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Climate Policy with Tied Hands: Optimal Resource Taxation Under Implementation Lags

Author

Listed:
  • Corrado Di Maria

    (University of East Anglia)

  • Sjak Smulders

    (Tilburg University)

  • Edwin Werf

    (Wageningen University)

Abstract

In the presence of implementation lags, announced Pigouvian taxation leads to fossil fuel prices that are too low from society’s perspective. This results in excessive emissions and reduced incentives for green innovation. Such effects are compounded by the presence of pre-existing subsidies to fossil fuel use. We show that the intertemporal resource tax path may need to be modified to optimally take into account the perverse incentives from policy lags and pre-existing policies. We find that it might be optimal to subsidize, rather than tax resource extraction at the instant of implementation.

Suggested Citation

  • Corrado Di Maria & Sjak Smulders & Edwin Werf, 2017. "Climate Policy with Tied Hands: Optimal Resource Taxation Under Implementation Lags," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 537-551, March.
    • Handle: RePEc:kap:enreec:v:66:y:2017:i:3:d:10.1007_s10640-016-0091-6
    DOI: 10.1007/s10640-016-0091-6
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    Cited by:

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    3. Halvor B. Storrøsten, 2020. "Emission Regulation of Markets with Sluggish Supply Structures," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(1), pages 1-33, September.
    4. Xiao Yu & Yingdong Xu & Jian Zhang & Yue Sun, 2022. "The Synergy Green Innovation Effect of Green Innovation Subsidies and Carbon Taxes," Sustainability, MDPI, vol. 14(6), pages 1-27, March.
    5. Alena Miftakhova & Clément Renoir, 2021. "Economic Growth and Equity in Anticipation of Climate Policy," CER-ETH Economics working paper series 21/355, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    6. Jiang, Hong-Dian & Hao, Wen-Ting & Xu, Qing-Yang & Liang, Qiao-Mei, 2020. "Socio-economic and environmental impacts of the iron ore resource tax reform in China: A CGE-based analysis," Resources Policy, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Climate policy; Second-best; Carbon tax; Non-renewable resources; Resource taxation; Implementation lag; Green Paradox;
    All these keywords.

    JEL classification:

    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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