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A Third Benefit of Joint Non-OPEC Carbon Taxes: Transferring OPEC Monopoly Rent

Author

Listed:
  • Yan Dong
  • John Whalley

Abstract

This paper highlights the potential for joint OECD (or non-OPEC) carbon taxes to reduce OPEC’s monopoly rent and provide benefit to non-OPEC countries provided jointly agreed trigger strategies are adhered to. In traditional economic theory, the primary purpose of a carbon tax is to internalize a global negative externality. A second benefit for individual countries is that the revenue raised by carbon tax can be used to reduce other tax rates and so lower the deadweight loss of tax system. In this paper, we discuss a third benefit of carbon taxes: transferring rents from OPEC to the oil importing countries. We develop a multi-region general equilibrium structure with endogenously determined oil supply for the purpose in which emissions are endogenously determined. We calibrate our model to 2006 data. Our analytics and numerical simulation results highlight how a uniform carbon tax used by all non-OPEC countries will increase the buyer’s price of oil but decrease the supplier’s price of oil, thus decreasing non-OPEC countries’ oil demand, and transferring OPEC monopoly rent to non-OPEC countries. Carbon taxes reduce the welfare of OPEC and increase the welfare of non-OPEC countries. Results also show how carbon taxes reduce global emissions, but the effect is small.

Suggested Citation

  • Yan Dong & John Whalley, 2009. "A Third Benefit of Joint Non-OPEC Carbon Taxes: Transferring OPEC Monopoly Rent," CESifo Working Paper Series 2741, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2741
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp2741.pdf
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    References listed on IDEAS

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    1. Yan Dong & John Whalley, 2010. "Carbon, Trade Policy and Carbon Free Trade Areas," The World Economy, Wiley Blackwell, vol. 33(9), pages 1073-1094, September.
    2. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-948, July.
    3. Dong, Yan & Whalley, John, 2011. "Carbon motivated regional trade arrangements: Analytics and simulations," Economic Modelling, Elsevier, vol. 28(6), pages 2783-2792.
    4. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 287-333.
    5. Terkla, David, 1984. "The efficiency value of effluent tax revenues," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 107-123, June.
    6. Cai, Yuezhou & Riezman, Raymond & Whalley, John, 2013. "International trade and the negotiability of global climate change agreements," Economic Modelling, Elsevier, vol. 33(C), pages 421-427.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Larry Karp & Sauleh Siddiqui & Jon Strand, 2016. "Dynamic Climate Policy with Both Strategic and Non-strategic Agents: Taxes Versus Quantities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 135-158, September.
    2. Yu-Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(s1), pages 290-317, July.

    More about this item

    Keywords

    carbon taxes; OECD; monopoly rent;

    JEL classification:

    • Z19 - Other Special Topics - - Cultural Economics - - - Other

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