Petrodollar recycling, oil monopoly, and carbon taxes," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:jeeman:v:100:y:2020:i:c:s0095069618302584
    DOI: 10.1016/j.jeem.2019.102263
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    Cited by:

    1. Johannes Pfeiffer, 2017. "Fossil Resources and Climate Change – The Green Paradox and Resource Market Power Revisited in General Equilibrium," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 77.
    2. Espinola-Arredondo, Ana & Muñoz-García, Félix & Duah, Isaac, 2019. "Anticipatory effects of taxation in the commons: When do taxes work, and when do they fail?," Ecological Economics, Elsevier, vol. 166(C), pages 1-1.
    3. Malik Curuk & Suphi Sen, 2023. "Climate Policy and Resource Extraction with Variable Markups and Imperfect Substitutes," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(4), pages 1091-1120.
    4. Waldemar Marz, 2019. "Complex dimensions of climate policy: the role of political economy, capital markets, and urban form," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 85.
    5. Lee, Chien-Chiang & Hussain, Jafar, 2022. "Carbon neutral sustainability and green development during energy consumption," Innovation and Green Development, Elsevier, vol. 1(1).
    6. Hussain, Jafar & Lee, Chien-Chiang & Chen, Yongxiu, 2022. "Optimal green technology investment and emission reduction in emissions generating companies under the support of green bond and subsidy," Technological Forecasting and Social Change, Elsevier, vol. 183(C).
    7. Kollenbach, Gilbert & Schopf, Mark, 2022. "Unilaterally optimal climate policy and the green paradox," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).
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    More about this item

    Keywords

    Monopoly; Fossil energy resources; General equilibrium; Capital assets; Climate policy;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • 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)

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