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Carbon Taxes, Oil Monopoly and Petrodollar Recycling

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  • Waldemar Marz

    ()

  • Johannes Pfeiffer

    ()

Abstract

We analyze the effects of an announced future carbon tax increase on the extraction behavior of a monopolistic supplier of a scarce fossil energy resource like oil in a two country, two period general equilibrium model with symmetric and homothetic preferences and no extraction costs. Based on the monopolist’s strategic consideration of the interplay between the resource and the capital market, and especially of the effects of the extraction decision on the return on petrodollar financed capital investments we identify and analyze a new channel for the reversal of the green paradox, a major concern regarding carbon taxation. We employ a numerical simulation and a sensitivity analysis with regard to the model parameters to evaluate the prevalence of such a reversal of the green paradox and find that it robustly arises under a wide range of reasonable parameter settings.

Suggested Citation

  • Waldemar Marz & Johannes Pfeiffer, 2015. "Carbon Taxes, Oil Monopoly and Petrodollar Recycling," ifo Working Paper Series 204, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
  • Handle: RePEc:ces:ifowps:_204
    as

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    References listed on IDEAS

    as
    1. van der Meijden, Gerard & van der Ploeg, Frederick & Withagen, Cees, 2015. "International capital markets, oil producers and the Green Paradox," European Economic Review, Elsevier, vol. 76(C), pages 275-297.
    2. Berg Tim Oliver, 2017. "Forecast accuracy of a BVAR under alternative specifications of the zero lower bound," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(2), pages 1-29, April.
    3. John Hassler & Per Krusell & Conny Olovsson, 2010. "Oil Monopoly and the Climate," American Economic Review, American Economic Association, vol. 100(2), pages 460-464, May.
    4. Frederick van der Ploeg, 2015. "Unilateral Carbon Taxation in the Global Economy: The Green Paradox and carbon leakage revisted," OxCarre Working Papers 157, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    5. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-661, September.
    6. Arye L. Hillman & Ngo Van Long, 1985. "Monopolistic Recycling of Oil Revenue and Intertemporal Bias in Oil Depletion and Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 597-624.
    7. Bonanno, Giacomo, 1990. " General Equilibrium Theory with Imperfect Competition," Journal of Economic Surveys, Wiley Blackwell, vol. 4(4), pages 297-328.
    8. Thomas Eichner & Rüdiger Pethig, 2011. "Carbon Leakage, The Green Paradox, And Perfect Future Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, August.
    9. Marz, Waldemar & Pfeiffer, Johannes, 2015. "Resource Market Power and Levels of Knowledge in General Equilibrium," MPRA Paper 63357, University Library of Munich, Germany.
    10. van der Ploeg, Frederick, 2016. "Second-best carbon taxation in the global economy: The Green Paradox and carbon leakage revisited," Journal of Environmental Economics and Management, Elsevier, vol. 78(C), pages 85-105.
    11. Svenn Jensens & Kristina Mohlin & Karen Pittel & Thomas Sterner, 2015. "An Introduction to the Green Paradox: The Unintended Consequences of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 246-265.
    12. Moussavian, Mohammed & Samuelson, Larry, 1984. "On the extraction of an exhaustible resource by a monopoly," Journal of Environmental Economics and Management, Elsevier, vol. 11(2), pages 139-146, June.
    13. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 360-394, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    green paradox; monopoly; fossil energy resources; general equilibrium; capital market.;

    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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