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Petrodollar Recycling, Oil Monopoly, and Carbon Taxes

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  • Waldemar Marz

    ()

  • Johannes Pfeiffer

    ()

Abstract

We identify a new general equilibrium transmission channel of climate policy on oil extraction, assuming an oil monopolist who accounts for the implications of oil supply on her capital asset returns. Policy-induced adjustments in asset holdings lead to postponement of extraction under a wide range of reasonable parameter settings: present extraction can drop considerably for a moderately high carbon tax. For endogenous exploration, a decrease in first-period extraction and in cumulative extraction at the same time is also possible. This contrasts with the literature on supply-side effects of climate policy which neglects these capital market implications. Concerns about carbon taxes arising from impeding climate-damaging supply reactions are alleviated, while taxing asset returns may induce acceleration of extraction.

Suggested Citation

  • Waldemar Marz & Johannes Pfeiffer, 2015. "Petrodollar Recycling, Oil Monopoly, and Carbon Taxes," 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

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    1. Bonanno, Giacomo, 1990. " General Equilibrium Theory with Imperfect Competition," Journal of Economic Surveys, Wiley Blackwell, vol. 4(4), pages 297-328.
    2. Waldemar Marz & Johannes Pfeiffer, 2015. "Resource Market Power and Levels of Knowledge in General Equilibrium," ifo Working Paper Series 197, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. 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.
    4. 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.
    5. 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.
    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. 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.
    8. 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.
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    11. 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.
    12. 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.
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    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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